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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended March
31, 1996 or
Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______________________ to _______________________.
Commission file number: 0-27266
WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3154957
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Kendall Point Drive
Oswego, Illinois 60643
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 820-1919
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The registrant estimates that the aggregate market value of the registrant's
Class A Common Stock held by non-affiliates on June 27, 1996 (based upon an
estimate that 36.2% of the shares are so owned by non-affiliates and upon the
average of the closing bid and asked prices for the Class A Common Stock on the
Nasdaq National Market on that date) was approximately $469,840,925.
Determination of stock ownership by non- affiliates was made solely for the
purpose of responding to this requirement and registrant is not bound by this
determination for any other purpose.
As of June 27, 1996, 14,687,848 shares of the registrant's Class A Common Stock
were outstanding and 21,617,134 shares of registrant's Class B Common Stock
(which automatically converts into Class A Common Stock upon a transfer of such
stock except transfers to certain permitted transferees) were outstanding.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for 1996 Annual Meeting of Stockholders (Part III).
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Unless otherwise indicated, the information presented in this Annual
Report on Form 10-K for the fiscal year ended March 31, 1996 (the "Form 10-K"),
has been adjusted to reflect the two-for-one stock split in the form of a 100%
dividend of both classes of Common Stock of Westell Technologies, Inc.
("Westell" or the "Company") paid on June 7, 1996 to holders of record on May
20, 1996.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," such as those
concerning future product sales and gross margins, certain statements contained
under "Business," such as statements concerning the development and
introduction of new products and the development of alternative Digital
Subscriber Line ("DSL") technology, and other statements contained in this
Form 10-K regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the rules promulgated pursuant to the
Securities Act of 1933, as amended (the "Securities Act")). Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed in or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed herein. The Company undertakes
no obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. BUSINESS
Since 1980, Westell has developed telecommunications products that
address the needs of telephone companies ("telcos") to upgrade their existing
network infrastructures continually in order to deliver advanced data and voice
services to their customers. The Company designs, manufactures, markets and
services a broad range of digital and analog products used by telcos to deliver
services primarily over existing copper telephone wires that connect end users
to a telco's central office (the "local access network"). The Company also
markets its products and services to other telecommunications and information
service providers seeking direct access to end-user customers. The Company's
principal customers include all seven Regional Bell Operating Companies (the
"RBOCs") as well as GTE, British Telecom and Telecom Italia. In addition,
Westell sells products to several other entities, including public telephone
administrations located outside the U.S., independent domestic local exchange
carriers, competitive access providers, interexchange carriers and the U.S.
federal government.
Westell is a leading developer and provider of broadband
telecommunications access systems using an emerging technology known as
Asymmetric Digital Subscriber Line ("ADSL"). ADSL systems will allow telcos to
provide interactive multimedia services over existing copper wire, thus
offering a more cost-effective and faster deployment alternative to fiber optic
cable in the "last mile" of the local access network. ADSL systems enable
interactive multimedia services such as advanced data dialtone applications,
including high speed Internet access, local area network ("LAN") extension,
telecommuting and medical imaging, as well as emerging video dialtone
applications, including video-on-demand, distance learning, video conferencing
and work at home. Currently, over 30 domestic and international telcos,
including Bell Atlantic, GTE, US West !nterprise, British Telecom and Telecom
Italia, are conducting technical or marketing trials for new interactive
multimedia services that rely on the Company's ADSL systems. All of these ADSL
trials began in 1995 and 1996, except for the Bell Atlantic trial which
commenced in 1993. The Company is unable to predict the outcome of such trials
or when such trials will be completed. See "-- Marketing, Sales and
Distribution."
INDUSTRY OVERVIEW
Since the early 1980s, the telecommunications industry has experienced
an increased demand for and growth in the number of services provided to end
users. Not only has traditional telephone voice traffic
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increased, but the growth of personal computers and modems has created
significant data traffic from a wide variety of services such as fax, e-mail
and online access. For example, businesses with multiple locations increasingly
require geographically dispersed LANs to be linked in sophisticated wide area
networks ("WANs") that must handle large volumes of telecommunications traffic.
In addition, the Internet has expanded beyond its traditional data transmission
and file-sharing functions to offer e-mail, new data sources, commercial
services, transaction processing, independent bulletin boards, the World Wide
Web and voice transmission. Business and residential based end-user demand for
telecommunications services is expected to continue to grow as telcos and
information service providers increase their offerings of new interactive
multimedia services, including data dialtone applications such as high speed
Internet access, LAN extension, medical imaging and telecommuting, and video
dialtone applications such as video-on-demand, distance learning, video
conferencing and work at home. To handle the growing volume of data
communications traffic and to provide faster and higher quality transmission,
telcos and information service providers have continually upgraded the capacity
and speed of their networks.
Deregulation. Deregulation of the telecommunications industry has
increased the number of competitors in the local access network and has further
accelerated telcos' needs to upgrade their networks and increase their
telecommunications service offerings. For example, alternative access providers
have deployed fiber and wireless systems for high volume data transmission to
business centers and other high density metropolitan areas. As alternative
access providers' costs decline and deregulation continues, alternative access
providers are likely to create additional competition for telcos by developing
new products and services for end users. Recent deregulation also allows
interexchange carriers, information service providers and cable operators to
deploy competitive services in the local access network. Currently available
high speed cable modems will enable cable operators to provide data
transmission services to customers in addition to standard television services.
Cable operators are seeking to compete with telcos in the delivery of high
speed digital transmission as well as traditional local telephone service. In
addition, this trend toward continued deregulation of the telecommunications
industry may further decrease the current restrictions and regulations
affecting telcos' ability to provide nontraditional telco services such as
video-on-demand.
Existing Telco Infrastructure. Traditionally, telcos have provided
local access services using analog technology, which does not have the
bandwidth or functionality to support the growing demand for new services over
telephone wires. In contrast, digital technology permits high speed, high
volume and reliable data transmission by reducing all forms of images, sounds
and data to digital signals, thereby increasing the variety and bandwidth of
services that can be provided in the local access network. To handle the
growing demand for digital traffic, telcos have deployed broadband optical
fiber in their network "backbone" interconnecting their geographically
dispersed central offices. Telcos have also used fiber to interconnect their
central offices to high density telecommunications traffic areas. Deployment of
fiber in the local access network connecting end users to a telco's central
office, however, has proven labor intensive, complicated, time consuming and
expensive. Consequently, this "last mile" of the telco's network still
predominantly consists of low speed analog transmission over copper wire.
Given the challenges of widespread replacement of copper wire in the
local access network, telcos have turned to systems suppliers for
cost-effective technology that can expand the ability of the existing copper
wire infrastructure to accommodate high speed digital transmission. Digital
conversion of the analog network has been built on the multiplexing format
known as T-1 (E-1 in most countries outside of the U.S.). T-1/E-1 transmission
utilizes a data rate of 1.544 (2.048 outside the U.S.) Megabits per second
("Mbps"), which can be aggregated or subdivided into channels to deliver data
communication services tailored to specific end-user requirements.
Existing and Emerging Technologies. Systems suppliers have developed,
and are currently developing, numerous products that have increased the
quality, speed and cost-effectiveness of digital transmission over copper wire.
These products include:
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ISDN. In the early 1980s, telcos introduced basic rate Integrated
Service Digital Network ("ISDN") technology, which provides digital
transmission at rates up to 144 Kilobits per second ("Kbps") as well
as a means to aggregate multiple channels into a single higher speed
link over copper wire. Telcos have only recently begun to widely
deploy basic rate ISDN technology with the emergence of nationwide
standards and a decline in costs for basic rate ISDN service. The
market penetration of existing basic rate ISDN technology, however,
may be constrained due to its limited bandwidth, which does not allow
telcos to offer advanced data and video dialtone services, its
inability to provide existing telephone service over the same wire and
its relatively high installation costs.
HDSL. In 1992, telcos introduced High bit-rate Digital Subscriber Line
("HDSL") technology, which reduces the costs of installing and
upgrading T-1/E-1 service. Traditional T-1/E-1 service requires the
installation of one or more mid-span repeaters for line lengths
greater than 3,000 feet and the expensive and time consuming
"conditioning" of copper wire. HDSL increases the non-repeatered
distance of T-1/E-1 transmission (1.544/2.048 Mbps) over two pairs of
copper wires to approximately 12,000 feet, which reduces the need for
repeaters and conditioning. As a result, telcos are deploying HDSL
technology in their local access networks where the end user requires
only one digital communication stream and does not require a telephone
channel to run on the same wire.
ADSL. An emerging technology known as ADSL permits even greater
digital transmission capacity over copper wire than is possible with
existing HDSL and ISDN products. ADSL technology allows the
simultaneous transmission of data at speeds from 1.5 to 8.0 Mbps in
one direction and from 64 to 640 Kbps in the reverse direction, while
also providing standard analog telephone service over a single pair of
copper wires at distances of up to 18,000 feet, depending on the
transmission rate. ADSL products enable telcos to provide interactive
multimedia services over copper wire, such as high speed Internet
access, video-on-demand, medical imaging, video conferencing and
telecommuting, while simultaneously carrying traditional telephone
services. A new ADSL technology called Very High Speed Digital
Subscriber Line ("VDSL") is currently being developed that will
increase both the downstream and upstream data transmission capacity
to up to 52.0 Mbps and 2.0 Mbps, respectively.
RADSL and SDSL. Products and technologies continue to be developed to
expand the local access network's capability to transmit high speed
digital data as well as reduce telcos' costs in providing traditional
analog services. To increase utilization of broadband copper wire
transmission, manufacturers are currently developing Rate Adaptive DSL
("RADSL") systems that will automatically adjust the digital
transmission rate based upon the quality of the copper telephone wire
and the distance transmitted in order to maximize the digital capacity
of the wire and to facilitate the installation of ADSL systems.
Symmetric Digital Subscriber Line ("SDSL") technology is being
designed and developed which, in contrast to current HDSL and ISDN
systems, can provide both a digital and an analog channel over a
single pair of copper wires.
THE WESTELL SOLUTION
Westell designs, manufactures and markets a broad range of
telecommunications products that provide its telco customers with dependable,
high quality transmission systems in the local access network. The Company
believes that its extensive experience in the local access network
strategically positions it to identify product applications that will enhance
existing telco services as well as expand telco service offerings to end users.
Westell is a leading provider of ADSL systems, which allow telcos to provide
high speed interactive multimedia services over existing copper wire, thus
offering a cost-effective alternative to the deployment of fiber optic cable in
the "last mile" of the local access network. Westell's ADSL systems also enable
telcos to use their existing infrastructures to respond to competition from
cable operators that may offer these services using cable modems. The Company
continues to aggressively develop products based
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upon new technologies, such as ADSL and SDSL, as well as enhance its existing
product offerings in the analog, digital and DSL markets. In the last decade,
Westell has introduced a number of intelligent products that enable telcos to
increase productivity and transmission quality over their local access networks
through self-diagnostic and performance monitoring applications. For example,
in 1986, Westell introduced NIUs, which provide maintenance and performance
monitoring capabilities to aid telcos in the provisioning and maintenance of
T-1 lines. Westell also continues to focus on the relationships that it has
built with its customers during its 16-year history. Rapid technological
evolution has provided the Company with an opportunity to forge strategic
alliances with customers and technology suppliers in order to accelerate the
time to market for new products. In addition, the Company continues to redefine
its products to increase their functionality and interface capacity with other
products while decreasing product costs in order to achieve mass deployment of
ADSL systems and to facilitate the numerous applications of high speed digital
transmission required by telcos' consumers.
STRATEGY
Westell's objective is to be a global leader in providing low cost and
high quality local access network products that enable telcos to meet the
growing demand for digital service offerings. Key elements of the Company's
strategy include:
Leverage Global Leadership in ADSL Market. The Company seeks to
leverage its leadership position in the ADSL market to capture
emerging global market opportunities as telcos expand their
interactive multimedia, data and video dialtone services. Currently
over 30 domestic and international telcos, including Bell Atlantic,
GTE, US West !nterprise, British Telecom and Telecom Italia, are
conducting technical or marketing trials for new services that rely on
the Company's ADSL systems. The Company is currently defining
broadband access systems based on RADSL and SDSL technology, which are
expected to complement the Company's ADSL systems and the Company
believes will have performance advantages over alternative ISDN and
HDSL systems.
Deliver Mass Market Solutions for High Speed Online and Internet
Access Services. Due to the rapid emergence and end-user interest in
online information services, the Internet and the World Wide Web, the
Company intends to work with telcos and information service providers
to deliver advanced, high speed data dialtone solutions for these
applications as well as additional services, such as video dialtone
applications, as they become available. To facilitate mass market
deployment of its ADSL systems, the Company is undertaking a program
to increase the level of integration among its products and improve
economies of scale. The Company seeks to expand the development of
ADSL systems in the consumer market by creating ADSL software and
hardware interfaces that support multiple consumer applications.
Continue to Create Strategic Relationships and Alliances. The Company
intends to continue to forge strategic relationships and alliances
with key customers and suppliers. The Company has established
strategic relationships to facilitate the Company's ability to develop
products that anticipate customers' product needs. For example,
Westell has entered into an alliance with Microsoft Corporation
whereby Westell's FlexCAP ADSL modems will be compatible with
Microsoft Corporation's Windows NT(R) Server Network. In addition,
Westell's relationships with technology leaders such as AT&T Paradyne
and Analog Devices, Inc. enable the Company to obtain emerging
technologies required in its product development. These relationships
allow the Company to focus on product applications and to develop
products using multiple emerging technologies.
Maintain Core Business Strength and Develop New Products. The Company
has extensive experience in developing and marketing products for the
local access network and has achieved a leading position in T-1
network interface and performance monitoring units. The Company
intends to
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continue to capitalize upon its DS0 and DS1 product development
experience and customer relationships to develop cost-effective and
implementable intelligent products for the local access network. The
Company is committed to developing products that are compatible with
existing equipment and technologies, thereby enabling open
architecture network infrastructures. Westell intends to continue to
develop products in its core business, such as SmartLink, which
enhance the efficiency of high speed transmission over copper wire,
and QuadJack, which is one of the Company's first fiber optic
products.
Expand International Presence. The Company devotes significant
resources to expanding its international business. Many of Westell's
products, including its ADSL and HDSL systems, support E-1 standards,
the predominant standard for digital transmission outside of North
America. Westell has offices in Canada, England and Hong Kong and a
distribution and service network that supports customers in more than
40 countries. The Company intends to continue to expand its
international distribution arrangements and strategic relationships in
an effort to increase its international presence.
Commitment to Product Quality, Customer Service and Low-Cost
Manufacturing. The Company benefits from a strong reputation for
providing quality products and responsive service. Westell works
closely with customers to provide technical consulting, maintenance
and research assistance. Westell's continuous quality improvement is
demonstrated by the achievement of the British Approvals Board for
Telecommunications production quality assurance approval, Bellcore's
Customer Supplier Quality Program ("CSQP") registration and the ISO
9001 registration of its domestic operations. The Company believes
that its commitment to product quality and customer service will
enhance its efforts to reduce production cycle times and product
costs.
PRODUCTS
The Company offers a broad range of products that facilitate the
transmission of high speed digital and analog data between a telco's central
office and end-user customers. These products can be categorized into three
groups: (i) products based on DSL technologies, including ADSL and HDSL systems
("DSL products"), (ii) Digital Signal Hierarchy Level 1 based products, which
are used by telcos to enable high speed digital T-1 transmission at
approximately 1.5 Mbps and E-1 transmission at approximately 2.0 Mbps ("DS1
products"), and (iii) Digital Signal Hierarchy Level 0 based products, which
are used by telcos to deliver digital services at speeds ranging from
approximately 2.4 to 64 Kbps and analog services over a 4 Kilohertz bandwidth
("DS0 products").
The prices for the products within each of the product groups of the
Company vary based upon volume, customer specifications and other criteria and
are subject to change due to competition among telecommunications
manufacturers. The Company's DSL products command higher average sales prices
than its DS0 and DS1 products but represent fewer of the units sold by the
Company. The following table sets forth the revenues from Westell's three
product groups for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------
1994 1995 1996
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(in thousands)
<S> <C> <C> <C>
DSL products . . . . . . . . . . . . . . $ 1,706 $15,235 $20,299
DS1 products . . . . . . . . . . . . . . 31,980 40,754 44,027
DS0 products . . . . . . . . . . . . . . 10,251 8,979 9,332
</TABLE>
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DSL Products. The Company is a leading developer and provider of DSL
products and transmission systems that utilize emerging ADSL technology. DSL
technology is also used for HDSL and SDSL products. Products based upon ADSL
technology can be used by telcos to provide interactive multimedia services,
including data and video dialtone applications, while simultaneously providing
traditional telephone services over existing copper wire. Products based upon
ADSL technology enable telcos to deliver these interactive multimedia services
more quickly and cost-effectively than deploying broadband fiber networks in
the "last mile" of the local access network. The Company's revenues from HDSL
products to date have not been significant.
The following table sets forth a representative list of the Company's
current DSL products and their applications:
<TABLE>
<CAPTION>
Year
Product Description Applications Introduced
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<S> <C> <C> <C>
FlexCAP ADSL . . . . ADSL transport system that Interactive multimedia, video-on- 1993
delivers 1.5 or 2.0 Mbps of demand, live broadcast, high speed
digital bandwidth to end users. Internet access and LAN
Uses carrierless amplitude/phase interconnect, while providing
modulation ("CAP") technology. simultaneous standard telephone
service.
InterAccess HDSL . . HDSL system that supports 1.5 or T-1 or E-1 service provisioning. 1994
2.0 Mbps bi-directional services Increases repeaterless distance to
over two pairs of copper wires. up to 12,000 feet over two pairs
of copper wires.
AccessVision . . . . Network management system for DSL Management and control of DSL 1995
transport systems. transport systems.
</TABLE>
ADSL technology permits the transmission of three communication
streams of varying speeds over existing copper wire. The non-repeatered
transmission distances of current ADSL systems vary based upon the data rate,
with a maximum distance of 18,000 feet. The first communication stream provides
a one way high speed digital data transmission from a server, such as may be
found on the Internet or in a stored video program network, to an end user. The
second communication stream provides medium speed bi-directional digital data
transmission to and from the end user which enables the end user to respond and
interact with the incoming high speed data stream. The third communication
stream provides traditional analog voice transmission capabilities permitting
simultaneous telephone service.
Westell's FlexCAP ADSL system currently consists of (i) a high speed
uni-directional digital data communication stream at rates up to 1.5 or 2.0
Mbps, (ii) a bi-directional control and digital data communication stream at
rates up to 64 Kbps and (iii) a traditional analog telephone service line.
This ADSL system can support high speed data applications, such as high speed
Internet access and remote LAN access, and video-on-demand services over
existing telephone lines. In late calendar year 1996, Westell plans to
introduce rate adaptive FlexCAP ADSL systems using RADSL technology which will
increase the bi-directional capacity to up to 384 Kbps.
The Company also markets other products that facilitate telcos'
incorporation of ADSL technology into their network infrastructures. Westell
has worldwide distribution rights to market AccessVision, an open systems
standards-based software management system that monitors and controls ADSL
equipment and the
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interactive services transmitted through ADSL technology, which was developed
by Atlantech Technologies, Ltd. Westell's distribution rights to AccessVision
expire in December 2001.
Currently over 30 telcos have purchased the Company's ADSL systems to
conduct technical and marketing trials for new interactive multimedia
applications. Bell Atlantic and British Telecom are in the process of
connecting over 2,000 customers to Westell's FlexCAP ADSL systems. Telecom
Italia has connected a total of 1,000 customers to Westell's FlexCAP ADSL
systems in Rome and Milan. ADSL applications in these trials include
interactive video-on-demand, music-on-demand, catalog shopping, financial
services, games-on-demand, television-on-demand and long distance learning
services. Internationally, Westell's ADSL systems have been purchased by
telephone administrations in Australia, Belgium, Canada, Hong Kong, Italy,
Norway, Singapore, South Korea, Spain, Switzerland and the United Kingdom.
The Company's HDSL systems eliminate the need for telcos to condition
the copper wire and to install line repeaters for distances of up to 12,000
feet. Westell's HDSL systems also contain performance and monitoring functions
with remote accessibility that may supplant the need for repeaters and NIUs.
Westell currently sells its HDSL systems to the federal government and markets
its InterAccess HDSL systems outside the U.S.
The Company's future growth is substantially dependent upon whether
DSL technology, particularly as it relates to ADSL systems, gains widespread
commercial acceptance by telcos. Since 1992, the Company has invested, and
expects to continue to invest, significant resources in the development of ADSL
technology. However, the market for products using ADSL technology is only now
emerging as telcos have recently begun to consider implementing ADSL technology
in their networks. As a result, revenues from ADSL systems have been difficult
for the Company to forecast, and the Company's overall results of operations
have experienced substantial fluctuations in recent periods. The timing of
orders and shipments of ADSL systems can have a significant impact on the
Company's revenues and results of operations. For example, the Company's
revenues increased by $10.4 million in the fourth quarter of fiscal 1995
compared to the third quarter of fiscal 1995 due primarily to a large shipment
of ADSL systems to one customer. The Company has continued to ship ADSL systems
but at a reduced level from that of the fourth quarter of fiscal 1995, which
has resulted in a reduction in quarterly revenues when compared to the
preceding quarter in three of the four quarters in fiscal 1996. Due to the
Company's significant ongoing investment in ADSL technology, the Company
anticipates losses in at least the first and second quarters of fiscal 1997.
The Company's ability to achieve profitability or revenue growth in the future
will depend upon market acceptance of the Company's ADSL systems and the
development and market acceptance of other DSL products introduced by the
Company. To date, telcos have deployed the Company's ADSL systems solely for
technical and marketing trials and have not yet begun commercial deployment.
The Company is unable to predict whether such technical and marketing trials
will be successful and when commercial deployment will begin, if at all.
The RBOCs and the Company's other customers are significantly larger
than, and are able to exert a high degree of influence over, the Company. Prior
to selling its products to telcos, the Company must undergo lengthy approval
and purchase processes. Evaluation can take a year or more for complex products
based on new technologies such as ADSL. Historically, telcos have been cautious
in implementing new technologies. Telcos' deployment of ADSL technology may be
prevented or delayed by a number of factors, including telcos' lengthy product
approval and purchase processes, telcos' decisions to defer product orders in
anticipation of new product developments, cost, regulatory barriers that
prevent or restrict telcos from providing interactive multimedia services, the
lack of demand for interactive multimedia services, the lack of sufficient
programming for interactive multimedia services, the availability of
alternative technologies, such as ISDN, cable modems and optical fiber, and
telco policies that favor the use of such alternative technologies over ADSL
technology. As a result of these factors, there can be no assurance that telcos
will pursue the deployment of products using ADSL technology. Even if telcos
adopt policies favoring full-scale implementation of ADSL technology, there is
no assurance that sales of the Company's ADSL systems will
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become significant or that the Company will be able to successfully introduce
on a timely basis or achieve sales of ADSL systems and other products based
upon DSL technology planned for future introduction. Due to increased
competition, low barriers to entry, product pricing pressures and new product
introductions in the Company's core DS0 and DS1 markets, these DS0 and DS1
product groups are not expected to generate sufficient revenues or profits to
offset any losses that the Company may experience due to a lack of sales of
ADSL systems and other DSL products currently under development. As a result,
if telcos fail to deploy the Company's ADSL systems, and the Company therefore
does not receive significant revenues from ADSL sales, then the Company's
business and results of operations will be materially adversely affected and
there can be no assurance that the Company will achieve profitability in the
future.
DS1 Products. Westell's DS1 products provide telcos with
cost-effective solutions to transport, maintain and improve the reliability of
T-1 services over copper and fiber lines in the local access network.
The following table sets forth a representative list of the Company's
DS1 products and their applications:
<TABLE>
<CAPTION>
Year
Product Description Applications Introduced
- ---------------------- ------------------------------------ ----------------------------------- -------------
<S> <C> <C> <C>
NIU . . . . . . . . . Network Interface Unit providing Facilitates the maintenance of T-1 1986
for maintenance of T-1 facilities. facilities to access services such
as frame relay and primary rate
ISDN.
NIU-PM . . . . . . . Network Interface Unit with Facilitates the maintenance and 1992
Performance Monitoring that stores provides performance monitoring of
information for seven days. T-1 facilities to access services
such as frame relay and primary
rate ISDN.
QuadJack . . . . . . Transport system that provides Provides transport and facilitates 1994
transmission medium for one to maintenance for high speed digital
four DS1 signals over fiber. circuits over fiber optic
facilities.
SmartLink . . . . . . Automatic Protection System for up Increases the reliability of T-1 1995
to 8 T-1 customer lines. and other high speed digital
facilities. Used for critical circuits
such as those used to provide
service to cellular telephone sites.
</TABLE>
Many of the Company's DS1 products, such as its NIUs, smart line
repeaters, office repeaters and T-1 maintenance service switches, function to
monitor and control the quality of digital transmission over copper wire. The
Company's NIU products allow telcos to monitor transmission conditions and to
detect performance problems in circuits from remote locations. All of the RBOCs
and GTE have purchased the Company's NIUs. Westell also developed and
co-patented with Ameritech a second generation NIU known as NIU-PM which
monitors and stores information for seven days so that telcos can study and
detect any irregular operations and performance of a line over time. The
Company customizes its NIU products to meet customers' particular needs. Sales
of NIU products represented 45.5% of the Company's revenues in fiscal 1996.
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The Company's SmartLink Automatic Protection Switch system ("APS")
monitors up to eight customer T-1 channels and allows telcos to provide
uninterrupted service in the event of a fault of any channel. Once the APS
detects a fault in one channel, it automatically places that signal on a
protection channel and generates a notification alarm at the telco's central
office, thereby significantly reducing network downtime and costly data
interruption. APS is currently being deployed by two RBOCs and is in field
trials with an additional RBOC.
Westell's QuadJack product is specifically designed to provide
transmission for one to four customer T-1 signals over fiber lines, which
results in a cost-effective means of providing T-1 services to small business
customers who typically do not require the standard 28 or more T-1 lines that
fiber-based transmission delivers to an end user.
DS0 Products. Westell's DS0 products are used by telcos to deliver
digital and analog service across copper wire in the local access network at
speeds ranging from approximately 2.4 to 64 Kbps for digital transmission or 4
Kilohertz for analog transmission.
The following table sets forth a representative list of the Company's
DS0 products and their applications:
<TABLE>
<CAPTION>
Year
Product Description Applications Introduced
- --------------------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
DST . . . . . . . . . Data Station Termination unit Point of sale, lottery and other 1983
providing maintenance and analog data.
equalization of data transmission.
Tandem . . . . . . . Provides DS0 and analog channel Special services inter-office 1987
cross connections in tandem D4 cross connections.
environment.
TwinLine . . . . . . Allows second channel to be added Business and second lines. 1994
to a single pair of copper wires.
SSTP . . . . . . . . Special Services Transport Pipe Analog data, video conferencing 1994
employs ISDN technology to deliver and digital data service.
multiple special services over a
single pair of copper wires.
Campus Loopback
Unit . . . . . . . . Maintenance loopback for analog Private data networks. 1995
data.
</TABLE>
In some circumstances, analog data lines are the only practical way to
add a terminal to an existing analog data network. Consequently, analog
transmission is often the most economical, most easily installed or the only
service available in certain locations. Westell's DST unit provides the
interface between analog transmission and an end user's modem. The Company's
other DS0 products include voice frequency channel units and mountings, which
are used to provide dedicated analog data lines, smart repeaters, which boost
analog signals, and other products which incorporate performance testing and
monitoring functions designed to improve the quality of analog transmission
over copper wire.
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<PAGE> 11
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that its future success depends on its ability to
maintain its technological leadership through enhancements of its existing
products and development of new products that meet customer needs. Westell
works closely with its current and potential customers as part of the product
development process. The Company regularly customizes products to address
particular customer product needs. For the fiscal years ended March 31, 1995
and 1996, the Company recognized income of $800,000 and $2.6 million,
respectively, for customer sponsored research and development. Research and
development expenses for fiscal 1994, 1995 and 1996 were $7.7 million, $10.8
million and $12.6 million, respectively. To date, all research and development
costs have been charged to operating expense as incurred. From time to time,
development programs are conducted by other firms under contract with the
Company, and related costs are also charged to operations as incurred.
The following table sets forth some of the products under development
by the Company:
<TABLE>
<CAPTION>
Product Description Applications
- -------------------- -------------------------------------- ---------------------------------------
<S> <C> <C>
SuperVision . . . . Broadband access and routing platform Aggregates many DSL facilities providing
for DSL services with ATM multiplexing. efficient network backbone transport.
FlexVision ADSL . . An ADSL transport system that delivers Interactive multimedia, video-on-demand,
1.5, 2.0 or 6.0 Mbps of digital live broadcast, high speed Internet
bandwidth downstream to end users and up access and LAN interconnect, while
to 640 Kbps of bi-directional digital providing simultaneous standard
bandwidth. Uses CAP technology. Used in telephone service.
connection with SuperVision
multiplexers.
EnVision ADSL . . . An ADSL transport system that delivers Interactive multimedia, video-on-demand,
1.5, 2.0, 6.0 or 8.0 Mbps of digital live broadcast, high speed Internet
bandwidth downstream to end users and up access and LAN interconnect, while
to 640 Kbps of bi-directional digital providing simultaneous standard
bandwidth. Uses discrete multi-tone telephone service.
("DMT") technology. Used in connection
with SuperVision multiplexers.
RADSL . . . . . . . Rate Adaptive DSL system that delivers Data dialtone services. Adapts
1.0 to 6.0 Mbps downstream to end users transmission speed to quality of copper
and up to 1.0 Mbps of bi-directional wire and the transmission distance.
digital bandwidth. Uses CAP technology.
Used in connection with SuperVision
multiplexers or FlexCAP platforms.
SDSL . . . . . . . Symmetric Digital Subscriber Line. Used Data dialtone services over a single
in connection with SuperVision pair of copper wires.
multiplexers or FlexCAP platforms.
FlexCAP PC Modem
Card . . . . . . . ADSL PC modem card which can be High speed Internet access and data
installed by an end user in a dialtone services while providing
</TABLE>
- 10 -
<PAGE> 12
<TABLE>
<S> <C>
compatible PC. Delivers 1.5 Mbps simultaneous standard telephone service.
of digital bandwidth to end users Complies with the Intel and Microsoft
and up to 64 Kbps of bi-directional "Plug and Play" standard, so that the
digital bandwidth. Requires FlexCAP PC modem card will be
compatible ADSL systems at telco or automatically configured on
Internet service provider, compatible PCs.
</TABLE>
To provide a more efficient transport of individual DSL facilities
over telephone networks, Westell is developing its SuperVision access
multiplexer. This SuperVision system will aggregate many DSL systems into a
single high speed optical link thereby facilitating the connection between
copper wire digital transmission used in the local access network and the
optical fiber transmission in the network "backbone." In addition, the Company
announced the development of its FlexVision ADSL system that is expected to
provide up to 6.0 Mbps of uni-directional bandwidth supporting multiple
simultaneous video-on-demand channels of information. Westell's current ADSL
systems and its FlexVision system under development are based on CAP
technology. Westell is also developing its EnVision system, which will utilize
DMT technology instead of CAP technology and is expected to provide up to 8.0
Mbps of downstream data and 640 Kbps of bi-directional data transmission as
well as traditional telephone service.
Westell is also focusing on defining products using next generation
DSL technologies such as RADSL and SDSL. RADSL will allow telcos to
automatically adjust the digital transmission rate based upon the quality of
the copper telephone wire and the transmission distance. This rate adaptability
allows telcos to maximize the digital capacity of copper wire and facilitates
installation of ADSL systems, thereby increasing the utilization of poor
quality copper telephone wires which traditionally have required extensive
installation and monitoring. Unlike HDSL, SDSL will enable the transmission of
both a high speed bi-directional digital data communication stream as well as
analog telephone service over a single pair of copper wires. SDSL is expected
to reduce telcos' costs and allow high speed bi-directional services to be
introduced to end users.
The Company currently anticipates that it will introduce the products
listed in the above table in late calendar year 1996 and calendar year 1997.
However, there can be no assurance that the Company will be able to introduce
such products as planned, and the failure of the Company to do so would have a
material adverse effect on the Company's business and results of operations.
In addition, there can be no assurance that the Company's future development
efforts will result in commercially successful products or that the Company's
products will not be rendered obsolete by changing technology, new industry
standards or new product announcements by competitors. The markets for the
Company's products are characterized by intense competition, rapid
technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions and enhancements, and evolving
telco service offerings. If technologies or standards applicable to the
Company's products (or telco service offerings based on the Company's products)
become obsolete or fail to gain widespread commercial acceptance, then the
Company's business and results of operations will be materially adversely
affected. Moreover, the introduction of products embodying new technology, the
emergence of new industry standards or changes in telco services could render
the Company's existing products, as well as products under development,
obsolete and unmarketable. The Company believes that the continued deployment
of new technologies in the U.S., such as HDSL, in the local access network will
adversely affect demand for certain of its existing products such as NIUs,
which accounted for 45.5% of the Company's revenues in fiscal 1996, and that
its future success will largely depend upon its ability to continue to enhance
its existing products and to successfully develop and market new products on a
cost-effective and timely basis. In this regard, most of the Company's current
product offerings apply primarily to the delivery of digital communications
over copper wire in the local access network. While the Company has competed
successfully to date by developing high performance products for transmission
over copper wire, it expects that the increasing deployment of fiber and
wireless broadband transmission in the local access network (each of which uses
a significantly different process of
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<PAGE> 13
delivery) will require the Company to develop new products to meet the demands
of these emerging transmission media.
The Company's past sales and profitability have resulted, to a
significant extent, from its ability to anticipate changes in technology,
industry standards and telco service offerings, and to develop and introduce
new and enhanced products. The Company's continued ability to adapt to such
changes will be a significant factor in maintaining or improving its
competitive position and its prospects for growth. Due to rapid technological
changes in the telecommunications industry, the RBOCs' lengthy product approval
and purchase processes and the Company's reliance on third-party technology for
the development of new products, however, there can be no assurance that the
Company will successfully introduce new products on a timely basis or achieve
sales of new products in the future. In addition, there can be no assurance
that the Company will have the financial and manufacturing resources necessary
to continue to successfully develop new products based on emerging technology
or to otherwise successfully respond to changing technology, industry standards
and telco service offerings.
The Company's product development programs are carried out by
engineers and engineering support personnel based in Aurora, Illinois and
Cambridge, England. The Company's domestic engineering is conducted in
accordance with ISO 9001, which is the international standard for quality
management systems for design, manufacturing and service. The Company's
research and development personnel are organized into product development
teams. Each product development team is generally responsible for sustaining
technical support of existing products, decreasing manufacturing costs,
conceiving new products in cooperation with other groups within the Company and
adapting standard products or technology to meet new customer needs. In
particular, each product development team is charged with implementing the
Company's engineering strategy of reducing product costs for each succeeding
generation of the Company's products in an effort to be a low cost, high
quality provider, without compromising functionality or serviceability. The
Company believes that the key to this strategy is choosing an initial
architecture for each product that enables engineering innovations to result in
future cost reductions. Successful execution of this strategy also requires
that the Company continue to attract and recruit highly qualified engineers.
CUSTOMERS
The Company's principal customers historically have been U.S. telcos.
Since fiscal 1993, the Company has also marketed its products internationally.
The Company's customers include all seven RBOCs, GTE, British Telecom and
Telecom Italia. In addition, Westell sells products to several other entities,
including public telephone administrations located outside the U.S.,
independent domestic local exchange carriers, competitive access providers,
interexchange carriers and the U.S. federal government. International revenues
represented approximately $226,000, $3.7 million and $19.8 million of the
Company's revenues in fiscal 1994, 1995 and 1996, respectively, accounting for
0.4%, 5.0% and 23.8% of the Company's revenues in such periods.
- 12 -
<PAGE> 14
The following table lists certain customers of the Company and end
users of the Company's products:
<TABLE>
<CAPTION>
Domestic International
------------------- ---------------------
<S> <C>
Ameritech Belgacom
Bell Atlantic Bell Canada
Bell South British Telecom
GTE Entel Chile
NYNEX Hong Kong Telecom
Pacific Telesis Korea Telecom
SBC Communications Singapore Telecom
Sprint Swiss Telecom
US West Telecom Italia
Telecom Malaysia
Telefonica Spain
Telenor
Telecom Australia
</TABLE>
Sales to the RBOCs and British Telecom accounted for 72.6%, 74.3% and
64.9% of the Company's revenues in fiscal 1994, 1995 and 1996, respectively.
The Company's future success will depend significantly upon the timeliness and
size of future purchase orders from the RBOCs, the product requirements of the
RBOCs, the success of the RBOCs' services that use the Company's products and
the financial and operating success of these providers. Sales to Ameritech,
British Telecom and U.S. West accounted for 12.0%, 11.1% and 10.4% of the
Company's revenues in fiscal 1996, respectively.
The Company depends, and will continue to depend, on the RBOCs and
other independent local exchange carriers for substantially all of its
revenues. Sales to the RBOCs accounted for 72.6%, 74.3% and 53.8% of the
Company's revenues in fiscal 1994, 1995 and 1996, respectively. Consequently,
the Company's future success will depend significantly upon the timeliness and
size of future purchase orders from the RBOCs, the product requirements of the
RBOCs, the financial and operating success of the RBOCs, and the success of the
RBOCs' services that use the Company's products. Any attempt by an RBOC or
other telco to seek out additional or alternative suppliers or to undertake, as
permitted under applicable regulations, the internal production of products
would have a material adverse effect on the Company's business and results of
operations. In addition, the Company's sales to its largest customers have in
the past fluctuated and in the future are expected to fluctuate significantly
from quarter to quarter and year to year. The loss of such customers or the
occurrence of such sales fluctuations would materially adversely affect the
Company's business and results of operations. Bell Atlantic and NYNEX and
Pacific Telesis and SBC Communications, respectively, have recently announced
their intent to merge. The Company is unable to predict what effect either of
these mergers, if completed, would have on the demand for the Company's ADSL
systems or other products.
The RBOCs and the Company's other customers are significantly larger
than, and are able to exert a high degree of influence over, the Company. Prior
to selling its products to telcos, the Company must undergo lengthy approval
and purchase processes. Evaluation can take as little as a few months for
products that vary slightly from existing products or up to a year or more for
products based on new technologies such as ADSL. Accordingly, the Company is
continually submitting successive generations of its current products as well
as new products to its customers for approval. The length of the approval
process can vary and is affected by a number of factors, including the
complexity of the product involved, priorities of telcos, telcos' budgets and
regulatory issues affecting telcos. The requirement that telcos obtain FCC
approval for certain new telco services prior to their implementation has in
the past delayed the approval process. There can be
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<PAGE> 15
no assurance that such delays, if experienced in the future, will not have a
material adverse affect on the Company's business and results of operations.
While the Company has been successful in the past in obtaining product
approvals from its customers, there can be no assurance that such approvals or
that ensuing sales of such products will continue to occur. Even if demand for
the Company's products is high, the RBOCs have sufficient bargaining power to
demand low prices and other terms and conditions that may materially adversely
affect the Company's business and results of operations.
MARKETING, SALES AND DISTRIBUTION
The Company sells its products in the U.S. principally through its
domestic field sales organization. The Company markets its products
internationally in over 40 countries under various distribution arrangements
that include OEM agreements, technology licenses and distributors supported by
partners and internationally based sales personnel. The Company's field sales
organizations and distributors receive support from internal marketing, sales
and customer support groups. As of March 31, 1996, the Company's marketing,
sales and distribution programs were conducted by 141 employees.
International revenues represented 5.0% and 23.8% of the Company's
revenues in fiscal 1995 and 1996, respectively. The Company's international
operations are based in Tampa, Florida and are also conducted through business
operations in Ottawa, Canada, Cambridge, England, Hong Kong and Singapore, and
a distribution and service network that supports customers in more than 40
countries. The Company expects to continue to pursue international market
opportunities by focusing primarily on sales of DSL products in international
markets. The Company believes that there is a greater demand for DSL products
in international markets compared to DS0 and DS1 products due to a growing
demand in foreign countries for services such as data dialtone that require
high speed digital transmission.
The Company believes that international revenues will represent a
significant percentage of revenues in the future. Due to its export sales, the
Company is subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements, foreign currency
fluctuations which could result in reduced revenues or increased operating
expenses, tariffs and trade barriers, potentially longer payment cycles,
difficulty in accounts receivable collection, foreign taxes, and the burdens of
complying with a variety of foreign laws and telecommunications standards. The
Company's contracts with its international customers are typically denominated
in foreign currency and any decline in the value of such currency could have a
significant impact on the Company's business and results of operations. For
example, in fiscal 1996, the Company incurred a $270,000 transaction loss on
receivables due to foreign currency fluctuations. To date, the Company has not
engaged in hedging with respect to its foreign currency exposure but may do so
in the future. The Company also is subject to general geopolitical risks, such
as political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. In addition,
the laws of certain foreign countries may not protect the Company's proprietary
technology to the same extent as do the laws of the U.S. There can be no
assurance that the risks associated with the Company's international operations
will not materially adversely affect the Company's business and results of
operations in the future or require the Company to modify significantly its
current business practices.
The RBOCs and the Company's other customers are significantly larger
than, and are able to exert a high degree of influence over, the Company.
Prior to selling its products to telcos, the Company must undergo lengthy
approval and purchase processes. Evaluation can take as little as a few months
for products that vary slightly from existing products in the local access
network and a year or more for products based on new technologies such as ADSL.
Accordingly, the Company is continually submitting successive generations of
its current products as well as new products to its customers for approval. The
length of the approval processes is affected by a number of factors, including
the complexity of the product involved, the priorities of the telcos, telcos'
budgets and regulatory issues affecting telcos. In addition, the requirement
that telcos
- 14 -
<PAGE> 16
obtain FCC approval for certain services prior to their implementation has in
the past delayed the approval processes.
Although the telco approval processes may vary to some extent
depending on the customer and the product being evaluated, they generally are
conducted as follows:
Laboratory Evaluation. The product's function and performance are
tested against all relevant industry standards, including those
established by Bellcore.
Technical Trial. A number of telephone lines are equipped with the
product for simulated operation in a field trial. The field trial is
used to evaluate performance, assess ease of installation and
establish troubleshooting procedures.
Marketing Trial. Emerging products such as ADSL are tested for market
acceptance of new services. Marketing trials usually involve a greater
number of systems than technical trials because systems are deployed
at several locations in the telco's network. This stage gives telcos
an opportunity to establish procedures, train employees to install and
maintain the new product and to obtain more feedback on the product
from a wider range of operations personnel.
Commercial Deployment. Commercial deployment usually involves
substantially greater numbers of systems and locations than the
marketing trial stage. In the first phase of commercial deployment, a
telco initially installs the equipment in select locations for select
applications. This phase is followed by general deployment involving
greater numbers of systems and locations. General deployment does not
usually mean that one supplier's product is purchased for all of the
telcos' needs throughout the system as telcos often rely upon multiple
suppliers to ensure that their needs can be met. Subsequent orders, if
any, are generally placed under single or multi-year supply agreements
that are generally not subject to minimum volume commitments.
In most international markets, there is one major telco per country
with limited or few alternate carriers or independent telcos. Typically, these
telcos are highly regulated, government-owned agencies that have approval and
purchase processes similar to those followed by the RBOCs.
CUSTOMER SERVICE AND SUPPORT
Westell maintains 24-hour, 7-day-a-week telephone support and provides
on-site support. The Company also provides technical consulting, research
assistance and training to its customers with respect to the installation,
operation and maintenance of its products.
The Company has supply contracts with most of its major customers.
These contracts typically do not establish minimum purchase commitments, and
they may require the Company to accept returns of products or indemnify such
customers against certain liabilities arising out of the use of the Company's
products. Although, to date, the Company has not experienced any significant
product returns or indemnification claims under these contracts, any such
claims or returns could have a material adverse effect on the Company's
business and results of operations. While the Company maintains a comprehensive
quality control program, there can be no assurance that the Company's products
will not suffer from defects or other deficiencies or that the Company will not
experience a material product recall in the future. Complex products such as
those offered by the Company may contain undetected errors or failures when
first introduced or as new versions are released. Any product recall as a
result of such errors or failures, and the associated negative publicity, could
result in the loss of or delay in market acceptance of the Company's products
and have a material adverse effect on the Company's business and results of
operations.
- 15 -
<PAGE> 17
The Company's products are required to meet rigorous standards imposed
by its customers. Most of the Company's products carry a limited warranty
ranging from two to seven years, which generally covers defects in materials or
workmanship and failure to meet published specifications, but excludes damages
caused by improper use and all other express or implied warranties. In the
event there are material deficiencies or defects in the design or manufacture
of the Company's products, the affected products could be subject to recall.
For the past five fiscal years, the Company's warranty expenses have been
relatively insignificant. Although the Company maintains a comprehensive
quality control program, there can be no assurance that the Company's products
will not suffer from defects or other deficiencies or that the Company will not
experience a material product recall in the future. Complex products such as
those offered by the Company may contain undetected errors or failures when
first introduced or as new versions are released. Any product recall as a
result of such errors or failures, and the associated negative publicity, could
result in the loss of or delay in market acceptance of the Company's products
and have a material adverse effect on the Company's business and results of
operations. The Company's standard limited warranty for its ADSL products
ranges from two to five years. Since the Company's ADSL products are new, with
limited time in service, the Company cannot predict the level of warranty
claims that it will experience for these products. Despite testing by the
Company and its customers, there can be no assurance that existing or future
products based on ADSL or other technology will not contain undetected errors
or failures when first introduced or as new versions are released. Such errors
or failures could result in warranty returns in excess of those historically
experienced by the Company and have a material adverse effect on the Company's
business and results of operations.
MANUFACTURING
The Company purchases parts and components for its products from a
number of suppliers through a worldwide sourcing program. Certain key
components, such as integrated circuits and other electronic components, used
in the Company's products are currently available from only one source or a
limited number of suppliers. For instance, the Company currently depends on a
division of Lucent Technologies (formerly known as AT&T Microelectronics) to
provide critical integrated circuits used in the Company's ADSL products. In
addition, certain electronic components are currently in short supply and are
provided on an allocation basis to the Company and other users, based upon past
usage. There can be no assurance that the Company will be able to continue to
obtain sufficient quantities of integrated circuits or other electronic
components as required, or that such components, if obtained, will be available
to the Company on commercially reasonable terms. The Company purchases
integrated circuits from Lucent Technologies on a purchase order basis and does
not have any formal supply arrangements with Lucent Technologies. The Company
anticipates that integrated circuit production capacity and availability of
certain electronic components of its suppliers may be insufficient to meet
demand for such components in the future. Integrated circuits and electronic
components are key components in all of the Company's products and are
fundamental to the Company's business strategy of developing new and succeeding
generations of products at reduced unit costs without compromising
functionality or serviceability. In the past, however, the Company has
experienced delays in the receipt of certain of its key components, such as
integrated circuits, which have resulted in delays in related product
deliveries. There can be no assurance that delays in key components or product
deliveries will not occur in the future due to shortages resulting from the
limited number of suppliers, the financial or other difficulties of such
suppliers or the possible limitations in integrated circuit production capacity
or electronic component availability because of significant worldwide demand
for these components. The inability to obtain sufficient key components or to
develop alternative sources for such components, if and as required in the
future, could result in delays or reductions in product shipments, which in
turn could have a material adverse effect on the Company's customer
relationships and its business and results of operations.
The Company currently manufactures most of its products internally
while relying on a few subcontractors in the U.S. and the United Kingdom for
various assemblies. As part of its strategic plan to
- 16 -
<PAGE> 18
meet the potential worldwide demand for its ADSL systems, however, the Company
currently is in the process of developing the manufacturing capabilities
necessary to supply and support large volumes of ADSL systems and in the future
may become increasingly dependent on subcontractors. The Company has entered
into discussions to establish subcontracting relationships for the assembly of
its ADSL systems. A reliance on third-party subcontractors involves several
risks, including the potential absence of adequate capacity and reduced control
over product quality, delivery schedules, manufacturing yields and costs.
Although the Company believes that alternative subcontractors or sources could
be developed if necessary, the use of subcontractors could result in material
delays or interruption of supply as a consequence of required re-tooling,
retraining and other activities related to establishing and developing a new
subcontractor or supplier relationship. Any material delays or difficulties in
connection with increased manufacturing production or the use of subcontractors
could have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will be successful in
increasing its manufacturing capacity in a timely and cost-effective manner or
that the possible transition to subcontracting will not materially adversely
affect the Company's business and results of operations. The Company's failure
to effectively manage its growth would have a material adverse effect on the
Company's business and results of operations.
A substantial portion of the Company's shipments in any fiscal period
relate to orders for certain products received in that period. Further, a
significant percentage of orders, such as NIUs, require delivery within 48
hours. To meet this demand, the Company maintains raw materials inventory and
limited finished goods inventory at its manufacturing facility. In addition,
the Company maintains some finished goods inventory at the customer's site
pursuant to an agreement that the customer will eventually purchase such
inventory. Final testing and shipment of products to customers occurs in the
Company's Oswego, Illinois facilities. The Company's domestic facilities are
certified pursuant to ISO 9001.
The Company's backlog for its DS1 and DS0 products at March 31, 1996
was $1.9 million. The Company believes that because a substantial portion of
customer orders for DS1 and DS0 products are filled within the quarter of
receipt, the Company's backlog is not a meaningful indicator of actual revenues
for these products for any succeeding period. In general, customers purchasing
DSL products may reschedule orders without penalty to the customer. As a
result, the quantities of the Company's products to be delivered and their
delivery schedules may be revised by customers to reflect changes in their DSL
product needs. Since backlog of DSL products can be rescheduled without
penalty, the Company does not believe that its backlog of DSL products is a
meaningful indicator of future revenues from DSL products.
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<PAGE> 19
COMPETITION
The markets for the Company's products are intensely competitive and
the Company expects competition to increase in the future, especially in the
emerging ADSL market. Westell's principal competitors in the DS0 market are
Adtran, Inc., Tellabs, Inc. and Teltrend, Inc. Westell's principal competitors
in the DS1 market are ADC Telecommunications Inc., PairGain Technologies, Inc.
and Teltrend, Inc. The Company's current competitors in the ADSL market include
Alcatel Network Systems, Amati Communications Corp., AT&T Paradyne, ECI
Telecom, Inc., Ericsson, LG Information and Communications, Ltd., Lucent
Technologies, PairGain Technologies, Inc., Orckit Communications, Ltd. and
Performance Telecom Corp. The Company expects competition in the ADSL market in
the near future from numerous other companies. In addition, the
Telecommunications Act which was signed into law on February 8, 1996, permits
the RBOCs to engage in manufacturing activities after the FCC authorizes an
RBOC to provide long distance services within its service territory. An RBOC
must first meet specific statutory and regulatory tests demonstrating that its
monopoly market for local exchange services is open to competition before it
will be permitted to enter the long distance market. When these tests are met,
an RBOC will be permitted to engage in manufacturing activities. Therefore,
RBOCs, which are the Company's largest customers, may potentially become the
Company's competitors as well. Many of the Company's competitors and potential
competitors have greater financial, technological, manufacturing, marketing and
human resources than the Company. Any increase in competition could reduce the
Company's gross margin, require increased spending by the Company on research
and development and sales and marketing, and otherwise materially adversely
affect the Company's business and results of operations.
Products that increase the efficiency of digital transmission over
copper wire face competition from fiber, wireless, cable modems and other
products delivering broadband digital transmission. Many telcos have adopted
policies that favor the deployment of fiber. To the extent that telcos choose
to install fiber and other transmission media between the central office and
the end user, the Company expects that demand for its copper wire-based
products will decline. Telcos face competition from cable operators, new local
access providers and wireless service providers that are capable of providing
high speed digital transmission to end users. To the extent telcos decide not
to aggressively respond to this competition and fail to offer high speed
digital transmission, the overall demand for ADSL products could decline. In
addition, the deployment of certain products and technologies for copper wire
may also reduce the demand for the types of products currently manufactured by
the Company. Specifically, the deployment of HDSL in the U.S., which reduces
telcos' need for T-1 repeaters and NIUs, may result in a decrease in demand for
Westell's DS1-based products. Further, the Company believes that the domestic
market for many of its DS0-based products is decreasing, and will likely
continue to decrease, as high capacity digital transmission becomes less
expensive and more widely deployed.
TELECONFERENCE SERVICES
Conference Plus provides operator-assisted and automatic
teleconferencing services to customers throughout the U.S. The Company manages
its teleconferencing services through its operations center located in
Schaumburg, Illinois. Teleconferencing services allow organizations and
individuals to collect and disseminate information faster, more accurately and
without the associated costs of face-to-face meetings. The Company's strategy
in this market is to apply its expertise as a telecommunications products
manufacturer to provide cost-effective and quality teleconferencing services to
satisfy the growing customer demand for these services. Conference Plus was
started by the Company in October 1988, and generated $5.4 million, $6.8
million and $7.7 million in revenues in fiscal 1994, 1995 and 1996,
respectively.
Competition in the teleconferencing business is intense and the
Company expects that competition will increase due to low barriers to entry and
recent entrants into the audio teleconferencing service market.
- 18 -
<PAGE> 20
Many of Conference Plus' competitors, including AT&T, MCI Communications and
Sprint Communications, have much greater name recognition, more extensive
customer service and marketing capabilities and substantially greater
financial, technological and personnel resources than the Company. There can be
no assurance that the Company will be able to successfully compete in this
market in the future or that competitive pressures will not result in price
reductions that would materially adversely affect the Company's business and
results of operations.
GOVERNMENT REGULATION
The telecommunications industry, including most of the Company's
customers, is subject to regulation from federal and state agencies, including
the FCC and various state public utility and service commissions. While such
regulation does not affect the Company directly, the effects of such
regulations on the Company's customers may, in turn, adversely impact the
Company's business and results of operations. For example, FCC regulatory
policies affecting the availability of telco services and other terms on which
telcos conduct their business may impede the Company's penetration of certain
markets. The Telecommunications Act lifted certain restrictions on telcos'
ability to provide interactive multimedia services including video on demand.
The Telecommunications Act establishes new regulations whereby telcos may
provide various types of video services. Rules to implement these new statutory
provisions are now being considered by the FCC. While the statutory and
regulatory framework for telcos providing video products has become more
favorable, it is uncertain at this time how this will affect telcos' demand for
products based upon ADSL technology.
In addition, the Telecommunications Act permits the RBOCs to engage in
manufacturing activities after the FCC authorizes an RBOC to provide long
distance services within its service territory. An RBOC must first meet
specific statutory and regulatory tests demonstrating that its monopoly market
for local exchange services is open to competition before it will be permitted
to enter the long distance market. When these tests are met, an RBOC will be
permitted to engage in manufacturing activities and the RBOCs, which are the
Company's largest customers, may become the Company's competitors as well.
The Company's business and operating results may also be adversely
affected by the imposition of certain tariffs, duties and other import
restrictions on components that the Company obtains from non-domestic suppliers
or by the imposition of export restrictions on products that the Company sells
internationally. Internationally, governments of the United Kingdom, Canada,
Australia and numerous other countries actively promote and create competition
in the telecommunications industry. Changes in current or future laws or
regulations, in the U.S. or elsewhere, could materially and adversely affect
the Company's business and results of operations.
PROPRIETARY RIGHTS
The Company's success and future revenue growth will depend, in part,
on its ability to protect trade secrets, obtain or license patents and operate
without infringing on the rights of others. Although the Company regards its
technology as proprietary, it has only one patent on such technology. The
Company expects to seek additional patents from time to time related to its
research and development activities. The Company relies on a combination of
technical leadership, trade secrets, copyright and trademark law and
nondisclosure agreements to protect its unpatented proprietary know-how. There
can be no assurance, however, that these measures will provide meaningful
protection for the Company's trade secrets or other proprietary information.
Moreover, the Company's business and results of operations may be materially
adversely affected by competitors who independently develop substantially
equivalent technology. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as U.S. law. The
telecommunications industry is also characterized by the existence of an
increasing number of patents and frequent litigation based on allegations of
patent and other intellectual property infringement.
- 19 -
<PAGE> 21
From time to time, the Company receives communications from third parties
alleging infringement of exclusive patent, copyright and other intellectual
property rights to technologies that are important to the Company. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future, that assertions by such parties will not result in
costly litigation, or that the Company would prevail in any such litigation or
be able to license any valid and infringed patents from third parties on
commercially reasonable terms. Further, such litigation, regardless of its
outcome, could result in substantial costs to and diversion of effort by the
Company. Any infringement claim or other litigation against or by the Company
could have a material adverse effect on the Company's business and results of
operations.
Many of the Company's products incorporate technology developed and
owned by third parties. Consequently, the Company must rely upon third parties
to develop and introduce technologies which enhance the Company's current
products and enable the Company, in turn, to develop its own products on a
timely and cost-effective basis to meet changing customer needs and
technological trends in the telecommunications industry. Any impairment or
termination of the Company's relationship with any licensors of third-party
technology would force the Company to find other developers on a timely basis
or develop its own technology. There can be no assurance that the Company will
be able to obtain the third-party technology necessary to continue to develop
and introduce new and enhanced products, that the Company will obtain
third-party technology on commercially reasonable terms or that the Company
will be able to replace third-party technology in the event such technology
becomes unavailable, obsolete or incompatible with future versions of the
Company's products. The absence of or any significant delay in the replacement
of third-party technology would have a material adverse effect on the Company's
business and results of operations.
The Company's ADSL products are dependent upon a CAP DSL technology
known as GlobeSpan(TM) that the Company licenses from AT&T Paradyne. AT&T
Paradyne is currently the sole provider of this CAP DSL technology and the
Company currently would not be able to produce any of its ADSL systems without
using this technology. The AT&T License, which expires in December 2002, is
nonexclusive and this technology has been licensed to numerous manufacturers.
The Company has entered into cooperation and development agreements with other
technology suppliers who are developing alternative DSL technologies, such as
DMT DSL technology. Under one such arrangement, the Company is currently
testing prototypes of an alternative DSL technology. Consequently, in the event
AT&T Paradyne fails to renew the AT&T License, the Company believes that it
will have sufficient access to alternative sources of DSL technology prior to
December 2002 so that it will be able to continue to produce ADSL systems.
However, the cancellation or failure of AT&T Paradyne to renew the AT&T License
would materially adversely affect the Company's business and results of
operations if other sources of DSL technology do not become readily available
on similar terms or telcos elect not to deploy ADSL systems utilizing
alternative DSL technologies, such as DMT DSL technology.
In addition, AT&T Paradyne has formed a business unit that develops
and markets products competitive with the Company's products, such as ADSL.
Although this newly-formed business unit does not affect the Company's AT&T
License and is an independent unit from the business unit licensing CAP DSL
technology, there can be no assurance that the formation of this business unit
will not affect the Company's ability to license CAP DSL technology from AT&T
Paradyne after the AT&T License expires. In addition, Lucent Technologies
recently announced that it has signed a definitive agreement to sell AT&T
Paradyne to Texax Pacific Group, an investment group. The Company's licensing
rights of CAP DSL technology under the existing AT&T License will not be
affected by that sale. The Company is unable to predict, however, what effect,
if any, the sale will have on the Company's relationship with AT&T Paradyne or
on AT&T Paradyne's licensing of its CAP DSL technology or future technology to
the Company or others.
Rapid technological evolution has resulted in the need to implement
strategic alliances with customers and technology suppliers in order to
accelerate the time to market for new products. Without such
- 20 -
<PAGE> 22
relationships and due to the lengthy telco product approval and purchase
cycles, the technology may be obsolete by the time it is implemented.
Relationships in place with companies such as AT&T Paradyne, Analog Devices,
Inc., Motorola and certain customers enable the Company to develop products at
the same time that the Company undergoes the product approval and purchase
processes for products in development. This can result in much quicker
introduction of new products while the technology is still in demand. Westell
has cooperation and development relationships with Atlantech Technologies Ltd.,
a software development company based in Scotland, Scientific Generics, an
innovative technology development company based in Cambridge, England, and
Sungmi Electronics, an industry leader in the supply of high speed switching,
transmission and local access systems based in Seoul, Korea.
EMPLOYEES
As of March 31, 1996, the Company had 737 full-time employees in
continuing operations and 62 full-time employees in KPINS which the Company
plans to discontinue. Westell's telecommunications business had a total of 652
full-time employees, consisting of 141 in sales, marketing, distribution and
service, 138 in research and development, 343 in manufacturing and 30 in
administration. Conference Plus had a total of 85 full-time employees. None
of the Company's employees are represented by a collective bargaining agreement
nor has the Company ever experienced any work stoppage. The Company believes
its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company leases approximately 108,000 square feet of office,
development and manufacturing space in facilities in Oswego, Illinois
(approximately 75,000 square feet) and Aurora, Illinois (approximately 33,000
square feet), both suburbs of Chicago. The current lease for the Oswego
facility expires in August 2002 but may be terminated by the Company at any
time after August 1997 upon 12 months notice. The current lease for the Aurora
facility expires in February 1998 but may be extended by the Company for up to
two additional two-year periods. The Company also leases facilities in
Schaumburg, Illinois for Conference Plus, and in Tampa, Florida and Cambridge,
England for its international operations.
While the Company believes its current facilities are adequate to
support its present level of operations, it believes that it will require
additional space in the next two years to accommodate additional expansion of
its business operations. The Company estimates that its manufacturing
facilities are operating at a utilization rate of approximately 50%. In
September 1995, the Company entered into an agreement with a real estate
developer forming a limited liability company (the "LLC") that is constructing
a 173,000 square foot facility in Aurora, Illinois. The Company has entered
into a 15-year lease of this facility with the LLC, which term will commence
upon the substantial completion of this facility. The Company expects to move a
portion of its operations to this new facility by the third quarter of fiscal
1997. The Company will have the option to purchase the facility being developed
by the LLC or sell its interest in the LLC. It is the Company's current intent
to sell this property when construction is completed, repay any financing and
lease the facility from a third party.
ITEM 3. LEGAL PROCEEDINGS
The Company has been involved from time to time in litigation in the
normal course of its business. In January 1995, a former officer of a Westell
subsidiary filed suit against the Company in the Superior Court of the State of
California alleging monetary damages suffered as a result of wrongful
termination and breach of contract. The Company believes the suit is without
merit and intends to contest the suit vigorously. While the outcome of this
lawsuit cannot be determined with certainty, the Company does not believe that
the resolution of this lawsuit will have a material adverse effect on the
Company or its business and results of operations. However, a judgment against
the Company of a significant amount could have a material
- 21 -
<PAGE> 23
adverse effect on the Company's liquidity and results of operations. The
Company is not a party to any other litigation that would have a material
adverse effect on the Company or its business and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company effected its initial public offering on November 30, 1995
at a price to the public of $6.50 per share. The Company's Class A Common Stock
is quoted on the Nasdaq National Market under the symbol "WSTL." The following
table sets forth for the periods indicated the high and low closing sale prices
for the Class A Common Stock as reported on the Nasdaq National Market, which
prices reflect the two-for-one Stock Split of the Company's Class A and Class B
Common Stock to holders of record on May 20, 1996 and was paid on June 7, 1996
(the "Stock Split").
<TABLE>
<CAPTION>
High Low
--------------- -------
<S> <C> <C>
Fiscal Year 1996
Third Quarter (from December 1, 1995) . . . . . . . . . . . . . . . . . $13 13/16 $ 9 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9 5/8
Fiscal Year 1997
First Quarter (through June 28, 1996) . . . . . . . . . . . . . . . . . 56 18 5/8
</TABLE>
As of June 27, 1996, there were approximately 114 holders of record of
the outstanding shares of Class A Common Stock.
Issuance of Class A Common Stock
On June 26, 1996, the Company completed a public offering in which
1,665,000 shares of Class A Common Stock were sold by the Company and 335,000
shares of Class A Common Stock were sold by certain stockholders of the Company
for a price to the public of $39.00 per share. Net proceeds to the Company
from the sale of the Class A Common Stock were approximately $61.6 million and
will be used to fund capital equipment purchases and for general corporate
purposes including working capital funding.
Dividends
The Company has never declared or paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future earnings
to finance the growth and development of its business.
- 22 -
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data as of March 31,
1992, 1993, 1994, 1995 and 1996 and for each of the five fiscal years in the
period ended March 31, 1996 have been derived from the Company's consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The data set forth below is qualified by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and the related Notes thereto and other
financial information appearing elsewhere in this Form 10-K
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . $33,621 $43,221 $51,051 $74,029 $83,236
Cost of goods sold . . . . . . . . . . . . . . . 18,974 25,358 30,250 44,494 50,779
---------- ---------- ---------- ---------- ----------
Gross margin . . . . . . . . . . . . . . . . . 14,647 17,863 20,801 29,535 32,457
---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . 3,839 5,688 8,068 12,169 13,744
Research and development . . . . . . . . . . . 2,778 5,284 7,695 10,843 12,603
General and administrative . . . . . . . . . . 3,123 4,092 5,502 6,701 8,364
---------- ---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . . 9,740 15,064 21,265 29,713 34,711
---------- ---------- ---------- ---------- ----------
Operating income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . 4,907 2,799 (464) (178) (2,254)
Other income (expense), net . . . . . . . . . . . (5) (14) (36) 34 (226)
Interest expense . . . . . . . . . . . . . . . . 144 137 176 769 859
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 4,758 2,648 (676) (913) (3,339)
Provision (benefit) for income taxes . . . . . . 1,729 913 (989) (788) (1,886)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations . . . . 3,029 1,735 313 (125) (1,453)
Discontinued operations (loss) . . . . . . . . . -- (37) (100) (383) (622)
---------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 3,029 $ 1,698 $ 213 $ (508) $(2,075)
------- ------- ------- ------- -------
Net income (loss) per share: (1)
Continuing operations . . . . . . . . . . . . . $ 0.11 $ 0.06 $ 0.01 $ (0.01) $ (0.05)
Discontinued operations . . . . . . . . . . . . -- -- (0.00) (0.01) (0.02)
---------- ---------- ---------- ---------- ----------
Net income (loss) per share . . . . . . . . . . . $ 0.11 $ 0.06 $ 0.01 $ (0.02) $ (0.07)
------- ------- ------- ------- -------
Dividends declared per share . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Average number of common shares outstanding
(1) . . . . . . . . . . . . . . . . . . . . . . 26,560 27,620 28,486 28,952 30,846
</TABLE>
- 23 -
<PAGE> 25
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . . $ 3,971 $ 5,137 $ 3,053 $ 1,280 $28,741
Total assets . . . . . . . . . . . . . . . . . . 11,662 15,777 29,327 40,276 64,448
Revolving promissory notes . . . . . . . . . . . 1,500 1,700 1,700 11,089 --
Long-term debt, including current portion . . . . 936 704 3,339 4,129 4,427
Total stockholders' equity . . . . . . . . . . . 5,586 7,719 8,002 7,558 38,985
- ------------------------------
</TABLE>
(1) Adjusted to reflect the Stock Split. See Notes 1 and 11 of Notes to
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company commenced operations in 1980 as a provider of
telecommunications network transmission products that enable advanced
telecommunications services over copper telephone wires. Until fiscal 1994, the
Company derived substantially all of its revenues from its DS0 and DS1 product
lines, particularly the sale of NIUs and related products, which accounted for
at least 45% of revenues in each of the last three fiscal years. The Company
introduced its first DSL products in fiscal 1993 and these products represented
3.9%, 20.6% and 24.4% of revenues in fiscal 1994, 1995 and 1996, respectively.
The Company has also provided audio teleconferencing services since fiscal 1989
and consumer products claims processing services since fiscal 1994. Revenues
from audio teleconferencing services constituted 9.2% of the Company's revenues
in both fiscal 1995 and 1996. In August 1995, the Company approved a plan for
the disposition of KPINS, its consumer products claims processing subsidiary,
which is presented in the results of operations as a discontinued operation.
The Company's customer base is comprised primarily of the RBOCs,
independent domestic local exchange carriers and public telephone
administrations located outside the U.S. Due to the stringent quality
specifications of its customers and the regulated environment in which its
customers operate, the Company must undergo lengthy approval and procurement
processes prior to selling its products. Accordingly, the Company must make
significant upfront investments in product and market development prior to
actual commencement of sales of new products. In late fiscal 1992, the Company
significantly increased its investment in new product development based on
emerging technologies, particularly ADSL, and began expanding its sales and
marketing efforts to cover new product lines and planned expansion into
international markets. International operations accounted for 5.0% and 23.8%
of the Company's revenues in fiscal 1995 and 1996, respectively. As a result of
the significant increases in research and development and sales and marketing
expenses related to new product and market development, the Company's results
of operations were adversely impacted in fiscal 1994, 1995 and 1996.
The Company expects to continue to evaluate new product opportunities
and engage in extensive research and development activities. This will require
the Company to continue to invest heavily in research and development and sales
and marketing, which is expected to adversely affect short-term results of
operations. Due to the Company's significant ongoing investment in ADSL
technology, the Company anticipates losses in at least the first and second
quarters of fiscal 1997. The Company believes that its future revenue growth
and profitability will principally depend on its success in increasing sales of
ADSL products
- 24 -
<PAGE> 26
and developing new and enhanced DS1 and other DSL products. In view of the
Company's reliance on the emerging ADSL market for growth and the
unpredictability of orders and subsequent revenues, the Company believes that
period to period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. Revenues from DS0 products have declined in recent years as telcos
continue to move from analog to digital transmission services. The Company also
expects that revenues from NIU products in its DS1 product group may decline as
telcos increase the use of alternative technologies such as HDSL. Failure to
increase revenues from new products, whether due to lack of market acceptance,
competition, technological change or otherwise, would have a material adverse
effect on the Company's business and results of operations.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented
by certain items in the Company's statements of operations for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 59.3 60.1 61.0
----- ----- -----
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.7 39.9 39.0
----- ----- -----
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . 15.8 16.4 16.5
Research and development . . . . . . . . . . . . . . . . . . . . . 15.1 14.6 15.2
General and administrative . . . . . . . . . . . . . . . . . . . . 10.8 9.1 10.0
----- ----- -----
Total operating expenses . . . . . . . . . . . . . . . . . . . . 41.7 40.1 41.7
----- ----- -----
Operating income (loss) from continuing operations . . . . . . . . . (1.0) (0.2) (2.7)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 (0.3)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 1.0 1.0
----- ----- -----
Income (loss) from continuing operations before income taxes . . . . (1.3) (1.2) (4.0)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . (1.9) (1.0) (2.3)
----- ----- -----
Income (loss) from continuing operations . . . . . . . . . . . . . . 0.6 (0.2) (1.7)
Discontinued operations (loss) . . . . . . . . . . . . . . . . . . . (0.2) (0.5) (0.8)
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4% (0.7)% (2.5)%
---- ---- ----
</TABLE>
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Revenues. Revenues were $51.1 million, $74.0 million and $83.2 million
in fiscal 1994, 1995 and 1996, respectively. Revenues increased 45.0% from
fiscal 1994 to 1995 and 12.4% from fiscal 1995 to 1996. The fiscal 1995
increase was primarily a result of a $13.5 million increase in sales of DSL
products, a $8.8 million increase in sales of DS1 products and a $1.4 million
increase in teleconferencing revenues, which was offset in part by a $1.3
million decline in revenues from DS0 products. The fiscal 1996 increase was
primarily due
- 25 -
<PAGE> 27
to a $5.1 million increase in DSL products reflecting shipments to two
international customers and a $3.3 million increase in DS1 product revenues.
Gross Margin. Gross margin decreased as a percentage of revenues from
40.7% in fiscal 1994 to 39.9% in fiscal 1995 and to 39.0% in fiscal 1996. These
decreases were due to product pricing pressures and changes in product mix
within the Company's DS1 and DS0 product lines. These decreases were offset in
part by sales of higher margin ADSL products and an increase in
teleconferencing revenues in fiscal 1995 and 1996.
Sales and Marketing. Sales and marketing expenses were $8.1 million,
$12.2 million and $13.7 million in fiscal 1994, 1995 and 1996, respectively,
constituting 15.8%, 16.4% and 16.5% of revenues, respectively. These increases
in sales and marketing expenses were primarily due to staff additions, in both
domestic and international markets, to support and promote the Company's
product lines, particularly ADSL products. The Company believes that continued
investment in sales and marketing will be required to expand its product lines,
bring new products to market and service customers. The Company anticipates
that sales and marketing expenses will continue to increase in absolute
dollars.
Research and Development. Research and development expenses were $7.7
million, $10.8 million and $12.6 million in fiscal 1994, 1995 and 1996,
respectively, constituting 15.1%, 14.6% and 15.2% of revenues, respectively.
These increases in research and development expenses were due primarily to new
and existing product development for ADSL and other emerging technology
products and were offset in part by customer nonrecurring engineering funding
of $800,000 and $2.6 million in fiscal 1995 and 1996, respectively. The Company
believes that a continued commitment to research and development will be
required for the Company to remain competitive and anticipates that research
and development costs will increase in absolute dollars.
General and Administrative. General and administrative expenses were
$5.5 million, $6.7 million and $8.4 million in fiscal 1994, 1995, and 1996
respectively, constituting 10.8%, 9.1% and 10.0% of revenues, respectively. The
fiscal 1995 and fiscal 1996 increases were due primarily to continued expansion
of operations in domestic and international markets. The Company anticipates
that general and administrative costs will continue to increase in absolute
dollars as the Company hires additional personnel.
Interest Expense. Interest expense was $176,000, $769,000 and $859,000
for fiscal 1994, 1995 and 1996, respectively. Interest expense increased,
particularly in fiscal 1995 and 1996, as a result of interest expense incurred
by the Company in connection with borrowings under its revolving promissory
notes to fund expanded working capital requirements and, to a lesser extent,
interest incurred under capital lease obligations.
Benefit for Income Taxes. Benefit for income taxes were $989,000,
$788,000 and $1.9 million in fiscal 1994, 1995, and 1996, respectively. In each
of these fiscal years, in addition to the tax benefit generated by the loss
before income taxes, the Company was able to utilize $724,000, $632,000 and
$790,000, respectively, in tax credits primarily generated by increasing
research and development activities. The Company has approximately $1.8
million in income tax credit carryforwards and a $1.9 million net operating
loss carryforward that are available to offset future taxable income. The tax
credit carryforwards begin to expire in 2009 and the net operating loss
carryforward expires in 2011.
- 26 -
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's results of operations for
each of the last eight fiscal quarters and the percentage relationship of
certain items to revenues for the respective periods. The Company believes that
the information regarding each of these quarters is prepared on the same basis
as the audited Consolidated Financial Statements of the Company appearing
elsewhere in this Form 10-K. In the opinion of management, all necessary
adjustments (consisting only of normal recurring adjustments) have been
included to present fairly the unaudited quarterly results when read in
conjunction with the audited Consolidated Financial Statements of the Company
and the Notes thereto appearing elsewhere in this Form 10-K. These quarterly
results of operations are not necessarily indicative of the results for any
future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1996
--------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . $15,721 $15,837 $16,059 $26,412 $22,487 $20,460 $21,346 $18,943
Cost of goods sold . . 8,951 9,391 9,994 16,159 12,822 12,611 13,225 12,121
------- ------- ------- ------- ------- ------- ------- -------
Gross margin . . . . 6,770 6,446 6,065 10,253 9,665 7,849 8,121 6,822
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing . 2,525 2,866 3,169 3,609 3,685 3,428 3,671 2,960
Research and
development . . . . 2,437 2,621 2,768 3,018 3,024 3,358 3,252 2,969
General and
administrative . . 1,407 1,574 1,707 2,015 2,021 2,065 2,236 2,042
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses . . . . 6,369 7,061 7,644 8,642 8,730 8,851 9,159 7,971
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)
from continuing
operations . . . . . 401 (615) (1,579) 1,611 935 (1,002) (1,038) (1,149)
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense),
net . . . . . . . . . 9 9 9 9 (258) 55 82 (105)
Interest expense . . . 105 152 227 285 260 261 290 48
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes . 305 (758) (1,797) 1,335 417 (1,208) (1,246) (1,302)
Provision (benefit) for
income taxes . . . . 10 (403) (805) 408 28 (586) (617) (711)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing
operations . . . . . 295 (355) (992) 927 389 (622) (629) (591)
</TABLE>
- 27 -
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Discontinued operations
(loss) . . . . . . . (82) (151) (84) (65) (65) (529) (24) (4)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) . . . $ 213 $ (506) $(1,076) $ 862 $ 324 $(1,151) $ (653) $ (595)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- 28 -
<PAGE> 30
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1996
-----------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . 56.9 59.3 62.2 61.2 57.0 61.6 62.0 64.0
-------- --------- -------- -------- -------- --------- -------- --------
Gross margin . . . . 43.1 40.7 37.8 38.8 43.0 38.4 38.0 36.0
-------- --------- -------- -------- -------- --------- -------- --------
Operating expenses:
Sales and marketing . 16.1 18.1 19.7 13.7 16.4 16.8 17.2 15.6
Research and
development . . . . 15.5 16.6 17.3 11.4 13.4 16.4 15.2 15.7
General and
administrative . . 8.9 9.9 10.6 7.6 9.0 10.1 10.5 10.8
-------- --------- -------- -------- -------- --------- -------- --------
Total operating
expenses . . . . 40.5 44.6 47.6 32.7 38.8 43.3 42.9 42.1
-------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss)
from continuing
operations . . . . . 2.6 (3.9) (9.8) 6.1 4.2 (4.9) (4.9) (6.1)
-------- --------- -------- -------- -------- --------- -------- --------
Other income (expense),
net . . . . . . . . . 0.1 0.1 0.1 0.0 (1.2) 0.3 0.4 (0.6)
Interest expense . . . 0.7 1.0 1.5 1.0 1.2 1.3 1.3 0.2
-------- --------- -------- -------- -------- --------- -------- --------
Income (loss) from
continuing operations
before income taxes . 2.0 (4.8) (11.2) 5.1 1.8 (5.9) (5.8) (6.9)
Provision (benefit) for
income taxes . . . . 0.1 (2.6) (5.0) 1.6 0.1 (2.9) (2.9) (3.8)
-------- --------- -------- -------- -------- --------- -------- --------
Income (loss) from
continuing
operations . . . . . 1.9 (2.2) (6.2) 3.5 1.7 (3.0) (2.9) (3.1)
Discontinued operations
(loss) . . . . . . . (0.5) (1.0) (0.5) (0.2) (0.3) (2.6) (0.1) 0.0
-------- --------- -------- -------- -------- --------- -------- --------
Net income (loss) . . . 1.4 % (3.2)% (6.7)% 3.3% 1.4% (5.6)% (3.0)% (3.1)%
======== ========= ======== ======== ======== ========= ======== ========
</TABLE>
The Company's revenues increased by $10.4 million in the fourth
quarter of fiscal 1995 compared to the third quarter of fiscal 1995 due
primarily to a large shipment of ADSL systems to one customer when this
customer received regulatory approval for market trial deployment of ADSL
systems. The Company has continued to ship ADSL systems but at a reduced level
from that of the fourth quarter of fiscal 1995, which has resulted in a
reduction in quarterly revenues compared to the preceding quarter in three of
the four
- 29 -
<PAGE> 31
quarters in fiscal 1996. Gross margin as a percentage of revenues increased
from 38.8% in the fourth quarter of fiscal 1995 to 43.0% in the first quarter
of fiscal 1996 due to higher margins received on ADSL products. Gross margin as
a percentage of revenues declined to 38.4%, 38.0% and 36.0% in the second,
third and fourth quarters of fiscal 1996, respectively, as a result of product
pricing pressures in the DS1 and DS0 product lines as well as investments in
manufacturing infrastructure for anticipated ADSL production. The Company
believes that its gross margin in future periods will depend on a number of
factors, including market demand for the Company's ADSL products, pricing
pressures, competitive technologies and manufacturing expenses. There can be no
assurance that the Company will be able to increase gross margins in future
periods even if its ADSL products achieve market acceptance.
Operating expenses increased during each quarter of fiscal 1995 and
the first three quarters of fiscal 1996 as the Company continued to make
significant investments to support anticipated revenue growth. Operating
expenses decreased in the fourth quarter of fiscal 1996 primarily as a result
of nonrecurring engineering funding from third parties in the amount of $1.1
million which offset research and development expenses. The Company expects to
continue to increase operating expenses to support the development,
introduction and promotion of ADSL systems and other new products. As a result
of fluctuations in the timing of revenues of ADSL products and increased
research and development and sales and marketing expenses, the Company
currently anticipates net losses in at least the first and second quarters of
fiscal 1997. In addition, the Company recorded approximately $237,000 of
compensation expense in the third quarter of fiscal 1996 as a result of the
issuance of 24,624 shares of Class A Common Stock to employees of the Company.
The Company also recorded a charge of approximately $520,000, net of tax, in
the second quarter of fiscal 1996 in connection with the planned disposition of
KPINS.
The Company expects to continue to experience significant fluctuations
in quarterly results of operations. The Company believes that fluctuations in
quarterly results may cause the market price of the Class A Common Stock to
fluctuate, perhaps substantially. Factors which have had an influence on and
may continue to influence the Company's results of operations in a particular
quarter include the size and timing of customer orders and subsequent
shipments, customer order deferrals in anticipation of new products, timing of
product introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, changes in the Company's operating expenses, personnel
changes, foreign currency fluctuations, changes in the mix of products sold,
quality control of products sold, disruption in sources of supply, regulatory
changes, capital spending, delays of payments by customers and general economic
conditions. Sales to the Company's customers typically involve long approval
and procurement cycles and can involve large purchase commitments. Accordingly,
cancellation or deferral of one or a small number of orders could cause
significant fluctuations in the Company's quarterly results of operations. As a
result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
Because the Company generally ships products within a short period
after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. The Company's expense levels are
based in large part on anticipated future revenues and are relatively fixed in
the short-term. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall of orders.
Accordingly, any significant shortfall of demand in relation to the Company's
expectations or any material delay of customer orders would have an almost
immediate adverse impact on the Company's business and results of operations
and on its ability to achieve profitability.
- 30 -
<PAGE> 32
LIQUIDITY AND CAPITAL RESOURCES
In November 1995, the Company effected the initial public offering of
its Class A Common Stock which generated approximately $33.3 million in
corporate funding. The Company used the proceeds from the offering to repay
revolving promissory bank notes of approximately $11.1 million which primarily
financed working capital. The remainder of the proceeds were invested in short
term investments comprised principally of the highest grade commercial paper
and government backed securities with 90-day or less maturity. As of March 31,
1996, the Company had no amounts outstanding under its secured revolving
promissory notes and $3.8 million outstanding under its equipment financing
facility. As of March 31, 1996, the Company had approximately $15.4 million
available under these facilities. The revolving promissory notes and the
equipment financing facility require the maintenance of a minimum cash to
current maturities ratio, a current ratio and a maximum debt to net worth
ratio. The Company is currently in compliance with all such covenants.
The Company's operating activities generated cash of $3.6 million and
$6.5 million in fiscal 1994 and 1996, respectively, and used cash of $5.3
million in fiscal 1995. Cash generated from operating activities in fiscal 1994
resulted principally from increases in customer deposits and accounts payable
offset in part by increases in accounts receivable, inventory and prepaid
expenses. Cash used by operations in fiscal 1995 resulted primarily from
decreases in customer deposits and increases in receivables and inventory,
offset in part by increases in accounts payable. Cash generated from operating
activities in fiscal 1996 was a result of decreases in receivables and
inventory and an increase in customer deposits offset in part by a decrease in
accounts payable.
Capital expenditures in fiscal 1994, 1995 and 1996 were $6.1 million,
$5.2 million, and $6.3 million, respectively. These expenditures were
principally for machinery, computer and research equipment purchases. The
Company expects to spend approximately $6.0 million in fiscal 1997 for capital
equipment.
In September 1995, the Company formed an LLC with a real estate
developer for the purpose of developing a 16.4 acre site in Aurora, Illinois
into a 173,000 square foot corporate facility to house manufacturing,
engineering, sales, marketing and administration. In connection therewith, the
Company currently has a 98% ownership interest in the LLC, which will gradually
decrease to a 60% ownership interest as the other LLC member increases its
capital contribution to the LLC by contributing its development fee for the new
facility, as earned. In addition, the Company has a reimbursement obligation
with respect to an irrevocable letter of credit issued for the Company's
account in the amount of $952,000, due on or before September 30, 1996, which
represents the Company's capital contribution to the LLC. On September 25,
1995, the Company advanced the LLC $1.4 million for the purchase of land. The
advance is in the form of a short-term note which bears interest at the prime
rate (8.25% at March 31, 1996). The note and accrued interest become due from
the proceeds of the construction financing. During fiscal 1996, the LLC began
construction of the new facility and as of March 31, 1996, $3.0 million of
construction costs were incurred. In September 1995, the Company also entered
into a 15-year lease for the facility being developed by the LLC. Pursuant to
the terms of the LLC, the Company will have the option to buy out the other
investor in the LLC and thereby purchase the facility being developed by the
LLC or sell its interest in the LLC.
At March 31, 1996, the Company's principal sources of liquidity were
$21.8 million of cash and cash equivalents, and $12.8 million and $2.6 million
available under its secured revolving promissory notes and equipment borrowing
facility, respectively. Borrowings under the secured revolving promissory notes
and equipment borrowing facility currently bear interest at the bank's prime
rate (8.25% at March 31, 1996). These revolving promissory notes are due on,
and the equipment borrowing facility expires in, September 1996 and the Company
anticipates that such revolving promissory notes and equipment borrowing
facility will be renewed on no less favorable terms.
- 31 -
<PAGE> 33
The Company had a deferred tax asset of approximately $4.4 million at
March 31, 1996. This deferred tax asset relates to (i) tax credit carryforwards
of approximately $1.8 million, (ii) a net operating loss carryforward of
approximately $740,000 and (iii) temporary differences between the amount of
assets and liabilities for financial reporting purposes and such amounts
measured by tax laws. Of such tax credit carryforwards, the first $500,000 of
credits expire in 2009 and $321,000 of credits may be carried forward
indefinitely. The net operating loss carryforward expires in 2011. The
remainder of the deferred tax asset relates to items deductible for financial
income reporting purposes which were taxable in accordance with tax
regulations. Management has not recorded a valuation allowance and believes
that the deferred tax asset will be fully realized based on current estimates
of future taxable income, future reversals of existing taxable temporary
differences or available tax planning strategies.
On June 26, 1996, the Company completed its public offering of
1,665,000 shares of Class A Common Stock, pursuant to which the Company
received approximately $61.6 million in net proceeds (the "Public Offering").
The Company believes that the net proceeds from this Public Offering, cash and
cash equivalents at March 31, 1996, its banks lines of credit and funds
generated from operations, if any, will provide adequate liquidity to meet the
Company's capital and operating requirements during the fiscal year ended March
31, 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
During March 1995 and October 1995, respectively, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" and SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company is required to adopt these standards in
fiscal 1997. The Company does not anticipate that adoption of SFAS No. 121 will
have a material effect on its financial statements. The Company anticipates
that it will provide expanded disclosure in the footnotes to its financial
statements, as prescribed by SFAS No. 123, for activity related to its stock
plans.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements required by Item 8, together with
the report thereon of the independent accountants dated May 21, 1996 are set
forth on pages 47-63 of this report. The financial statement schedules listed
under Item 14(a)2, together with the report thereon of the independent
accountants dated May 21, 1996 are set forth on pages 64 and 65 of this report
and should be read in conjunction with the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
- 32 -
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a. Directors
The directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Principal Occupation and Other Information
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gary F. Seamans (1) . . . . . . . 47 Gary F. Seamans has served as Chairman of the Board of
Directors of the Company since February 1991, as a
director of the Company since February 1988 and as
President and Chief Executive Officer of the Company
since January 1988. Prior to joining the Company, Mr. Seamans
served as Vice President of Sales and Marketing -- Midwest
Division at MCI Communications, Inc. from 1984 to 1987.
From 1971 to 1984, Mr. Seamans held a variety of management
positions in the operations, engineering, sales, marketing,
strategic planning, finance and personnel departments of AT&T.
Robert H. Gaynor (1)(2) . . . . . 72 Robert H. Gaynor has served as Vice Chairman of the Board of
Directors of the Company since December 1991 and as a director
of the Company since October 1990. Mr. Gaynor presently serves as
Chairman of the Rockhill Workshop, an executive conference at the
University of Missouri, Kansas City. From 1958 to 1986, Mr. Gaynor
held a variety of executive officer positions at AT&T.
Melvin J. Simon (1)(2) . . . . . 51 Melvin J. Simon has served as Assistant Secretary and Assistant
Treasurer of the Company since July 1995 and as a Director of the
Company since August 1992. From August 1992 to July 1995, Mr. Simon
served as Secretary and Treasurer of the Company. A Certified Public
Accountant, Mr. Simon founded and has served as President of Melvin J.
Simon & Associates, Ltd., a public accounting firm, since May 1980.
Stefan D. Abrams (3) . . . . . . 57 Stefan D. Abrams has served as a director of the Company since
February 1994. Mr. Abrams has been a Managing Director of The TCW Group,
Inc., an investment management firm, since October 1992. From September
1989 to September 1992, Mr. Abrams was a Managing Director of Kidder,
Peabody & Company, an investment banking firm.
Michael A. Brunner (3) . . . . . 62 Michael A. Brunner has served as a director of the Company since December
1994. From May 1985 to February 1992, Mr. Brunner served as President of
AT&T Federal Systems, a division of AT&T. Mr. Brunner currently serves
as a director of Concurrent Computer Corporation, a computer manufacturer,
and as a director and past Chairman of the Leonard Center for Excellence
in Engineering of Penn State University.
Paul A. Dwyer (3) . . . . . . . . 62 Paul A. Dwyer has served as a director of the Company since January 1996
and as a director of Westell, Inc., a subsidiary of the Company, since
November 1995. Mr. Dwyer has served as
</TABLE>
- 33 -
<PAGE> 35
<TABLE>
<S> <C>
Vice President -- Finance of Henry Crown and Company, a private
investment firm, since February 1981.
Ormand J. Wade (2) . . . . . . . 57 Ormand J. Wade has served as a director of the Company since
December 1994. From February 1987 to December 1992, Mr. Wade
served as Vice Chairman of Ameritech Corp. and from January 1982 to
February 1987, as President and Chief Executive Officer of Illinois
Bell Telephone Company. Mr. Wade currently serves as a director of
ITW Corporation, a manufacturer of precision engineered products,
Andrew Corporation, a manufacturer of microwave and peripheral
equipment, NBD Bank Corp., a commercial bank, and Northwestern
Memorial Hospital, and as a trustee of the University of Chicago.
- ------------------------------
</TABLE>
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
b. Executive officers
The following sets forth certain information with respect to the
current executive officers of the Company. Please refer to the information
contained above under the heading "Directors" for biographical information of
executive officers who are also directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gary F. Seamans . . . . . . . . . 47 Chairman of the Board of Directors, President and Chief
Executive Officer
Robert H. Gaynor . . . . . . . . 72 Vice Chairman of the Board of Directors
Curtis L. Benton . . . . . . . . 56 Executive Vice President and Chief Administration Officer
J. William Nelson . . . . . . . . 43 President of U.S. Operations
Michael F. Lathrope . . . . . . . 49 Senior Vice President of Product Development and Chief
Technology Officer
Stephen J. Hawrysz . . . . . . . 37 Vice President, Secretary, Treasurer and Chief Financial
Officer
Melvin J. Simon . . . . . . . . . 51 Assistant Secretary, Assistant Treasurer and Director
Robert D. Faw . . . . . . . . . . 42 President of Global Operations
Marcus H. Hafner, Sr. . . . . . . 38 Vice President of Business Development
Richard P. Riviere . . . . . . . 41 Vice President of Transaction Services and President of
Conference Plus
Neil J. Kreitman . . . . . . . . 39 Senior Vice President of Global Manufacturing and Sourcing
</TABLE>
Curtis L. Benton has served as Executive Vice President since July
1993 and as Chief Administration Officer since April 1996. Mr. Benton has also
served as Executive Vice President of the Operating Company since August 1992
and as Chief Operating Officer of the Company from January 1990 to April 1996.
J. William Nelson has served as President of U.S. Operations since
April 1996 and as Executive Vice President and Chief Customer Satisfaction
Officer of Westell, Inc. since July 1993. Mr. Nelson served as Senior Vice
President and Chief Customer Satisfaction Officer of the Company from May 1991
to June 1993. Prior to joining the Company, Mr. Nelson held a variety of
management positions, including Director of Large Account Sales and Director of
Customer Service at MCI Communications, Inc. from April 1986 to May 1991.
- 34 -
<PAGE> 36
Michael F. Lathrope has served as Senior Vice President of Product
Development and Chief Technology Officer of the Company since April 1996, Mr.
Lathrope served as Vice President of Engineering and Chief Technology Officer
of the Company from June 1993 to April 1996 and as Vice President of
Engineering of the Company from April 1989 to June 1993 .
Stephen J. Hawrysz has served as Vice President and Chief Financial
Officer of the Company since July 1993, as Secretary and Treasurer of the
Company since July 1995 and as Vice President and Chief Financial Officer of
Westell, Inc. since August 1990. A Certified Public Accountant, Mr. Hawrysz
served in the Audit Division of Arthur Andersen LLP, a public accounting firm,
from June 1980 to November 1989, and as Assistant Controller for Wisconsin
Central Transportation Corporation, a regional railroad company, from November
1989 to August 1990.
Robert D. Faw has served as President of Global Operations since April
1996, as President of Westell International since February 1993 and as Chief
Executive Officer of Westell International since August 1993. Mr. Faw served
as Executive Vice President, International Operations of the Company from July
1995 to April 1996. Prior to joining the Company, Mr. Faw was Director of
International Operations and Business Development Director of Advanced
Technologies at AT&T Paradyne Corporation from October 1981 to January 1993.
Marcus H. Hafner, Sr. has served as Vice President of Business
Development since April 1996. Mr. Hafner served as Business Development Vice
President of the Company from May 1995 to March 1996. Prior to joining the
Company, Mr. Hafner was President and Chief Operating Officer of On-Demand
Technologies, Inc., a broadband network systems provider, from April 1992 to
April 1995, and a Senior Program Manager at E-Systems, Inc., an electronics
company, from November 1990 to April 1992.
Richard P. Riviere has served as Vice President of Transaction
Services for the Company since July 1995 and as President and Chief Executive
Officer of Conference Plus since October 1988.
Neil J. Kreitman has served as Senior Vice President of Global
Manufacturing and Sourcing of the Company since November 1995, and as Vice
President of Operations Science of the Company since January 1995. Prior to
joining the Company, Mr. Kreitman was Director of Material Management at AT&T
Paradyne from May 1984 to January 1995.
- 35 -
<PAGE> 37
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
March 31, 1995 and 1996, with respect to all compensation paid or earned for
services rendered to the Company by the Company's Chief Executive Officer and
the Company's four other most highly compensated executive officers who were
serving as executive officers as of March 31, 1996 (together, the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Fiscal ---------------------- All Other
Name and Principal Position Year Salary Bonus Compensation (1)(2)
--------------------------- ------ -------- -------- -------------------
<S> <C> <C> <C> <C>
Gary F. Seamans
Chairman of the Board, President and
Chief Executive Officer . . . . . . . . . 1996 $275,000 $212,800 $ 5,136
1995 253,000 231,000 3,205
Curtis L. Benton
Executive Vice President and Chief
Administration Officer . . . . . . . . . 1996 153,000 69,600 6,454
1995 139,000 124,382 3,162
J. William Nelson
President of U.S. Operations . . . . . . 1996 152,000 69,600 4,435
1995 138,000 124,790 2,707
Michael F. Lathrope
Senior Vice President of Product
Development and Chief Technology
Officer . . . . . . . . . . . . . . . . . 1996 140,000 42,400 4,366
1995 130,000 71,896 2,395
Robert D. Faw
President of Global Operations . . . . . 1996 120,000 42,000 1,845
1995 105,000 67,500 988
</TABLE>
- ------------------------------
(1) All Other Compensation for fiscal 1996 consists of matching contributions
under the Company's 401(k) Profit Sharing Plan and life insurance premiums,
as follows: Mr. Seamans: $3,570 and $1,566, respectively; Mr. Benton:
$4,177 and $2,277, respectively; Mr. Nelson: $3,937 and $498, respectively;
Mr. Lathrope: $3,910 and $456, respectively; and, Mr. Faw: $1,625 and $220,
respectively.
(2) The Company did not issue restricted stock or grant stock options or SARs
to any of the Named Executive Officers in fiscal 1996. At March 31, 1996,
restricted stock, with a fair market value equal to $18.50 per share, was
held by Mr. Seamans (199,636 shares of Class B Common Stock valued at
$3,693,266); Mr. Benton (66,468 shares of Class A Common Stock valued at
$1,229,658); and, Mr. Faw (72,500 shares of Class A Common Stock valued at
$1,341,250). Holders of restricted stock receive all dividends, if any,
paid on such shares.
Director Compensation
Directors who are not employees of the Company each receive $20,000 per
year for services rendered as directors, except Mr. Gaynor who receives $30,000
per year as Vice Chairman. In addition, all directors may be reimbursed for
certain expenses incurred in connection with attendance at Board and committee
- 36 -
<PAGE> 38
meetings. Other than with respect to reimbursement of expenses, directors who
are employees of the Company do not receive additional compensation for service
as a director. In connection with his election as a director of the Operating
Company in November 1995, Mr. Dwyer was granted an option to purchase 89,900
shares of Class A Common Stock at an exercise price of $6.50 per share. Mr.
Dwyer's options vest at a rate of 1,872 shares per month commencing January 1,
1996.
Board Committees
The Board of Directors has established three standing committees: the
Audit Committee (comprised of Messrs. Gaynor, Simon and Wade), the Compensation
Committee (comprised of Messrs. Gaynor, Simon and Wade) and the Executive
Committee (comprised of Messrs. Seamans, Gaynor and Simon). The Audit Committee
recommends the appointment of auditors and oversees the accounting and audit
functions of the Company. The Compensation Committee determines executive
officers' salaries and bonuses and administers the Stock Purchase Plan and the
Stock Incentive Plan. The Executive Committee has the authority to take all
actions that the Board of Directors as a whole would be able to take, except as
limited by applicable law.
Compensation Committee Interlocks and Insider Participations
The Compensation Committee is currently composed of Messrs. Gaynor, Wade
and Simon, the Assistant Secretary and Assistant Treasurer of the Company. No
interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
Since 1984, Melvin J. Simon & Associates, Ltd. has provided accounting and
other financial services to the Company. Mr. Simon, a director and the
Assistant Secretary and Assistant Treasurer of the Company and Co-Trustee of
the Voting Trust, is the sole owner of Melvin J. Simon & Associates, Ltd. The
Company paid Melvin J. Simon & Associates, Ltd. approximately $88,000, $88,000
and $64,000 in fiscal 1994, 1995 and 1996, respectively, for its services. The
Company believes that these services are provided on terms no less favorable to
the Company than could be obtained from unaffiliated parties.
Pursuant to a contract that expired on January 31, 1996, Florence R. Penny,
the mother of Robert C. Penny III, a Co-Trustee of the Voting Trust, and the
beneficial owner of shares of Class B Common Stock held in the Voting Trust,
for which Mr. Simon also acts as Co-Trustee, received $63,000 per year for her
services as a consultant to the Company.
The Company has granted Robert C. Penny III and Melvin J. Simon, as
Trustees of the Voting Trust, certain registration rights with respect to the
shares of Common Stock held in the Voting Trust.
Stock Plans
Employee Stock Purchase Plan. The Company has reserved an aggregate of
217,950 shares of Class A Common Stock for issuance under the Company's
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), and will permit eligible employees of the Company to
purchase Class A Common Stock through payroll deductions of up to 10% (or such
larger percentage up to 25%, as the Stock Incentive Committee administering the
Purchase Plan may in the future determine) of their compensation, provided that
no employee may purchase more than $10,000 (or such larger amount, up to
$25,000, as the Stock Incentive Committee may, in the future, determine) worth
of stock in any calendar year. The Purchase Plan has four three-month offering
periods, each beginning on January 1, March 1, July 1 and September 1 of each
year, with the first offering period commencing on January 1, 1996. The price
of Class A Common Stock purchased under the Purchase Plan will be not less than
85% of the fair market value of the Class A
- 37 -
<PAGE> 39
Common Stock on the date of purchase. The Purchase Plan will be administered by
the Stock Incentive Committee. The Board will be able to amend or terminate the
Purchase Plan at any time. However, the Board will not be able to, without
stockholder approval, materially increase the number of shares of Class A
Common Stock available for issuance or materially modify the eligibility
requirements for participation or the benefits available to participants.
1995 Stock Incentive Plan. The Company has reserved an aggregate of
2,688,050 shares of Class A Common Stock for issuance under the 1995 Stock
Incentive Plan (the "Stock Incentive Plan"), which may be granted to employees,
officers and non-employee directors of the Company. The maximum number of
shares that may be subject to benefits awarded to any participant in any fiscal
year will be 200,000 shares. The Stock Incentive Plan will be administered by
the Stock Incentive Committee. Members of the Committee will waive the right to
participate in the Stock Incentive Plan while serving on the Committee. The
Stock Incentive Plan will provide for awards, which may consist of Class A
Common Stock, restricted shares of Class A Common Stock ("Restricted Shares"),
nonqualified stock options and incentive stock options ("ISOs") to purchase
shares of Class A Common Stock, performance awards and stock appreciation
rights ("SARs").
The exercise price for options will be payable in cash. Alternatively, with
the approval of the Stock Incentive Committee, all or part of the exercise
price may be paid by surrendering shares already owned by the optionee, or by
instructing the Company to withhold shares of Class A Common Stock otherwise
issuable upon exercise of the option. The exercise price per share of Class A
Common Stock for each stock option granted under the Stock Incentive Plan may
not be less than 85% (100% in the case of an ISO) of the closing price for the
Class A Common Stock last reported on the Nasdaq National Market on the date
the stock option is granted. The market value of a share of Class A Common
Stock on the date an SAR is granted will equal the base value of such SAR.
Options and SARs to be granted under the Stock Incentive Plan must be exercised
within ten years from the date of grant and will generally vest in annual
installments as determined by the Stock Incentive Committee. In the case of any
eligible employee who owns or is deemed to own stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company, the
exercise price of any ISOs granted under the Stock Incentive Plan may not be
less than 110% of the fair market value of the Class A Common Stock on the date
of grant, and the exercise period may not exceed five years from the date of
grant.
The Board of Directors will be able to terminate or amend the Stock
Incentive Plan at any time, except that no such action generally will be able
to adversely affect any rights or obligations regarding any awards previously
made under the Stock Incentive Plan without the consent of the recipient. In
addition, no amendment may be effective without the prior approval of
stockholders, if such approval is required for the Stock Incentive Plan to
continue to comply with applicable regulations of the Securities and Exchange
Commission. In the event of any changes in the capital structure of the
Company, such as a stock dividend or split-up, the Board of Directors must make
equitable adjustments to outstanding unexercised awards and to the provisions
of the Stock Incentive Plan as it deems necessary and appropriate. If the
Company becomes a party to a merger, reorganization, liquidation or similar
transaction, the Board of Directors may make such arrangements it deems
advisable regarding outstanding awards, such as substituting new awards for
outstanding awards, assuming outstanding awards or terminating or paying for
outstanding awards.
401(k) Plan
All employees of the Company who are at least 18 years of age and have been
employed by the Company for at least 12 consecutive months (at least 1,000
hours of service) are eligible to participate in the Company's 401(k) Profit
Sharing Plan (the "401(k) Plan"). Participants may contribute up to the lesser
of 15% of their current compensation or the statutorily prescribed annual limit
to the 401(k) Plan. Participant contributions are held and invested by the
401(k) Plan's trustees. The 401(k) Plan currently provides that the Company
will contribute an amount not to exceed 6% of the participant's compensation
for the year. In
- 38 -
<PAGE> 40
fiscal 1996, the Company made matching contributions of approximately $229,000.
In addition, the 401(k) Plan allows the Company to make discretionary
profit-sharing contributions to participants. Each participant's deferred
salary contributions vest immediately, and Company contributions vest over a
period of five years. The 401(k) Plan is intended to qualify under Section 401
of the Code so that contributions by participants to the 401(k) Plan, and
income earned on plan contributions, are not taxable to participants until
withdrawn from the 401(k) Plan.
- 39 -
<PAGE> 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 27, 1996
regarding the beneficial ownership of the Company's Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock") by (i) each stockholder
known by the Company to be the beneficial owner of more than five percent of
the outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information provided by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Stockholders, Number of Number of Percent of
Named Executive Class A Class B Total Voting
Officers and Directors Shares Shares(1) Power(2)
- ---------------------- --------- --------- ------------
<S> <C> <C> <C>
Robert C. Penny III . . . . . . . . . . . . . . . . . . . -- 19,814,368(3) 78.4%
Melvin J. Simon . . . . . . . . . . . . . . . . . . . . . -- 20,063,456(3)(4) 79.3%
Gary F. Seamans . . . . . . . . . . . . . . . . . . . . . 124,544(5) 1,553,678 6.3%
Robert H. Gaynor . . . . . . . . . . . . . . . . . . . . 259,608 -- *
Curtis L. Benton . . . . . . . . . . . . . . . . . . . . 780,974 -- *
Michael F. Lathrope . . . . . . . . . . . . . . . . . . . 645,414 -- *
J. William Nelson . . . . . . . . . . . . . . . . . . . . 313,851 -- *
Robert D. Faw . . . . . . . . . . . . . . . . . . . . . . 124,544 -- *
Stefan D. Abrams . . . . . . . . . . . . . . . . . . . . 261,211 -- *
Michael A. Brunner . . . . . . . . . . . . . . . . . . . 116,241 -- *
Paul A. Dwyer . . . . . . . . . . . . . . . . . . . . . . 14,976(6) -- *
Ormand J. Wade . . . . . . . . . . . . . . . . . . . . . 106,285 -- *
All directors and
executive officers as a
group (15 persons) . . . . . . . . . . . . . . . . . . . 2,987,944 21,617,134 88.4%
</TABLE>
- ------------------------------
* Less than 1%
(1) Holders of Class B Common Stock have four votes per share and holders of
Class A Common Stock have one vote per share. Class A Common Stock is
freely transferable and Class B Common Stock is transferable only to
certain transferees but is convertible into Class A Common Stock on a
share-for-share basis.
(2) Percentage of beneficial ownership is based on 14,687,848 shares of Class
A Common Stock and 21,617,134 shares of Class B Common Stock outstanding
as of June 27, 1996.
(3) Includes 19,814,368 shares of Class B Common Stock held by Messrs. Penny
and Simon as Trustees pursuant to a Voting Trust Agreement dated February
23, 1994, as amended (the "Voting Trust"), among Robert C. Penny III and
Melvin J. Simon, as trustees (the "Trustees") and members of the Penny
family (as defined in the Voting Trust Agreement) and Simon family (as
defined in the Voting Trust Agreement). The Trustees have joint voting
and dispositive power over all shares in the Voting Trust. Messrs. Penny
and Simon each disclaim beneficial ownership with respect to all shares
held in the Voting Trust in which they do not have a pecuniary interest.
The Voting Trust contains 6,215,377 shares held for the benefit of Mr.
Penny's immediate family and 902,310 shares held for the benefit of Mr.
- 40 -
<PAGE> 42
Simon's immediate family. The address for Messrs. Penny and Simon is
Melvin J. Simon & Associates, Ltd., 4343 Commerce Court, Suite 114, Lisle,
Illinois 60532.
(4) Includes 249,088 shares held in trust for the benefit of Shawn F. Seamans,
Gary F. Seaman's son, for which Mr. Simon is trustee and has sole voting
and dispositive power. Mr. Simon disclaims beneficial ownership of these
shares.
(5) Represents shares held in trusts for the benefit of J. William Nelson's
children for which Mr. Seamans is trustee and has sole voting and
dispositive power. Mr. Seamans disclaims beneficial ownership of these
shares.
(6) Includes options to purchase 14,976 shares that are exercisable within 60
days of May 31, 1996, but does not include options to purchase 78,668
shares which are not presently exercisable.
VOTING TRUST AND STOCK TRANSFER RESTRICTION AGREEMENT
All Common Stock held for the benefit of members of the Penny family
and the Simon family, which represents 54.6% of the outstanding shares of
Common Stock and 78.4% of the voting power of the Company, is held pursuant to
a Voting Trust Agreement dated February 23, 1994, as amended, and is registered
in the names of Robert C. Penny III and Melvin J. Simon, as Trustees. Under the
Voting Trust, the Trustees have all rights of stockholders, including full
voting and investment power. All decisions of the Trustees require joint
approval. The beneficiaries (the "Beneficiaries") of the Voting Trust receive
all cash dividends and distributions paid on the shares held in the Voting
Trust. The Beneficiaries may not withdraw shares held in the Voting Trust
without the consent of the Trustees. In addition, members of the Penny family
may not transfer their beneficial interests in the Voting Trust without
complying with the rights of first refusal described below. Beneficiaries
representing 75% of the voting power of the shares held in the Voting Trust may
amend the Voting Trust or remove the Trustees at any time. The Voting Trust
continues until May 2015 unless earlier terminated or extended.
All members of the Penny family who are Beneficiaries under the Voting
Trust are parties to a Stock Transfer Restriction Agreement with the Company
(the "Stock Transfer Restriction Agreement"). The Stock Transfer Restriction
Agreement prohibits, with limited exceptions, such Beneficiaries from
transferring any Common Stock or their beneficial interests in the Voting Trust
acquired prior to November 30, 1995 without first offering such stock or
beneficial interests to the other members of the Penny family. In addition, the
Company's Amended Certificate of Incorporation provides that shares of Class B
Common Stock are automatically converted into shares of Class A Common Stock if
they are transferred to persons other than "permitted transferees."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a contract that expired on January 31, 1996, Florence R.
Penny, the mother of Robert C. Penny III, a Co-Trustee of the Voting Trust, and
the beneficial owner of shares of Class B Common Stock held in the Voting
Trust, for which Mr. Simon also acts as Co-Trustee, received $63,000 per year
for her services as a consultant to the Company. Mr. Simon is a director and
the Assistant Secretary and Assistant Treasurer of the Company.
Since 1984, Melvin J. Simon & Associates, Ltd. has provided accounting
and other financial services to the Company. Mr. Simon, a Co-Trustee of the
Voting Trust, is the sole owner of Melvin J. Simon & Associates, Ltd. The
Company paid Melvin J. Simon & Associates, Ltd. approximately $88,000,
$88,000 and $64,000 in fiscal 1994, 1995 and 1996, respectively, for its
services. The Company believes that these services are provided on terms no
less favorable to the Company than could be obtained from unaffiliated parties.
- 41 -
<PAGE> 43
The Company has granted Robert C. Penny III and Melvin J. Simon, as
Trustees of the Voting Trust, certain registration rights with respect to the
shares of Common Stock held in the Voting Trust.
Pursuant to an agreement dated September 13, 1988 between the Company
and Richard Riviere, the Vice President of Transaction Services of the Company
and President of Conference Plus, Mr. Riviere receives an annual base salary of
not less than $75,000 during his employment with the Company. This agreement
also provides Mr. Riviere with a right of first refusal with respect to the
Company's interest in Conference Plus in the event the Company decides to sell
such interest. In addition, after his employment with the Company terminates,
Mr. Riviere has agreed not to compete with the Company for a period of two
years.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) Financial Statements
The consolidated financial statements of Westell
Technologies, Inc. for the fiscal year ended March
31, 1996, together with the Report of Independent
Accountants, are set forth on pages 47 through 63 of
this Report.
The supplemental financial information listed and
appearing hereafter should be read in conjunction
with the consolidated financial statements included
in the report.
(2) Financial Statement Schedules
The following are included in Part IV of this Report
for each of the years ended March 31, 1994, 1995 and
1996 as applicable:
Report of Independent Public Accountants - page 64
Schedule II - Valuation and Qualifying Accounts -
page 65
Financial statement schedules not included in this
report have been omitted either because they are not
applicable or because the required information is
shown in the consolidated financial statements or
notes thereto, included in this report.
(3) Exhibits
3.1 Amended and Restated Certificate of
Incorporation, as amended (incorporated
herein by reference to Exhibit 3.2 to Westell
Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No.
33-98024).
3.2 Amended and Restated By-laws (incorporated
herein by reference to Exhibit 3.3 to Westell
Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No.
33-98024).
9.1 Voting Trust Agreement dated February 23,
1994, as amended (incorporated herein by
reference to Exhibit 9.1 to Westell
Technologies,
- 42 -
<PAGE> 44
Inc.'s Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
*10.1 Form of Restricted Stock Award granted by the
Company to its officers and directors other
than Gary F. Seamans and Melvin J. Simon
(incorporated herein by reference to Exhibit
10.1 to the Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
*10.2 Restricted Stock Award granted December 17,
1991 by the Company to Gary F. Seamans
(incorporated herein by reference to Exhibit
10.2 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
*10.3 Form of Restricted Stock Awards granted by
the Company to Gary F. Seamans and Melvin J.
Simon (incorporated herein by reference to
Exhibit 10.3 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.4 Stock Transfer Restriction Agreement entered
into by members of the Penny family, as
amended, (incorporated herein by reference to
Exhibits 10.4 and 10.16 to Westell
Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No.
33-98024).
10.5 Form of Registration Rights Agreement among
the Company and Robert C. Penny III and
Melvin J. Simon, as trustees of the Voting
Trust dated February 23, 1994 (incorporated
herein by reference to Exhibit 10.5 to
Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended,
Registration No. 33-98024).
*10.6 1995 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.6 to
Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended,
Registration No. 33-98024).
*10.7 Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.7 to
Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended,
Registration No. 33-98024).
10.8 Consulting Agreement dated July 28, 1988
between Florence Penny and Westell, Inc.
(incorporated herein by reference to Exhibit
10.8 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.9 Lease Agreement dated July 15, 1986 between
Kendall Point Associates, Ltd. and Westell,
Inc., as amended on August 26, 1991
(incorporated herein by reference to Exhibit
10.9 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.10 Limited Liability Company Operating Agreement
dated as of September 23, 1995 by Westell,
Inc. and Kingstand Properties, Ltd.
(incorporated herein by reference to Exhibit
10.10 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.11 Lease dated September 25, 1995 between
Westell-Meridian L.L.C. and Westell, Inc.
(incorporated herein by reference to Exhibit
10.11 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.12 Credit Agreement dated March 7, 1995 between
the Company and Bank One Chicago, N.A.
(incorporated herein by reference to Exhibit
10.12 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
- 43 -
<PAGE> 45
+10.13 Cooperation and Development Agreement between
Westell, Inc. and AT&T Paradyne Corporation,
as amended and supplemented (incorporated
herein by reference to Exhibits 10.13 and
10.15 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.14 Agreement dated September 13, 1988 between
Richard Riviere and Westell Technologies,
Inc., as amended (incorporated herein by
reference to Exhibit 10.14 to Westell
Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No.
33-98024).
+10.15 Exhibits G and H to Cooperation and
Development Agreement dated March 4, 1996
between Westell Technologies, Inc. and AT&T
Paradyne Corporation (incorporated herein by
reference to the exhibit of equivalent number
to the Company's Registration Statement on
Form S-1, as amended, Registration No.
333-4973).
10.16 Credit Agreement dated April 30, 1996 between
the Company and Bank One Chicago, N.A.
(incorporated herein by reference to the
exhibit of equivalent number to the Company's
Registration Statement on Form S-1, as
amended, Registration No. 333-4973).
10.17 Lease for Three National Plaza at Woodfield
dated December 24, 1991 by and between the
First National Bank of Boston, as Trustee
pursuant to that certain Pooling and Security
Agreement dated April 1, 1988, and Conference
Plus, Inc., as amended and modified.
10.18 Lease dated December 10, 1993 between LaSalle
National Trust, N.A., as Trustee under Trust
Agreement dated August 1, 1979, known as
Trust No. 101293, and Westell Incorporated,
as amended and modified.
21.1 Subsidiaries of the Registrant (incorporated
herein by reference to Exhibit 21.1 to
Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended,
Registration No. 33-98024).
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
_____________________
+ Confidential treatment granted for certain portions of this document.
Certain portions of this document were filed separately with the
Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1996.
(c) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are
as specified in Item 14(a)(3) herein.
(d) Financial Statement Schedules
The financial statement schedules filed as part of this Annual
Report on Form 10-K are as specified in item 14(a)(2) herein.
- 44 -
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on June 28, 1996.
WESTELL TECHNOLOGIES, INC.
By/s/ GARY F. SEAMANS
----------------------------------
Gary F. Seamans,
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
----------------------------------- ------------------------------------------ -------------
<S> <C> <C>
/s/ GARY F. SEAMANS Chairman of the Board of Directors, June 28, 1996
----------------------------------- President and Chief Executive Officer
Gary F. Seamans (Principal Executive Officer)
/s/ ROBERT H. GAYNOR Vice-Chairman of the Board of Directors June 28, 1996
-----------------------------------
Robert H. Gaynor
/s/ MELVIN J. SIMON Assistant Secretary and Treasurer and June 28, 1996
----------------------------------- Director
Melvin J. Simon
/s/ STEPHEN J. HAWRYSZ Chief Financial Officer, Vice President, June 28, 1996
----------------------------------- Secretary and Treasurer (Principal
Stephen J. Hawrysz Financial Officer and Principal Accounting
Officer)
/s/ STEFAN D. ABRAMS Director June 28, 1996
-----------------------------------
Stefan D. Abrams
/s/ MICHAEL A. BRUNNER Director June 28, 1996
-----------------------------------
Michael A. Brunner
/s/ PAUL A. DWYER Director June 28, 1996
-----------------------------------
Paul A. Dwyer
/s/ ORMAND J. WADE Director June 28, 1996
-----------------------------------
Ormand J. Wade
</TABLE>
- 45 -
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Balance Sheets -- March 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and 1996 . . . . . . . . . . 50
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995 and 1996 . . . . . . . . . . 52
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Financial Statement Schedules:
Report of Independent Public Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
- 46 -
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Westell Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
Westell Technologies, Inc. (a Delaware corporation) and Subsidiaries as of
March 31, 1995 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1996. 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 Westell
Technologies, Inc. and Subsidiaries as of March 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 21, 1996
- 47 -
<PAGE> 49
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 450 $21,789
Accounts receivable (net of allowance of $364,000 and $462,000, respectively) . . 12,613 10,217
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,209 10,684
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 609 745
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 444
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400 1,868
Land and building construction held for sale . . . . . . . . . . . . . . . . . . -- 4,431
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 30,476 50,178
------- -------
Property and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,762 9,933
Office, computer and research equipment . . . . . . . . . . . . . . . . . . . . . 7,136 11,520
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,287 1,387
------- -------
17,185 22,840
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . 7,499 11,188
------- -------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 9,686 11,652
------- -------
Deferred income tax asset and other assets . . . . . . . . . . . . . . . . . . . . 114 2,618
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,276 $64,448
======= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
- 48 -
<PAGE> 50
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,383 $ 7,643
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,341 3,899
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,087 2,995
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 1,332 1,591
Revolving promissory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,089 --
Construction Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,968
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964 2,341
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 29,196 21,437
------- -------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,797 2,836
------- -------
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525 1,040
------- -------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 150
------- -------
Commitments and contingencies
Stockholders' equity:
Class A common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 289 128
Authorized -- 43,500,000 shares
Issued and outstanding -- 28,928,196 at March 31, 1995 and 12,801,606 at March 31,
1996
Class B common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . -- 218
Authorized -- 25,000,000 shares
Issued and outstanding -- 21,838,376 shares at March 31, 1996
Preferred stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Authorized -- 1,000,000 shares
Issued and outstanding -- none
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 34,285
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . -- (59)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,488 4,413
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 7,558 38,985
------- -------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $40,276 $64,448
======= =======
</TABLE>
The accompanying notes are an integral part these
Consolidated Financial Statements.
- 49 -
<PAGE> 51
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------
1994 1995 1996
------- ------- -------
(in thousands,
except per share data)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,051 $74,029 $83,236
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,250 44,494 50,779
------- ------- -------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,801 29,535 32,457
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . 8,068 12,169 13,744
Research and development . . . . . . . . . . . . . . . . . . . . . . . 7,695 10,843 12,603
General and administrative . . . . . . . . . . . . . . . . . . . . . . 5,502 6,701 8,364
------- ------- -------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 21,265 29,713 34,711
------- ------- -------
Operating loss from continuing operations . . . . . . . . . . . . . . . . (464) (178) (2,254)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . (36) 34 (226)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 769 859
------- ------- -------
Loss from continuing operations before taxes . . . . . . . . . . . . . . (676) (913) (3,339)
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (989) (788) (1,886)
------- ------- -------
Income (loss) from continuing operations . . . . . . . . . . . . . . . . 313 (125) (1,453)
Loss from discontinued operations (net of tax benefits of
$63,000, $243,000 and $394,000, respectively) . . . . . . . . . . . . . (100) (383) (622)
------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 213 $ (508) $(2,075)
======= ======= =======
Income (loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.01) $ (0.05)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . (0.00) (0.01) (0.02)
------- ------- -------
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.02) $ (0.07)
======= ======= =======
Average number of common shares outstanding . . . . . . . . . . . . . . . 28,486 28,952 30,846
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
- 50 -
<PAGE> 52
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Shares Issued
and Outstanding Par Value Additional Cumulative Total
----------------- ----------------- Paid-in Translation Retained Stockholders'
Class A Class B Class A Class B Capital Adjustment Earnings Equity
------- ------- ------- ------- --------- ----------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1993
(adjusted for 2 for 1 stock
split effected June 7,
1996) . . . . . . . . . . . 28,304 -- $ 283 $ -- $ 653 $ -- $ 6,783 $ 7,719
Net income . . . . . . . . -- -- -- -- -- -- 213 213
Stock awards . . . . . . . 624 -- 6 -- 64 -- -- 70
------- ------ ------ ------ -------- ------ ------- --------
Balance, March 31, 1994 . . . 28,928 -- 289 -- 717 -- 6,996 8,002
Net loss . . . . . . . . . -- -- -- -- -- -- (508) (508)
Stock awards . . . . . . . -- -- -- -- 64 -- -- 64
------- ------ ------ ------ -------- ------ ------- --------
Balance, March 31, 1995 . . . 28,928 -- 289 -- 781 -- 6,488 7,558
Net loss . . . . . . . . . -- -- -- -- -- -- (2,075) (2,075)
Stock awards . . . . . . . -- -- -- -- 68 -- -- 68
Translation adjustment . . -- -- -- -- -- (59) -- (59)
Class B Stock Converted to
Class A Stock . . . . . 52 (52) 1 (1) -- -- -- --
Issuance of Class A Common
Stock . . . . . . . . . 5,683 -- 57 -- 33,203 -- -- 33,260
Shares granted under Stock
Incentive Plan . . . . . 25 -- -- -- 164 -- -- 164
Shares sold under Employee
Stock Purchase Plan . . 4 -- -- -- 69 -- -- 69
Recapitalization . . . . . (21,890) 21,890 (219) 219 -- -- -- --
------- ------ ------ ------ -------- ------ ------- --------
Balance, March 31, 1996 . . . 12,802 21,838 $ 128 $ 218 $ 34,285 $ (59) $ 4,413 $ 38,985
------- ------ ------ ------ -------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
- 51 -
<PAGE> 53
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------
1994 1995 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 213 $ (508) $(2,075)
Reconciliation of net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 1,732 3,355 4,286
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 64 232
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (217) (1,527) (2,080)
Change in assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . . . (3,677) (5,642) 2,359
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . (3,883) (3,285) 3,509
(Increase) decrease in prepaid expenses and deposits . . . . . . . . (395) 26 (136)
(Increase) decrease in refundable income taxes . . . . . . . . . . . (868) 823 (249)
Increase (decrease) in accounts payable and accrued expenses . . . . 3,286 6,066 (667)
Increase (decrease) in accrued compensation . . . . . . . . . . . . 133 1,496 (92)
Increase (decrease) in deferred revenues . . . . . . . . . . . . . . 7,179 (6,215) 1,377
------- ------- -------
Net cash provided by (used in) operating activities . . . . . . 3,573 (5,347) 6,464
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (1,535) (4,913) (4,529)
Proceeds from sale of equipment . . . . . . . . . . . . . . . . . . . . -- 263 --
Long term equipment deposit . . . . . . . . . . . . . . . . . . . . . . (1,396) 1,396 --
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . (38) (75) 58
Purchase of land held for sale . . . . . . . . . . . . . . . . . . . . -- -- (1,463)
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . (2,969) (3,329) (5,934)
------- ------- -------
Cash flows from financing activities:
Net borrowings (repayment) under revolving promissory notes . . . . . . -- 9,389 (11,089)
Repayment of long-term debt and leases payable . . . . . . . . . . . . (528) (897) (1,425)
Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . -- -- 33,329
------- ------- -------
Net cash provided by (used in) financing activities . . . . . . (528) 8,492 20,815
------- ------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . -- -- (6)
Net increase (decrease) in cash and cash equivalents . . . . . 76 (184) 21,339
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 558 634 450
------- ------- -------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 634 $ 450 $21,789
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
- 52 -
<PAGE> 54
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES:
Description of Business
Westell Technologies, Inc. (the "Company") is a holding company. Its
wholly owned subsidiary, Westell, Inc., designs, manufactures and distributes
telecommunications equipment which is sold primarily to major telephone
companies. Westell International, Inc., a wholly owned subsidiary of the
Company established in fiscal 1993, and Westell Europe, Ltd., a wholly owned
subsidiary of Westell International, Inc., market and distribute the Westell,
Inc. product line in international markets. Conference Plus, Inc., an
89.2%-owned subsidiary, provides teleconferencing services to various
customers. Video Conference Plus, Inc., a wholly owned subsidiary of Conference
Plus, Inc., markets video teleconferencing equipment and services to various
customers. KeyPrestige Information Network Systems, Inc., an 88%-owned
subsidiary established in fiscal 1993 ("KPINS"), utilizes electronic networks
to process business transactions for various customers. The Company has a
majority interest in Westell-Meridian LLC, established in fiscal 1996 for the
purpose of developing a new corporate facility site (see Note 5).
Principals of Consolidation
The accompanying Consolidated Financial Statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates of
deposit, time deposits, commercial paper, short-term government obligations and
other money market instruments. The Company invests its excess cash in deposits
with major financial institutions, in government securities and the highest
grade commercial paper of companies from a variety of industries. These
securities have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value, and are
considered cash equivalents for purposes of reporting cash flows.
- 53 -
<PAGE> 55
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market. The components of inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
--------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . $ 8,896 $ 6,784
Work in process . . . . . . . . . . . . . . . 1,057 845
Finished goods . . . . . . . . . . . . . . . 5,256 4,205
Reserve for excess and obsolete inventory . . (1,000) (1,150)
------- -------
$14,209 $10,684
======= =======
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets which range from 3 to 10 years
using the straight-line method for financial reporting purposes and accelerated
methods for tax purposes. Leasehold improvements are amortized over the lives
of the respective leases.
Revenue Recognition
Revenue is generally recognized upon shipment of product. On certain
sales contracts, revenue is not recognized until specific customer product
acceptance terms have been met.
Product Warranties
Most of the Company's products carry a limited warranty ranging from
two to seven years. The Company accrues for estimated warranty costs as
products are shipped.
Deferred Revenue
Deferred revenue represents prepayments for goods or services.
Research and Development Costs
Engineering and product development costs are charged to expense as
incurred.
- 54 -
<PAGE> 56
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Cash Flow Disclosures
The following represents supplemental disclosures to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
March 31,
------------------------------
1994 1995 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Schedule of noncash investing and financing
activities:
Property purchased under equipment notes . . . . . . . . . . . $3,165 $1,275 $1,581
Construction held for sale financed with
construction loan . . . . . . . . . . . . . . . . . . . . . -- -- 2,968
Property purchased under capital leases . . . . . . . . . . . . -- 412 142
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 850 1,023
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 49 419
===== ===== =====
</TABLE>
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument held by the Company:
Cash, trade receivables and trade payables: the carrying
amounts approximate fair value because of the short maturity of these
items.
Revolving promissory notes and installment notes payable to a
bank: due to the floating interest rate on these obligations, the
carrying amounts approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for uncollectible accounts receivable, inventory obsolescence,
product warranty, depreciation, employee benefit plans, taxes, and
contingencies.
Foreign Currency Translation
The financial position and the results of operations of the Company's
foreign subsidiary are measured using local currency as the functional
currency. Assets and liabilities of this subsidiary are translated at the
exchange rate in effect at the end of each period. Income statement accounts
are translated at the average rate of exchange prevailing during the period.
Translation adjustments arising from differences
- 55 -
<PAGE> 57
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in exchange rates from period to period are included in the foreign currency
translation adjustments account in stockholders' equity.
The Company recorded a transaction loss of $270,000 in other income
(expense) for fluctuations on foreign currency rates on accounts receivable in
the fiscal year ended March 31, 1996.
Computation of Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. These shares have been
included in the computation of net income (loss) per share. The computations
for net income (loss) per share reflect the retroactive restatement for the
2-for-1 stock split in the form of a dividend to holders of record on May 20,
1996 and to be effected on June 7, 1996.
Geographic Information
The Company's financial information by geographic area was as follows
for the year ended March 31, 1996:
<TABLE>
<CAPTION>
Domestic International Total
-------- ------------- -------
(in thousands)
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,445 $19,791 $83,236
Operating income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . (6,191) 3,937 (2,254)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . 57,623 6,825 64,448
====== ====== ======
</TABLE>
NOTE 2. REVOLVING PROMISSORY NOTES:
The Company has secured revolving promissory notes with a bank which
enable the Company to borrow up to $14.6 million and $18.5 million as of March
31, 1995 and 1996, respectively, and are due on demand. The notes bear interest
at the bank's prime rate (9.0% and 8.25% at March 31, 1995 and 1996,
respectively), and are secured by substantially all of the assets of the
Company. At March 31, 1995 and 1996, the Company had $11.1 million and $0
million borrowed under the revolving notes, respectively. The Company also had
an available equipment line of $3.0 and $6.4 million with the same bank as of
March 31, 1995 and 1996, respectively. Borrowings under this line totaled $1.8
million and $3.8 million at March 31, 1995 and 1996, respectively, and are
included as installment notes payable to a bank described in Note 3.
Subsequent to year-end, the above credit facilities were renewed to
allow the Company to borrow up to $25.0 million for working capital and
equipment purchases. Under the renewed credit facilities, the Company is
required to provide a guaranty of up to $3.0 million on the construction
financing procured by Westell-Meridian LLC. See Note 5.
- 56 -
<PAGE> 58
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31,
-------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Note payable to Kendall County, 5%, secured by substantially
all assets of the Company, due through 1998 . . . . . . . . . . . . . . . $ 131 $ 85
Capitalized lease obligations secured by related equipment . . . . . . . . 521 504
Installment notes payable to a bank, interest at prime,
secured by substantially all assets of the Company, due
through November 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,477 3,838
------ ------
4,129 4,427
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332 1,591
------ ------
$2,797 $2,836
====== ======
</TABLE>
Future maturities of long-term debt at March 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,591
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,512
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
------
$4,427
======
</TABLE>
- 57 -
<PAGE> 59
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INCOME TAXES:
Income taxes are provided based upon income reported for financial
reporting purposes using the provisions of Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes, which requires the liability
method. The income tax provisions (benefits) charged to net income are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------
1994 1995 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (669) $ 300 $ --
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (173) (1,161) (1,965)
------- ------- -------
(842) (861) (1,965)
------- ------- -------
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167) -- --
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (43) (171) (315)
------- ------- -------
(210) (171) (315)
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,052) $(1,032) $(2,280)
======= ======= =======
</TABLE>
The Company utilizes the flow-through method to account for tax
credits. In fiscal 1994, 1995 and 1996, the Company utilized approximately
$724,000, $632,000 and $790,000, respectively, of tax credits.
The statutory federal income tax rate is reconciled to the Company's
effective income tax rates below:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . . . . . . . . . (34.0)% (34.0)% (34.0)%
Meals and entertainment . . . . . . . . . . . . . . . . . . . . . 2.9 5.3 1.9
State income tax, net of federal tax effect . . . . . . . . . . . (4.9) (4.9) (4.9)
Income tax credits utilized . . . . . . . . . . . . . . . . . . . (86.3) (41.1) (18.2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.1) 7.7 2.8
------ ----- -----
(125.4)% (67.0)% (52.4)%
====== ===== =====
</TABLE>
- 58 -
<PAGE> 60
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
March 31,
-------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . $ 155 $ 189
Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . 486 321
Research and development credit carryforward . . . . . . . . . . . . . . 500 1,501
Compensation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . 260 246
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 486 617
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 419
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . -- 740
Reserve for discontinued operations . . . . . . . . . . . . . . . . . . . -- 330
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 67
------ ------
2,600 4,430
------ ------
Deferred income tax liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 112 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 150
------ ------
400 150
------ ------
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . $2,200 $4,280
====== ======
</TABLE>
Management has not recorded a valuation allowance because it believes
that the deferred tax asset will be fully realized based on current estimates
of future taxable income, future reversals of existing taxable temporary
differences or available tax planning strategies.
The Company has approximately $1.8 million in income tax credit
carryforwards and a $1.9 million net operating loss carryforward that are
available to offset taxable income in the future. The tax credit carryforwards
begin to expire in 2009 and the net operating loss carryforward expires in
2011.
NOTE 5. LEASE COMMITMENTS:
The Company has agreements to lease a manufacturing facility and
several office facilities through 2000. In addition, the leases require the
Company to pay utilities, insurance and real estate taxes on the facilities.
The current manufacturing facility lease expires in 2002. The Company has the
option to terminate this lease in 1997 and can purchase the facility at any
time at fair market value.
- 59 -
<PAGE> 61
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total minimum future rental payments at March 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,013
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
------
$2,455
======
</TABLE>
In September 1995, the Company entered into an agreement to form a
limited liability company, Westell-Meridian LLC ("LLC"), for the purpose of
developing a 16.4 acre site in Aurora, Illinois into a 173,000 square foot
corporate facility to house manufacturing, engineering, sales, marketing and
administration. In connection therewith, the Company currently has a 98%
ownership interest in the LLC, which will gradually decrease to a 60% ownership
interest as the other LLC member increases its capital contribution to the LLC
by contributing its development fees for the new facility, as earned. In
addition, the Company has a reimbursement obligation with respect to an
irrevocable letter of credit issued for the Company's account in the amount of
$952,000, due on or before September 30, 1996, which represents the Company's
capital contribution to the LLC.
In September 1995, the Company advanced the LLC $1.4 million for the
purchase of land in the form of a short-term note which bears interest at the
prime rate (8.25% at March 31, 1996). The note and accrued interest become due
and payable from proceeds of construction financing. This note has been
eliminated in consolidation as of March 31, 1996. During fiscal 1996 the LLC
began construction of the facility and as of March 31, 1996 $3.0 million of
construction costs and $1.4 million of land are included in Land and building
construction held for sale in the accompanying balance sheet. It is
managements' current intention to sell its interest in this property when
construction is completed, repay any financing and lease the facility from a
third party.
In addition, in September 1995, the Company entered into a 15 year
lease with the LLC for the facility being developed by the LLC. Lease payments
will be based upon construction costs and permanent financing arrangements and
will be determined upon building completion.
NOTE 6. CAPITAL TRANSACTIONS AND STOCK RESTRICTION AGREEMENTS:
The members of the Penny family (major stockholders) have a Stock
Transfer Restriction Agreement which prohibits, with limited exceptions, such
members from transferring their Common Stock acquired prior to November 30,
1995, without first offering such stock to the other members of the Penny
family. A total of 18,998,770 shares of Common Stock are subject to this Stock
Transfer Restriction Agreement.
During fiscal 1994, common stock awards equal to 312,330 shares were
granted by the Company to certain employees. The number of restricted shares
vested at March 31, 1994, 1995 and 1996 for these stock awards and others
previously granted was 397,565; 674,724 and 740,807 shares, respectively. The
Company valued the stock awards granted during fiscal 1994 at $1.03 per share.
This valuation was based on
- 60 -
<PAGE> 62
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
independent appraisals done at the approximate date of the grants. Compensation
expense of $70,000, $64,000 and $68,000 was recognized in fiscal 1994, 1995,
1996, respectively, based on the fair market value of the shares granted. The
remaining compensation expense to be recognized is $117,000 which will be
recognized through fiscal 1998 as the stock awards vest. In addition, the
Company granted additional compensation to reimburse certain individuals for
related income taxes on stock awards granted during fiscal 1994 in the amount
of $244,000.
On May 8, 1996, the Board of Directors authorized a two-for-one stock
split in the form of a dividend to be distributed on June 7, 1996, to
stockholders of record on May 20, 1996. All references in the financial
statements to number of shares and per share amounts of the Company's common
stock have been retroactively restated to reflect the two-for-one stock split.
NOTE 7. BENEFIT PLAN:
The Company sponsors a 401(k) benefit plan (the "Plan") which covers
substantially all of its employees. The Plan is a salary reduction plan which
allows employees to defer up to 15% of wages subject to Internal Revenue
Service allowed limits. The Plan also allows for Company discretionary
contributions. The Company provided for discretionary and matching
contributions to the Plan totaling $260,000, $161,000 and $229,000 for fiscal
1994, 1995 and 1996, respectively.
NOTE 8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT:
The Company's primary business relates to the design, manufacture and
distribution of telecommunications equipment which is sold primarily to major
telephone companies. Sales to the Company's largest customers accounted for the
following percentages of revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.0% 25.0% 5.8%
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8 14.4 12.0
Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 10.5 9.9
Customer D . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 8.9 10.4
Customer E . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 7.0 6.8
Customer F . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 11.1
</TABLE>
Major telephone companies comprise a significant portion of the
Company's trade receivables. One customer represented 20.0% of the trade
receivables balance at March 31, 1995 and four customers represented 51.6% of
the trade receivables balance at March 31, 1996.
NOTE 9. COMMITMENTS AND CONTINGENCIES:
In January 1995, a former officer of a subsidiary of the Company filed
a suit against the Company alleging damages suffered as a result of wrongful
termination and breach of contract. Management believes the suit is without
merit and intends to contest the suit vigorously. While the final outcome of
this lawsuit
- 61 -
<PAGE> 63
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cannot be determined with certainty, management believes the former officer was
released for cause under the terms of an existing agreement and that the
ultimate outcome will not have a material adverse effect on the Company's
business and results of operations or its financial position.
NOTE 10. DISCONTINUED OPERATIONS:
Effective May 1, 1994, the Company acquired the assets of Key
Prestige, Inc. ("KPI") for approximately $200,000 in cash and assumed
liabilities of approximately $190,000. The purchase price was allocated to the
assets and liabilities of KPI based on their relative fair values.
Approximately $340,000 was allocated to fixed assets and $50,000 to a
non-compete agreement. KPI was merged with Information Network Systems, Inc. to
form KPINS in fiscal 1995. The acquisition, which was accounted for as a
purchase, was funded with proceeds from the revolving promissory notes
described in Note 2.
In August 1995, the Board of Directors approved a plan for the
disposition of KPINS. The net losses of KPINS have been segregated in the
consolidated statements of operations as "discontinued operations." The Company
intends to sell KPINS before August 31, 1996. The components of the loss from
discontinued operations for the year ended March 31, 1996 are as follows:
<TABLE>
<S> <C>
Loss from operations of KPINS for the year ended March 31, 1996
(net of tax benefits of $65,000) . . . . . . . . . . . . . . . . . . . . . . . . $102,000
Estimated loss of disposal of KPINS (net of tax benefits of
$329,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000
--------
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . $622,000
========
</TABLE>
As the Company does not expect KPINS to incur operating losses between
March 31, 1996 and the anticipated date of disposal, no provision for operating
losses during the phase-out period has been made.
Summarized financial information of KPINS is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------
1994 1995 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138 $3,765 $3,263
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . 296 992 731
Net property, plant and equipment . . . . . . . . . . . . . . . . 77 497 301
Total liabilities, excluding intercompany
payables . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 664 366
</TABLE>
NOTE 11. STOCK RECAPITALIZATION:
In July 1995, the Company recapitalized its common stock to increase
the number of authorized shares from 14,500,000 shares of common stock to
17,400,000 shares of Class A Common Stock and 11,605,858 shares of Class B
Common Stock and created Class A Common Stock with voting rights of one
- 62 -
<PAGE> 64
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
vote per share and Class B Common Stock with voting rights of four votes per
share. On November 30, 1995, the Company filed an Amended and Restated
Certificate of Incorporation that increased the amount of authorized capital
stock to 43,500,000 shares of Class A Common Stock, par value $0.01 per share,
25,000,000 shares of Class B Common Stock, par value $0.01 per share, and
1,000,000 shares of undesignated Preferred Stock, par value $0.01 per share,
and effected a 29-for-1 stock split of the Class A and Class B Common Stock.
The Board of Directors has the authority to issue the newly authorized
Preferred Stock up to 1,000,000 shares in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any
series or the designation of such series, without any further vote or action by
stockholders.
NOTE 12. STOCK PLANS:
In October 1995, the Company adopted a stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of the
Company's Class A Common Stock for 85% of the average of the high and low
reported sales prices at specified dates. Under the stock purchase plan,
217,950 shares were authorized and 213,532 shares were available for future
issuance at March 31, 1996.
In October 1995, the Company adopted a stock incentive plan that permits
the issuance of Class A Common Stock, restricted shares of Class A Common Stock
and stock options to purchase Class A Common Stock, performance awards and
stock appreciation rights to selected employees, officers, consultants and
non-employee directors of the Company. Under the stock incentive plan 2,688,050
shares were authorized and 2,573,526 shares were available for future issuance
at March 31, 1996. During fiscal 1996, the Company granted options for 89,900
shares of Class A Common Stock, of which 5,616 shares were vested at March 31,
1996 at an exercise price of $6.50 per share which represents fair market value
at date of grant. The Company also issued 24,624 shares for stock awards under
this plan in fiscal 1996. Compensation expense of $164,000 and $73,000 was
recognized in fiscal 1996 for the stock awards and the related taxes,
respectively.
On May 21, 1996, the Compensation Committee of the Board of Directors
authorized the future grant of stock options to employees covering 662,850
shares of Class A Common Stock with an exercise price equal to the fair market
value of the Class A Common Stock on the actual date of grant, which is
expected to occur in June 1996.
EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
NOTE 13. COMMON STOCK ISSUANCE:
On June 20, 1996, the Company sold 1,665,000 shares of Class A Common
Stock in a public stock offering. Net proceeds to the Company from the sale of
the Class A Common Stock were approximately $61.6 million and will be used to
fund capital equipment purchases and for general corporate purposes including
working capital funding. Pending such uses, the Company intends to invest the
proceeds in short-term interest-bearing securities.
- 63 -
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Westell Technologies, Inc.
We have audited, in accordance with generally accepted auditing
standards, the financial statements of Westell Technologies, Inc. and its
Subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated May 21, 1996. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II, Valuation and Qualifying Accounts, included herein on page 65 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 21, 1996
- 64 -
<PAGE> 66
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . $ 52 $181 $364
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 129 201 274
Provision for discounts, allowances and rebates . . . . . . . . . . . . . -- -- --
Write-offs of doubtful accounts, net of recoveries . . . . . . . . . . . -- 18 176
Discounts, allowances and rebates taken . . . . . . . . . . . . . . . . . -- -- --
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $181 $364 $462
==== ==== ====
</TABLE>
- 65 -
<PAGE> 1
EXHIBIT 10.17
_______________________________________________________________________________
THREE NATIONAL PLAZA AT WOODFIELD
LEASE WITH
CONFERENCE PLUS
---------------
TENANT
LEASING AGENTS
MIGLIN-BEITLER MANAGEMENT CORPORATION
181 West Madison Street
Suite 3900
Chicago, Illinois 60602
_______________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Landlord's Services and Obligations . . . . . . . . . . . . . . . . 8
8. Tenant's Obligations . . . . . . . . . . . . . . . . . . . . . . . 9
9. Rights Reserved to Landlord . . . . . . . . . . . . . . . . . . . . 13
10. Telephone, Electric and Other Services . . . . . . . . . . . . . . 15
11. Landlord's Title . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Waiver of Certain Claims . . . . . . . . . . . . . . . . . . . . . 16
14. Condition of Premises . . . . . . . . . . . . . . . . . . . . . . 17
15. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
16. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . 18
17. Untenantability . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. Rights and Remedies of Landlord . . . . . . . . . . . . . . . . . 20
19. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . 23
20. Subordination or Superiority of This Lease . . . . . . . . . . . . 23
21. Sprinklers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22. Prior Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 24
23. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 24
25. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
26. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 26
27. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . 28
28. Landlord's Exoneration . . . . . . . . . . . . . . . . . . . . . . 29
29. Construction of Premises - Credit and Payment . . . . . . . . . . 29
30. Operating Expense Modification . . . . . . . . . . . . . . . . . . 30
31. Cancellation Option . . . . . . . . . . . . . . . . . . . . . . . 31
32. Expansion Option . . . . . . . . . . . . . . . . . . . . . . . . . 32
LANDLORD'S ACKNOWLEDGEMENT . . . . . . . . . . . . . . . . . . . . . . 38
TENANT'S ACKNOWLEDGMENT . . . . . . . . . . . . . . . . . . . . . . . . 39
CORPORATE GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 40
NON-CORPORATE GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Plan of Premises
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Construction Rider
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
RULES AND REGULATIONS
</TABLE>
-ii-
<PAGE> 4
LEASE
FOR
THREE NATIONAL PLAZA AT WOODFIELD
THIS LEASE is made and entered into at Chicago, Illinois, as of the 24th day of
December, 1991, by and between THE FIRST NATIONAL BANK OF BOSTON, as Trustee
(the "REMIC Trustee") pursuant to that certain Pooling and Servicing Agreement
dated as of April 1, 1988 by and among CIGNA Mortgage Securities, Inc. and
CIGNA INVESTMENTS, INC., as Servicer ("Servicer") (the REMIC Trustee and
Servicer are collectively referred to herein as the "Landlord"), and CONFERENCE
PLUS, a __________ corporation, (the "Tenant") as follows:
1. LEASE OF PREMISES. The Landlord hereby leases to the Tenant and
the Tenant hereby accepts the lease of the premises consisting of that certain
office space shown outlined in red or a heavy line on the plan attached hereto
as Exhibit A and incorporated herein by reference (the "Premises") located on
the THIRD (3rd) floor in the office building (the "Building") located on the
real estate commonly known as THREE NATIONAL PLAZA AT WOODFIELD, located at 999
Plaza Drive, Schaumburg, Illinois (the "Real Estate"). The Building and the
Real Estate together with the vehicular drives, the above and below ground
parking facilities, the easement areas appurtenant thereto and all other
structures and improvements now or hereinafter located upon the Real Estate are
hereinafter sometimes collectively referred to as the "Property". It is
mutually agreed that the Premises contain 969 rentable square feet.
2. TERM. The said lease of the Premises is for the term of FIVE (5)
YEARS commencing on the 1st day of March, 1992 and ending on the last day of
February, 1997 (the "Term"), unless sooner terminated as hereinafter provided.
3. RENT. Tenant will pay to Landlord's rental agents, MIGLIN-BEITLER
MANAGEMENT CORPORATION, (the "Rental Agents") at 181 West Madison Street, Suite
3900, Chicago, Illinois 60602, or to such other persons or at such other places
as the Landlord may direct from time to time by written notice to the Tenant,
in coin or currency which at the time of payment is legal tender for the
payment of public and private debts in the United States of America, without
setoff, recoupment or deduction whatsoever and, except as hereinafter provided,
without demand or billing, the aggregate of the following, all of which are
hereby declared to be "Rent".
A. As annual "Base Rent" and monthly installments of Base
Rent, the following sums are due and payable during the Term of this Lease:
<PAGE> 5
<TABLE>
<CAPTION>
RATE MONTHLY
MONTH PER INSTALLMENT ANNUAL
OF TERM SQUARE FOOT OF BASE RENT BASE RENT
- ------- ----------- ------------ ---------
<S> <C> <C> <C>
1 - 12 $5.25 $423.94 $5,087.25
13 - 24 5.36 432.82 5,193.84
25 - 36 5.47 441.70 5,300.43
37 - 48 5.58 450.59 5,407.02
49 - 60 5.69 459.47 5.513.61
</TABLE>
Notwithstanding the foregoing, the first monthly installment of Base Rent will
be paid by the Tenant concurrently with the execution of this Lease;
B. The "Rent Adjustments", "Tenant's Proportionate Share of
Operating Expenses", "Rent Adjustment Deposits" and "Operating Expense
Deposits" (hereinafter defined);
C. Interest at the "Default Rate" from the due date of each
payment of Rent due under this Lease until paid. The phrase "Default Rate"
means the lower of" (i) the highest lawful rate, or (ii) a rate of interest
equal to the sum of three percent (3 %) plus the "Prime Rate". The phrase
"Prime Rate" means that rate of interest most recently announced by the First
National Bank Of Chicago ("First") as its prime rate or base rate, changing
simultaneously and automatically with each announced change by First in its
prime rate or its base rate, such change to be effective as of and on the date
announced by First as the effective date for the change in its said prime rate
or base rate. A certificate made by an officer of First stating its prime rate
or its base rate in effect on a certain day or prime rates or base rates in
effect during a certain period shall, for the purposes hereof, be conclusive
evidence of First's prime rate or rates or base rate or rates on said day or
such period, as may be stated in any such certificate. In the event First
ceases to use the term Prime Rate in setting a base rate of interest for
commercial loans, then the Prime Rate herein shall be determined by reference
to be the rate used by First as a base rate of interest for commercial loans as
the same shall be designated by First to the Landlord. In the event First
shall discontinue to announce and/or publish a prime rate or base rate,
Landlord shall substitute therefor, in Landlord's judgment reasonably
exercised, the prime rate or base rate or similar rate of interest announced or
published by a major United States bank or major business publication or
financial publication.
In the event the Term of this Lease commences on a day other
than the first day of a calendar month or in the event that this Lease ends
prior to the end of a twelve month period or ends on a day other than the last
day of a calendar month, the
-2-
<PAGE> 6
Rent for such month or such period shall be prorated. Tenant's covenant to pay
Base Rent is independent of every other covenant set forth in this Lease.
D. All other payments required to be made by the Tenant under
this Lease.
4. OPERATING EXPENSES.
A. DEFINITIONS. For the purposes of this Lease, the
following terms, words or phrases shall have the meanings and definitions
described in this subsection 4A:
(i) "Base Year" means that calendar year which includes the
date of commencement of the term of this Lease described in Section 2.
(ii) "Lease Year" for the purposes of the Base Year means
that period of time from and including the earlier of (x) the date of
the commencement of the Term of this Lease, or (y) the day upon which
Tenant occupies the Premises through December 31, of said calendar
year and, thereafter, "Lease Year" means a consecutive twelve month
period commencing January 1 and ending December 31, both inclusive.
In the event the term of this Lease ends on a date other than December
31, then in such event, "Lease Year" also means that period ending on
the date of expiration of the term of this Lease and commencing on the
immediately preceding January 1.
(iii) "TENANT'S PROPORTIONATE SHARE" means 969/134,249, or 0.7218 percent.
(iv) "OPERATING EXPENSES" means Taxes (as hereinafter
defined) and all costs, expenses and disbursements of every kind,
nature or description, paid or incurred by the Landlord or its
beneficiaries relating to the ownership, management, operation,
maintenance and repair of the Property and the personal property,
fixtures, machinery, equipment, systems and apparatus located therein
or used in connection therewith, including, but not limited to: the
costs of electricity, steam, water, fuel, heating, lighting, air
conditioning, window cleaning, janitorial services; insurance
(including, but not limited to, fire, extended coverage, liability,
workmen's compensation, elevator or any other insurance carried in
good faith by the Landlord and applicable to the Property or the said
personal property); painting; uniforms; customary management fees;
supplies; sundries; sale or use taxes on supplies or services; costs
of wages and salaries of all persons at and below the level of
building manager engaged in the operation, maintenance and repair of
the Property and so-called "fringe benefits" (including, but not
limited to, social security taxes, unemployment insurance taxes, costs
for providing coverage for disability benefits, costs for any
pensions, hospitalization, welfare or retirement plans, vacation or
severance pay, or any other similar or
-3-
<PAGE> 7
like expense incurred under the provisions of any collective
bargaining agreement, or any costs or expenses which the Landlord, or
its beneficiaries, pays or incurs to provide benefits for employees so
engaged in the operation, maintenance and repair of the Property); the
charges of any independent contractor who, under a contract with the
Landlord, or its representatives, does any of the work of operating,
maintaining or repairing of the Property; legal and accounting
expenses; or any other expense or charge, similar or dissimilar,
whether or not heretofore mentioned, which, in accordance with
generally accepted management and accounting principles, would be
considered as an expense of maintaining, operating or repairing the
Property or the said personal property.
Operating Expenses shall not include, however, the following:
costs of alterations of any premises in the Building for other tenants
of the Building; costs of capital additions to the Property (except
that Operating Expenses shall include (1) the cost during the Term, as
reasonably amortized by Landlord with interest at a rate equal to
Landlord's then applicable borrowing rate on the unamortized amount,
of any capital improvement completed after the commencement of the
Term intended to reduce any component cost included within Operating
Expenses; and (2) the cost of any capital improvements which Landlord
is required to make, or which Landlord shall deem necessary, to keep
the Property in compliance with all applicable insurance and
governmental rules and regulations applicable from time to time
thereto); interest and principal payments on mortgages; ground rental
payments; and leasing commissions or fees.
If the Property is not fully occupied during all or any
portion of the Calculation Year, Landlord may elect to make an
appropriate adjustment of the "Operating Expenses" for such year,
employing sound management principles, to determine the amount of
"Operating Expenses" that would have been paid or incurred by the
Landlord had the Property been fully occupied and the amount so
determined shall be deemed to have been the amount of "Operating
Expenses" for such Calculation Year. If any Operating Expenses,
though paid in one year, relates to more than one Lease Year, at the
option of the Landlord, such Operating Expense may be allocated among
such related Lease Years in such a manner as Landlord may reasonably
determine. If any Operating Expense relates to more than one parcel
of property, at the option of the Landlord, such Operating Expense may
be allocated among all parcels of property to which it relates in such
a manner as Landlord may reasonably determine. If Landlord is not
furnishing any particular work or service (the cost of which if
performed by Landlord would constitute an Operating Expense) to a
tenant who has undertaken to perform such work or service in lieu of
the performance thereof by Landlord, Operating Expenses shall be
determined to be increased by an amount equal to the additional
Operating Expense which reasonably would have been
-4-
<PAGE> 8
incurred during such period by Landlord if it had at its own expense
furnished such work or service to such tenant.
(v) "Taxes" means all federal, state and local governmental
taxes, assessments and charges (including transit district taxes or
assessments) of any kind or nature, whether general, special, ordinary
or extraordinary, which Landlord or its beneficiaries shall pay or
become obligated to pay because of or in connection with ownership,
leasing, management, control or operation of the Property or of the
personal property, fixtures, machinery, equipment, systems and
apparatus located therein or used in connection therewith, including
without limitation, all ad valorem taxes, the Illinois Replacement Tax
and any tax measured or based upon rental or rental receipts. The
amount included in Taxes for any Lease Year shall be the amount
indicated by the tax bills payable during that Lease Year, except that
if the tax bills for such year are not available as of the date of the
statement, the amount of such taxes may be reasonably estimated by the
person preparing the statement. There shall be deducted from Taxes,
as determined for any year, the amount of any refund of taxes received
by landlord during such year. There shall be included in Taxes for
any year the amount of all fees, costs and expenses (including
Attorney's fees) paid by Landlord during such year in seeking or
obtaining any refund or reduction of Taxes. Taxes shall not include
any federal or state franchise, capital stock, inheritance, income
from all sources generally, or estate taxes, except that if a change
occurs in the method of taxation resulting in the substitution of any
such taxes for any Taxes as hereinabove defined, such substituted
taxes shall be included in Taxes.
(vi) **INTENTIONALLY OMITTED**
(vii) **INTENTIONALLY OMITTED**
(viii) "OPERATING EXPENSE DEPOSITS" means one-twelfth
(1/12th) of the amount of the Tenant's Proportionate Share of
Operating Expenses for the then current Lease Year as Landlord shall
reasonably estimate from time to time and communicate in writing to
Tenant.
(ix) "ANNUAL BASE RENT" means a sum equal to the product of
the monthly installment of Base Rent described in subsection 3 A of
this Lease, multiplied by twelve (12).
(x) "CALCULATION YEAR" means that Lease Year for which the
Tenant's Proportionate Share of Operating Expenses described in this
Section 4 is payable, applicable or calculated.
B. **INTENTIONALLY OMITTED**
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<PAGE> 9
C. **INTENTIONALLY OMITTED**
D. OPERATING EXPENSES. Notwithstanding any provision of this
Lease to the contrary, it is mutually agreed that the Base Rent payable by the
Tenant under this Lease do not include Operating Expenses. The Tenant agrees
to pay to Landlord's Rental Agents the Tenant's Proportionate Share of all
Operating Expenses, as follows:
(i) For the Base Year, the greater of either (a) the Tenant's
Proportionate Share of the Operating Expenses paid or accrued during
the Base Year multiplied by that fraction, the numerator of which is
twelve (12), minus the number of months that have elapsed from January
1 of the Base Year to the month immediately preceding the month in
which the Term of this Lease commences and the denominator of which is
twelve, or (b) one cent (.01); and
(ii) and for each Lease Year thereafter, the Tenant's
Proportionate Share of that amount equal to the greater of either (a)
the Operating Expenses paid or accrued during the Subject Lease Year,
or (b) one cent (.01).
E. OPERATING EXPENSE DEPOSITS. Tenant agrees to pay to the
Rental Agent on the first day of each and every month during the term of this
Lease the Operating Expense Deposit. The Operating Expense Deposit shall be
deposited against the Tenant's Proportionate Share of the Operating Expenses
due or to become due for the Lease Year during which such deposits are required
to be made. All Operating Expense Deposits may be commingled and need not be
segregated by the Landlord or the Landlord's Rental Agent, and may be held and
utilized by the Landlord without payment to the Tenant of interest or any sums
for the use of any of said deposits. During the last Lease Year or during any
partial Lease Year during which this Lease terminates, Landlord may include in
the Operating Expense Deposit its estimates of the Tenant's Proportionate Share
of the Operating Expenses which may not be finally be determined until after
the expiration or termination of this Lease.
F. LANDLORD'S STATEMENT - PAYMENT OF TENANT'S PROPORTIONATE
SHARE OF OPERATING EXPENSES. As soon as reasonably feasible after the
expiration of each Lease Year of this Lease, the Landlord shall cause to be
furnished to the Tenant a statement showing the following:
(i) Operating Expenses for the Calculation Year.
(ii) **INTENTIONALLY OMITTED**
(iii) **INTENTIONALLY OMITTED**
(iv) The amount of the Tenant's Proportionate Share of
Operating Expenses due to the Landlord for the Calculation Year, less
credit for Operating
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<PAGE> 10
Expense Deposits both paid by the Tenant in and allocable to the said
Calculation Year.
(v) **INTENTIONALLY OMITTED**
(vi) The Operating Expense Deposit due monthly, as aforesaid,
during Lease Year next following the Calculation Year for which the
statement is given (subject to revision as aforesaid), including the
amount or revised amount for the months prior to the rendition of the
statement.
Within ten days after the receipt of any such statement, the
Tenant shall pay to the Rental Agent the amount of the Tenant's Proportionate
Share of Operating Expenses due to the Landlord for the Calculation Year, as
reflected in said statement, and the amount of the Operating Expense Deposit
due for the months between the expiration of the Calculation Year described in
the statement to and including the month in which the statement is furnished.
If such statement shall reflect an amount due from the Landlord to the Tenant,
then Landlord shall first apply such amount against the next due Operating
Expense Deposit and, if not exhausted, then to the next ensuing Monthly Base
Rent, and if there is any remaining balance, and Tenant is not in default
hereunder, said remaining balance shall be paid to the Tenant.
G. ALLOCATION-SURVIVAL. If the Lease Term ends on any day
other than the last day of December, any Tenant's Proportionate Share of
Operating Expense payment due Landlord shall be prorated, and the Tenant shall
pay such amount within ten (10) days after being billed. The Tenant's
obligation and covenants to pay the Operating Expense Deposits and the Tenant's
Proportionate Share of Operating Expenses are each and all independent of every
other covenant set forth in this Lease and shall survive the expiration or
termination of this Lease.
H. BOOKS AND RECORDS. Landlord shall maintain books and
records in accordance with sound accounting and management practices,
reflecting the Operating Expenses and Taxes. The Tenant or his representative
shall have the right to examine the Landlord's books and records relative to
Operating Expenses during normal business hours at any time within ten (10)
days following the furnishing by the Landlord to the Tenant of any statement
described in subsection 4F above. Unless the Tenant shall take written
exception to any item within twenty (20) days, after the furnishing of the said
statement, the said statement an all items and matters reflected therein shall
be considered as final and accepted by the Tenant. Any amount due to the
Landlord as shown on the said statement, whether or not written exception is
taken hereto, shall be paid by the Tenant within twenty (20) days after the
Landlord shall have submitted the said statement, without prejudice to any such
written exception. If Tenant makes such timely written exception, a
certification as to the proper amount of Tenant's Proportionate Share of
Operating Expenses shall be made by Landlord's independent certified Public
accountant which shall be final and conclusive. Tenant agrees to pay
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<PAGE> 11
the cost of such certification unless it is determined Landlord's original
determination of the aggregate of Rent Adjustments and Tenant's Proportionate
Share of operating Expenses for the subject Calculation Year was in error by
more than 5% of said Operating Expenses.
5. SECURITY DEPOSIT. As additional security for faithful and prompt
performance f its obligations hereunder, Tenant shall concurrently with the
execution of this Lease pay to Landlord's said Rental Agent the sum of
$1,043.16. Said security deposit need not be segregated and may be applied by
Landlord for the purpose of curing any default or defaults of Tenant hereunder,
in which event, Tenant shall replenish said deposit in full by promptly paying
to Landlord on demand the amount so applied. Landlord shall not pay any
interest on said deposit, except as required by law. If Tenant has not
defaulted hereunder and Landlord has not applied said deposit to cure a
default, or Landlord has applied said deposit to cure a default and Tenant has
replenished the same, then said deposit, or such remaining portion thereof,
shall be paid to Tenant after the termination of this Lease. Said deposit
shall not be deemed an advance payment of Rent or a measure of Landlord's
damages for any default hereunder by Tenant.
6. USE. Tenant shall occupy and use the Premises for general office
purposes only.
7. LANDLORD'S SERVICES AND OBLIGATIONS. So long as Tenant is not in
default hereunder, Landlord shall furnish the following services:
A. HEATING-AIR CONDITIONING. Landlord shall furnish heat and
air conditioning to provide a temperature and humidity condition required, in
Landlord's judgment, for comfortable occupancy of the Premises under normal
business operations, daily from 8:00 a.m. to 6:00 p.m. (Saturday to 1:00 p.m.),
Sundays and holidays excepted. Tenant will be charged for all heating and
cooling requested and furnished before or after these hours at rates to be
established by Landlord. Wherever heat generating machines or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord reserves the right to provide and install
supplementary air conditioning units in the Premises and the cost of providing,
installing, operating and maintaining the same shall be paid by Tenant to
Landlord's Rental Agent as additional Rent.
B. WATER. Landlord shall furnish cold water from municipal
mains from regular Building outlets for drinking, lavatory and toilet purposes
drawn through fixtures installed by Landlord, or by Tenant with Landlord's
prior written consent, and hot water for public lavatory purposes from the
regular supply of the Building. Tenant shall pay Landlord's Rental Agent at
rates fixed by Landlord for water furnished for any other purpose as additional
Rent hereunder upon being invoiced for the same. Tenant shall not waste or
permit the waste of water.
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<PAGE> 12
C. WINDOW WASHING. Landlord shall furnish window washing of
all exterior windows, weather permitting, at intervals to be determined by the
Landlord, but not less than once per calendar year.
D. JANITOR SERVICE. Landlord shall famish daily janitor
services in the Premises, Saturdays, Sundays and holidays excepted. Tenant
shall not provide janitor services without the prior written consent of
Landlord and then only subject to the supervision of the Landlord and at
Tenant's sole responsibility, cost and expense, by contractors or employees at
all times satisfactory to Landlord. Landlord shall not be required to famish
janitorial services to deal with conditions generated by receptions, parties,
renovations, redecorating, remodelling or conditions not within the scope of
ordinary office use.
E. ELEVATOR SERVICE. Landlord shall furnish passenger
elevator service in common with Landlord and other tenants, daily. Daily
freight elevator service shall be available in common with Landlord and other
tenants of the Building and any use of the freight elevator service by
contractors, agents or employees of Tenant shall be at Tenant's sole cost,
responsibility and expense and at all times satisfactory to Landlord.
F. WINDOW COVERING. Landlord shall furnish blinds for all
exterior windows of standard type and color for the Building, which Tenant
agrees not to remove or alter.
G. INTERRUPTION OF SERVICES. Landlord does not warrant that
any service will be free from interruptions caused by labor controversies,
accidents, inability to obtain fuel, steam, water or supplies, governmental
regulations, or other causes beyond the reasonable control of Landlord. No
such interruption of service shall be deemed an eviction or disturbance of
Tenant's use and possession of the Premises or any part thereof, or render
Landlord liable to Tenant for damages, by abatement of rent or otherwise, or
relieve Tenant from performance of Tenant's obligations under this Lease.
Tenant hereby waives and releases all claims against Landlord for damages for
interruption or stoppage of service.
8. TENANT'S OBLIGATIONS.
A. REPAIRS. Except for ordinary wear and as otherwise
provided in this Lease, Tenant shall, at all times during the Term hereof, at
its sole expense, keep all Tenant's movable and removable fixtures located in
or appurtenant to the Premises in good order, repair and condition, and Tenant
shall promptly arrange with Landlord to have Landlord (or Landlord's agent)
make repairs of all other damages to the Premises and the replacement or repair
of all damaged or broken glass (including signs thereon), fixtures and
appurtenances (including hardware and heating, cooling, ventilating,
electrical, plumbing and other mechanical facilities in the Premises), with
materials equal in quality and class to the original materials damaged or
broken, within any
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<PAGE> 13
reasonable period of time specified by Landlord. Landlord may, but shall not
be required to do so, enter the Premises at all reasonable times to make any
repairs, alterations, improvements or additions, including, but not limited to,
ducts and all other facilities for heating and air conditioning service, as
Landlord shall desire or deem necessary for the, safety, preservation or
improvement of the Building, or as Landlord may be required to do by the
municipality in which the Building is located or by the order or decree of any
court or by any other proper authority. The cost of all repairs made by
Landlord to the Property which are made necessary as a result of misuse or
neglect by Tenant or Tenant's employees, invitees or agents shall be
immediately paid as additional Rent by Tenant to Landlord upon being billed for
same. The cost of all other repairs and replacements (except those caused by
Tenant's misuse or negligence and those relating to Tenant's movable fixtures)
shall be paid for by the Landlord and deemed an item of Operating Expenses.
B. REMOVAL PERMIT. Tenant shall list all furniture,
equipment and similar articles Tenant desires to remove from the Premises or
the Building and deliver a copy to Landlord and procure a removal permit from
the rental agent authorizing Building employees to permit such articles to be
removed.
C. DOORS TO BE LOCKED. Before leaving the Premises
unattended, Tenant shall close and securely lock all doors and shut off all
utilities in the Premises. Any damage resulting from failure to do so shall be
paid by Tenant.
D. HOLDING OVER. Tenant shall pay to the Landlord for each
day Tenant retains possession of the Premises or any part thereof after
termination hereof, by lapse of time or otherwise, 150% of the amount of the
daily rate of rental then required by the terms hereof for the last monthly
period prior to the date of such termination and also pay all reasonable
damages sustained by Landlord by reason of such retention, or, if Tenant holds
over for in excess of thirty days and Landlord gives notice in writing to
Tenant of Landlord's election thereof (and not otherwise), such holding over
shall constitute renewal of this Lease for one year at the higher of (i) 150%
of the then current Rent; or (ii) that amount set forth in a written notice
from Landlord to Tenant prior to the holding over, but acceptance by Landlord
of Rent after such termination shall not constitute a renewal nor waive
Landlord's right of reentry or any other right.
E. LAWS AND REGULATIONS. Tenant shall comply with all
reasonable rules and regulations Landlord may adopt from time to time for the
protection and welfare of the Building, the Property and its tenants and
occupants, and comply with all laws, ordinances, orders and regulations and
with the directions of any public officers authorized by law with respect to
the Premises and the use and occupancy thereof.
F. SIGNS. Tenant shall not paint, display, inscribe or affix
any sign, trademark, picture, advertising, notice, lettering or direction on
any part of the outside or inside of the Building, or on the Premises, except
on the public hallways of the
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<PAGE> 14
Premises, and then only such name or names or matter and of such location,
color, size, style, character and material as shall be first approved by
Landlord in writing. Landlord reserves the right to remove any other matter,
without notice to Tenant and at the cost and expense of Tenant.
G. ADVERTISING. Tenant shall not advertise the business,
profession or activities of Tenant in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining thereto or use the name of the Building for any purpose
other than that of the business address of tenant, or use any picture or
likeness of the Building or "THREE NATIONAL PLAZA AT WOODFIELD" or any other
name by which the Building may from time to time be known, on any letterhead,
envelope, circular, notice, advertisement, container or wrapping material,
without the prior written consent of Landlord.
H. ARTICLES SOLD. Tenant shall not exhibit, sell or offer
for sale, rent or exchange in the Premises or on the Property any article,
thing or service except those ordinarily embraced within the use of the
Premises specified in Section 6 without the prior written consent of Landlord.
I. HAZARDOUS MATERIALS. Tenant shall not use, cause or
permit to be brought into or kept, held, located or disposed of on, under or at
the Premises or on the Property any inflammable oils or fluids, or any
explosive or other articles deemed "Hazardous Materials". For the purposes of
this Lease, "Hazardous Materials" means and includes any hazardous, toxic or
dangerous waste substance or material defined as such in (or for purposes of)
the Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order, decree or other
requirement of any governmental authority regulating, relating to, or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, as now or at any time hereafter in effect.
J. VARIOUS PROHIBITED USES. Tenant shall not install or operate any
refrigerating, heating or air conditioning apparatus or carry on any
manufacturing, production or mechanical business, operation or activity without
the prior written consent of Landlord; use the Premises for housing, lodging or
sleeping purposes; permit preparation or warming of food in the Premises
(warming of coffee and individual lunches of employees excepted), or permit
food to be brought into the Premises for consumption therein, without the prior
written consent of Landlord. Landlord may in its sole discretion refuse such
permission or impose any conditions in granting it, and revoke it at will.
Tenant shall not occupy or use the Premises or permit the Premises to be
occupied or used for any purpose, act or thing which is in violation of any
public law, ordinance or governmental regulation or which may be dangerous to
persons or property, or which may invalidate or increase the amount of premiums
for any policy of insurance carried on the Building or covering its operation
or violate the terms thereof;
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<PAGE> 15
provided, however, that if any additional amounts of insurance premiums are
caused by Tenant's occupancy or use of the Premises, without limitation of any
other rights or remedies of Landlord, Tenant shall pay to Landlord said
additional amounts. Tenant, at its sole expense, shall comply with all rules,
regulations and requirements of the Illinois Inspection and Rating Bureau.
Tenant shall not do or permit anything to be done upon the Premises, or bring
or keep anything thereon which is in violation of rules, regulations or
requirements of the local fire department, Illinois Inspection and Rating
Bureau, Fire Insurance Rating Organization, or any other similar authority
having jurisdiction over the Building. Tenant shall not use the Premises for
housing accommodations or, for any immoral or illegal purposes. Tenant shall
not at any time do or permit the manufacture, sale, purchase, use or gift of
any spirituous, fermented, intoxicating or alcoholic liquors.
K. SOUND DEVICES. Tenant shall not place any radio or television or
other antenna aerial or wires or other equipment on the roof or on or in any
part of the inside or outside of the Building other than the inside of the
Premises; operate or permit to be operated any musical or sound producing
instalment or device inside or outside the Premises which may be heard outside
the Premises, operate any electrical, electronic or other device from which may
emanate electrical, electronic or other waves which may interfere with or
impair radio or television broadcasting or reception or any other transmission
to, from or in the Building or elsewhere.
L. NUISANCES. Tenant shall not bring or permit to be in the Building
any bicycle or other vehicle, or dog (except in the company of a blind person)
or other animal; make or permit any noise, vibration or odor to emanate from
the Premises; do anything therein tending to create, or maintain, a nuisance;
disturb, solicit or canvass any occupant of the Building, or do any act tending
to injure the reputation of the Building.
M. CLEANLINESS AND OBSTRUCTION OF PUBLIC AREAS. Tenant shall not
place anything or allow anything to be placed near the glass of any door,
partition, or window which may be unsightly from outside the Premises; take or
permit to be taken in or out of other entrances of the Building, or take or
permit on other elevators, any item normally taken in or out through the
trucking concourse or service doors or in or on freight elevators; or, whether
temporarily, accidentally, or otherwise, allow anything to remain in, place or
store anything in, or obstruct in any way, any passageway, exit, stairway,
elevator, shipping platform, or truck concourse. Tenant shall lend its full
cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and move all supplies, furniture and equipment as soon as
received directly to the Premises and move all such items and waste, other than
waste customarily removed by employees of the Building, being taken from the
Premises, directly to the shipping platform at or about the time arranged for
removal therefrom.
N. ADDITIONAL LOCKS. Tenant shall not attach or permit to be
attached additional locks or similar devices to any door, transom or window;
change existing locks or the
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<PAGE> 16
mechanism thereof, or make or permit to be made any keys for any door other
than those provided by Landlord. (If more than two keys for one lock are
desired, Landlord will provide them upon payment therefor by Tenant.)
O. OVERLOAD ANY FLOOR. Tenant shall not overload any floors.
P. DEFACING PREMISES. Tenant shall not do any painting or decorating
in the Premises; or mark, paint, cut or drill into, drive nails or screws into,
or in any way deface any part of the Premises or the Building, outside or
inside, without the prior written consent of Landlord. (If Tenant desires
signal, communication, alarm or other utility or service connections installed
or changed, the same shall be made by and at the expense of Tenant, with the
approval and under direction of Landlord.)
Q. ALTERATIONS. Tenant shall not make installations, alterations or
additions in or to the Premises without submitting plans and specifications to
Landlord and securing the prior written consent of Landlord in each instance.
Such work shall be done at the sole cost and expense of Tenant by employees of
or contractors employed by Landlord, or with Landlord's consent in writing
given prior to letting of contract, by contractors employed by Tenant, but in
each case, only under written contract previously approved in writing by
Landlord, and subject to all conditions Landlord may impose including, without
limitation, conditions which will assure Landlord that all work will be
performed lien free. All installations, alterations and additions shall be
constructed in a good and workmanlike manner and only new and good grades of
material shall be used, and shall comply with all insurance requirements, and
with all ordinances and regulations of the local governmental subdivisions or
any department or agency thereof, and with the requirements of all statutes and
regulations of the State of Illinois or any department or agency thereof.
Tenant shall permit Landlord to supervise all construction operations within
the Premises and pay to the Landlord a supervision fee equal to 15% of the cost
of all such construction. If alterations are made by Tenant's contractors,
Tenant shall furnish to Landlord prior to commencement thereof, building
permits and certificates of appropriate insurance and bonds, and upon
completion of any installation, alteration or addition, Contractor's Affidavits
and full and final Waivers of Lien covering all labor and material expended and
used. Tenant shall hold Landlord harmless from all claims, costs, damages,
liens and expenses which may arise out of or be connected in any way with said
installations, alterations or additions.
R. RULES AND REGULATIONS. Tenant agrees to and agrees to cause its
employees, agents, clients, customers, invitees, visitors and guests to comply
with the reasonable Rules and Regulations for the Building promulgated by the
Landlord from time to time.
9. RIGHTS RESERVED TO LANDLORD. Landlord shall have the following
rights exercisable without notice and without liability to Tenant for damage or
injury to property, person or business (all claims for damage being hereby
released), and without
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<PAGE> 17
effecting an eviction or disturbance or Tenant's use or possession or giving
rise to any claim for setoffs, or abatement of rent:
A. To change the name or street address of the Building.
B. To install and maintain signs on the exterior and interior
of the Building or anywhere on the Property.
C. To designate all sources furnishing sign painting and
lettering, ice, mineral or drinking water, beverages, foods, towels, vending
machines or toilet supplies used or consumed on the Premises.
D. To have passkeys to the Premises.
E. To decorate, remodel, repair, alter or otherwise prepare
the Premises for reoccupancy during the last month of the Term hereof, if
during or prior to such time Tenant vacates the Premises, or any time after
Tenant abandons the Premises.
F. To enter the Premises at reasonable hours to make
inspections, or to exhibit the Premises to prospective tenants, purchasers or
others, or for other reasonable purposes.
G. To have access to all mail chutes according to the rules
of the United States Post Office.
H. To require all persons entering or leaving the Building
during such hours as Landlord may from time to time reasonably determine to
identify themselves to a watchman by registration or otherwise and to establish
their right to leave or enter, and to exclude or expel any peddler, solicitor
or beggar at any time from the Premises or the Property.
I. To approve the weight, size and location of safes,
computers, all other heavy articles in and about the Premises and the Building
and to require all such items and other office furniture and equipment to be
moved in and out of the Property and Premises only at such time and in such
manner as Landlord shall direct and in all events at Tenant's sole risk and
responsibility.
J. At any time or times, to decorate and to make, at its own
expense, repairs, alterations, additions and improvements, structural or
otherwise, in or to the Premises, the Property or part thereof, and to perform
any acts related to the safety, protection or preservation thereof, and during
such operations to take into and through the Premises or any part of the
Property all material and equipment required and to close or temporarily
suspend operation of entrances, doors, corridors, elevators or other
facilities, provided that Landlord shall cause as little inconvenience or
annoyance to
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<PAGE> 18
Tenant as is reasonably necessary in the circumstances, and shall not do any
act which permanently reduces the size of the Premises. Landlord may do any
such work during ordinary business hours and Tenant shall pay Landlord for
overtime and for any other expenses incurred if such work is done during other
hours at Tenant's request.
K. To do or permit to be done any work in or about the
Premises or the Property or any adjacent or nearby building,land, street or
alley.
L. To grant to anyone the exclusive right to conduct any
business or render any service on the Property, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by Section
6 of this Lease.
M. To close the Building at 8:00 p.m. or at such other
reasonable time as Landlord may determine, subject, however, to Tenant's right
to admittance under such regulations as shall be prescribed from time to time
by Landlord.
N. To prohibit the placing of vending or dispensing machines
of any kind in or about the Premises without the prior written permission of
the Landlord.
O. Landlord reserves the right to require Tenant to move to
other space in the Building which, except for location or floor, is equivalent
to the Premises, upon receipt of thirty (30) days' written notice from
Landlord, in which event, Landlord shall pay all moving costs and all other
reasonable costs associated with moving, the new space shall thereupon become
the Premises demised hereunder at the same Rents as are provided for herein and
the space from which Tenant is required to move shall cease to be the Premises
demised hereunder.
P. All other rights reserved by the, Landlord pursuant to the
provisions of this Lease.
10. TELEPHONE, ELECTRIC AND OTHER SERVICES.
A. Tenant shall make arrangements directly with the telephone
companies servicing the Building for such telephone service in the Premises as
may be desired by Tenant. Tenant shall pay the entire cost of the installation
and maintenance of an electrical meter in the Premises, all telephone charges,
electricity consumed within the Premises, maintenance of light fixtures and
replacement of lamps, bulbs, tubes, ballasts and starters. Landlord and Tenant
do hereby acknowledge that the electricity for the lighting fixtures located in
the Premises does not (or will not) run through and be measurable by the
electrical meter installed (or to be installed) in the Premises.
B. If Tenant desires telegraphic, telephonic, burglar alarm,
computer installations or signal service (which service shall be at Tenant's
sole expense), Landlord shall, upon request, direct where and how all
connections and wiring for such service
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<PAGE> 19
shall be introduced and run. In the absence of such directions, Tenant shall
make no borings, cutting or install any wires or cables in or about the
Premises.
C. Tenant covenants and agrees that Landlord shall in no
event be liable or responsible to Tenant for any loss, damage or expense which
Tenant may sustain or incur if either the quality or character of electrical
service is changed or is no longer suitable for Tenant's requirements. Tenant
covenants and agrees that at all times its use of electric current shall never
exceed the capacity of existing feeders to the Building when reviewed in
conjunction with electrical usage of other tenants in the Building or the
Premises or wiring or installation; and also that it shall make no alterations
or additions to the electric equipment and/or appliances without the prior
written consent of Landlord in each instance.
11. LANDLORD'S TITLE. Landlord's title is and always shall be
paramount to the title of Tenant. Nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord.
12. QUIET ENJOYMENT. Subject to the provisions of this Lease,
Landlord covenants that Tenant, on paying the Rent and performing the covenants
of this Lease on its parts to be performed, shall and may peaceably and quietly
have, hold and enjoy the Premises for the Term of this Lease.
13. WAIVER OF CERTAIN CLAIMS. To the full extent now, or hereafter,
permitted by law, except any act of negligence on the part of Landlord, Tenant
waives and releases all claims against Landlord, its officers, directors,
agents, employees and servants, in respect of, and they shall not be liable for
injury to person or damage to property sustained by Tenant or by any occupant
of the Premises or the Property, or any other person, occurring in or about the
Property, or the Premises resulting directly, or indirectly, from any existing
or future condition, defect, matter or thing in the Premises, the Property or
any part of it, or from equipment or appurtenances therein, or from accident,
or from any occurrence, act, or from negligence or omission of any Tenant or
occupant of the Property, or of any other person including Landlord, its
officers, directors, agents, employees and servants. This section shall apply
especially, but not exclusively, to damage caused as aforesaid or by the
flooding of basements or other subsurface areas or by refrigerators, sprinkling
devices, air conditioning apparatus, water, snow, frost, steam, excessive heat
or cold, falling plaster, broken glass, sewage, gas, odors or noise, or the
bursting or leaking of pipes or plumbing fixtures, and shall apply equally
whether any such damage results from the act or omission of other tenants,
occupants or servants of the Property or of any other persons including
Landlord, its officers, directors, agents, employees and servants, and whether
such damage be caused or result from any thing or circumstance above mentioned,
or any other thing or circumstance whether alike or wholly different in nature.
If any such damage to the Premises or the Property or any equipment or
appurtenance therein, or to tenants thereof, results from any act or omission
or negligence of Tenant, its agents, employees or invitees, Landlord
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may, at Landlord's option, repair such damage and Tenant shall, upon demand by
Landlord, reimburse Landlord forthwith for all costs of such repairs and
damages both to the Property and to the tenants thereof. All property on the
Property or in the Premises belonging to Tenant, its agents, employees or
invitees, or to any occupant of the Premises shall be there at the risk of
Tenant or other person only, and Landlord shall not be liable for damage
thereto or theft, misappropriation or loss thereof. Tenant agrees to hold
Landlord, its officers, directors, agents, employees and servants harmless and
to indemnify it against claims and liability for injuries to all persons and
for the damage to, or the theft, misappropriation or loss of all property
occurring in or about the Premises, or due to any act or omission of Tenant,
its agents or employees or invitees.
14. CONDITION OF PREMISES. Tenant's taking possession shall be
conclusive evidence that the Premises were then in good order, repair and
satisfactory condition. Except as may be set forth in Exhibit B attached
hereto, no promise has been made to alter, remodel, improve, repair, decorate
or clean the Premises or any part thereof, and no representation respecting the
condition of the Premises or the Property has been made to Tenant, except as
made herein.
15. TERMINATION. At the termination of this Lease, by lapse of time
or otherwise:
A. SURRENDER OF KEYS. Tenant shall surrender all keys of the
Premises to Landlord and make known to Landlord the explanation of all
combination looks remaining on the Premises.
B. RETURN OF PREMISES. Tenant shall return to Landlord the
Premises and all equipment and fixtures of Landlord in as good a condition and
state of repair as when Tenant originally took possession subject, however, to
(a) the provisions of Paragraphs C and D of this Section 15; (b) ordinary wear
and loss or damage by fire; or (c) other casualty covered in Section 17 hereof,
failing which Landlord may restore the Premises, equipment and fixtures to such
condition and state of repair and Tenant shall, upon demand, pay to landlord
the cost thereof.
C. REMOVAL OF ADDITIONS. All installations, additions,
hardware, non-trade fixtures and improvements temporary or permanent, except
movable furniture and equipment belonging to Tenant, in or upon the Premises,
whether placed there by Tenant or Landlord, shall be Landlord's property and
shall remain upon the Premises, all without compensation, allowance or credit
to Tenant; provided, however, that if prior to such termination or within ten
days thereafter Landlord so directs by notice, Tenant shall promptly remove the
installations, additions, hardware, non-trade fixtures and improvements, placed
in or upon the Premises by Tenant and designated in the notice, failing which
Landlord may remove the same and Tenant shall, upon demand, pay to Landlord the
cost of such removal and of any necessary restoration of the Premises.
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D. FLOOR COVERING. Tenant may remove any floor covering
entirely paid for and laid by Tenant, provided Tenant (a) removes all
fastenings, paper, glue, bases and other vestiges thereof and restores the
floor surface to its previous condition, or (b) pays to Landlord, upon demand,
the cost of restoring the floor surface condition.
E. PROPERTY PRESUMED ABANDONED. All fixtures, installations,
and personal property belonging to Tenant not removed from the Premises upon
termination of this Lease and not required by Landlord to have been removed as
provided in Paragraph C of this Section 15, shall be conclusively presumed to
have been abandoned by Tenant and title thereto shall pass to Landlord under
this Lease as by a Bill of Sale.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord in each instance: (i) assign, transfer, mortgage,
pledge, hypothecate or encumber, or subject to or permit to exist upon or be
subjected to any lien or charge, this Lease or any interest under it; (ii)
allow to exist or occur any transfer of or lien upon this Lease or the Tenant's
interest herein by operation of law; (iii) sublet the Premises or any part
thereof, or (iv) permit the use or occupancy of the Premises or any part
thereof for any purpose not provided for under Section 6 of this Lease or by
anyone other than the Tenant and Tenant's employees. In no event shall this
Lease be assigned or assignable by voluntary or involuntary bankruptcy
proceedings or otherwise, and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
Tenant shall, by notice in writing, advise Landlord of its intention
from, on and after a stated date (which shall not be less than sixty (60) days
after date of Tenant's notice) to assign or transfer its interest as Tenant in
this Lease, or sublet any part or all of the Premises for the balance or any
part of the Term, and in such event, Landlord shall have the right to be
exercised by giving written notice to Tenant thirty (30) days after receipt of
Tenant's notice, to recapture the space. described in Tenant's notice and such
recapture notice shall, if given, cancel and terminate this Lease with respect
to the space therein described as of the date stated in Tenant's notice.
Tenant's said notice shall state the name and address of the proposed subtenant
or assignee and a true and complete copy of the proposed sublease or assignment
shall be delivered to Landlord with said notice. If Tenant's notice shall
cover all of the Premises, and Landlord shall give the aforesaid recapture
notice with respect thereto, the Term of this Lease shall expire and end on the
date stated in Tenant's notice as fully and completely as if that date had been
herein definitely fixed for the expiration of the Term. If, however, this
Lease is canceled pursuant to the foregoing with respect to less than the
entire Premises, the Rent herein reserved shall be adjusted on the basis of the
number of square feet retained by Tenant in proportion to the number of square
feet contained in the Premises, as described in this Lease, Tenant shall pay
for the cost of physically separating the portion of space so recaptured from
the Premises, and this Lease, as so amended, shall continue thereafter in full
force and effect. If Landlord, upon receiving Tenant's said notice with
respect to any such space, shall not exercise its right to cancel
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as aforesaid, Landlord will not unreasonably withhold its consent to Tenant's
assignment as aforesaid or subletting the space covered by its notice.
Any subletting or assignment hereunder shall not release or discharge
Tenant of or from any liability, whether past, present or future, under this
Lease, and Tenant shall continue fully liable thereunder. The subtenant or
subtenants or assignee shall agree to comply with and be bound by all of the
terms, covenants, conditions, provisions and agreements of this Lease to the
extent of the space sublet or assigned, and Tenant shall deliver to Landlord
promptly after execution, an executed copy of each such sublease or assignment
and an agreement of compliance by each such subtenant or assignee.
Notwithstanding anything to the contrary in this Section 16, if Tenant
is a corporation whose shares of stock are not publicly traded and if during
the Term of this Lease the ownership of the shares of stock which constitutes
control of Tenant changes by reason of sale, gift or death, Tenant shall notify
Landlord of such change within five (5) days thereof, and if, and only if, the
operation from the Premises changes the corporation, after giving effect to
such change in ownership, has a net worth of less than the Tenant on the date
of execution of this Lease, the Landlord, at its option, may at any time
thereafter terminate this Lease by giving Tenant written notice of said
termination at least sixty (60) days prior to the date of termination stated in
the notice. The term "control", as used herein, means the power to directly or
indirectly direct or cause the direction of the management or policies of the
Tenant.
If Tenant shall assign or transfer its interest in this Lease or
sublet the Premises whether or not it first obtained Landlord's consent at a
rental in excess of the rent due and payable by Tenant under the provisions of
Sections 3 and 4 of this Lease, 50% of said excess rent and all other
consideration received by the Tenant relating to such assignment or sublet
shall be paid to the Landlord and the Tenant shall be entitled to retain the
remaining 50%.
Any sale, assignment, mortgage, transfer or subletting of this Lease
which is not in compliance with the provisions of this paragraph at Landlord's
written election shall be of no effect and void.
The Landlord may assign this Lease and thereafter shall not be liable
hereunder; provided, that the Landlord's assignee shall assume the Landlord's
obligations hereunder. No assignee, sublettee or licensee of Tenant shall be
entitled to exercise or receive the benefits of any option or right contained
in this Lease or any rider or future amendment hereto granting the Tenant the
right:
(1) to extend or renew the Term;
(2) to lease any additional space in the Building;
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(3) to utilize any reserved or underground parking space; or
(4) to utilize any health club memberships.
17. UNTENANTABILITY. In the event (a) Premises are made
substantially untenantable by fire or other casualty, or (b) the Building is so
damaged by fire or other casualty that Landlord shall decide to demolish or not
rebuild the same, then, in any of such events, Landlord shall have the right to
terminate this Lease by notice to Tenant within ninety (90) days after the date
of such fire or other casualty and the Rent shall be apportioned on a per them
basis and paid to the date of such fire or other casualty. In the event the
Premises are made untenantable by fire or other casualty and Landlord shall
decide to rebuild and restore the same, this Lease shall not terminate and
Landlord shall repair and restore the Premises at Landlord's expense and with
due diligence, subject, however, (i) to reasonable delays for insurance
adjustments and (ii) delays caused by forces beyond Landlord's control, and the
Rent shall abate on a per diem basis during the period of reconstruction and
repair.
In the event the Premises are not made substantially untenantable,
then Landlord shall, except during the last year of the term hereof, proceed
with all due diligence to repair and restore the Premises, subject, however, to
(i) reasonable delays for insurance adjustments, and (ii) delays caused by
forces beyond Landlord's control. In such event, the Rent shall abate in
proportion to the non-useability of the Premises during the period while
repairs are in progress unless such partial damages are due to the fault or
neglect of Tenant. If the partial damage is the result of the fault or neglect
of Tenant, Rent shall not abate during said period. If the Premises are made
partially untenantable as aforesaid during the last year of the Term hereof,
Landlord or Tenant shall have the right to terminate this Lease as of the date
of fire or other casualty, in which event, the Rent shall be apportioned on a
per diem basis and paid to the date of such fire or other casualty.
18. RIGHTS AND REMEDIES OF LANDLORD. All rights and remedies of
Landlord herein enumerated shall be cumulative and none shall exclude any other
right or remedy allowed by law.
A. If any voluntary or involuntary petition or similar
pleading under any section or sections of any bankruptcy act shall be filed by
or against Tenant, or any voluntary or involuntary proceeding in any court or
tribunal shall be instituted to declare Tenant insolvent or unable to pay
Tenant's debts, or Tenant makes an assignment for Tenant or for the major part
of assignment for the benefit of its creditors, or a trustee or receiver is
appointed for Tenant or for the major part of Tenant's property, then and in
any such event, Landlord may, if Landlord so elects, but not otherwise, and
with notice of such election, and with or without entry or other action by
Landlord, forthwith terminate this Lease, and, notwithstanding any other
provisions of this Lease, Landlord shall forthwith upon such termination be
entitled to recover damages in an amount
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equal to the then present value of the Rent specified in Sections 3 and 4 of
this Lease for the residue of the stated term hereof and any extension or
renewal thereof agreed to by Tenant, less the fair rental value of the Premises
for the residue of the stated term and any extension or renewal thereof agreed
to by Tenant.
B. If Tenant defaults in the prompt payment of Rent and such
default shall continue for ten or more days after the same be due and payable
or in the performance or observance of any other provision of this Lease and
such other default shall continue for ten or more days after notice thereof
shall have been given to Tenant, or if the leasehold interest of Tenant be
levied upon under execution or attached by process of law, or if Tenant
abandons the Premises, then and in any such event, Landlord, if it so elects,
with or without notice or demand, forthwith, or at any time thereafter while
such default continues, either may terminate Tenant's right to possession,
without terminating this Lease, or may terminate this Lease. If the term of
any lease, other than this Lease, made by Tenant for any premises in the
Building shall be terminated or terminable after the making of this Lease
because of any default by Tenant under such other lease, such fact shall
empower Landlord, at Landlord's sole option, to terminate this Lease by notice
to Tenant.
C. Upon termination of this Lease, whether by lapse of time
or otherwise, or upon any termination of Tenant's right to possession without
termination of this Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and hereby
grants to Landlord full and free license to enter into and upon the Premises in
such event with or without process of law and to repossess Landlord of the
Premises as of Landlord's former estate and to expel or remove tenant and any
others who may be occupying or within the Premises and to remove any and all
property therefrom, using such force as may be necessary, without being deemed
in any manner guilty of trespass, eviction, forcible entry or detainer, or
conversion of property, and without relinquishing Landlord's rights to Rent or
any other right given to Landlord hereunder or by operation of law. Tenant
expressly waives the right to a jury trial. Except for the notices
specifically required by this Lease, Tenant expressly waives the service of any
demand for payment of Rent or for possession and the service of any notice of
Landlord's election to terminate this Lease or to reenter the Premises,
including any and every form of demand and notice prescribed by any statute or
other law, and agrees that the simple breach of any covenant or provision of
this Lease by Tenant shall, of itself, without the service of any notice or
demand whatsoever, except for the notices specifically required by this Lease,
constitute a forcible detainer by Tenant of the Premises within the meaning of
the statutes of the State of Illinois.
D. If Tenant abandons the Premises or otherwise entitles
Landlord so to elect, and if Landlord elects to terminated Tenant's right
without terminating this Lease, Landlord may, at Landlord's option, enter upon
the Premises, remove Tenant's signs and other evidences of tenancy, and take
and hold possession thereof as provided in Paragraph C of this Section 18,
without such entry and possession terminating this
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Lease, or releasing Tenant, in whole or in part, from Tenant's obligation to
pay the Rent hereunder for the full term, and in any such case, Tenant shall
pay forthwith to Landlord a sum equal to the present value of the entire amount
of the Rent specified in Section 3 of this Lease for the residue of the stated
term plus any other sums then due hereunder. Upon and after entry into
possession without termination of this Lease, Landlord may, but need not, relet
the Premises or any part thereof for the account of Tenant to any person, firm
or corporation other than Tenant for such rent, for such time and upon such
terms as Landlord in Landlord's sole discretion shall determine, and Landlord
shall not be required to accept any tenant offered by Tenant or to observe any
instructions given by Tenant about such reletting. In any such case, Landlord
may make repairs, alterations and additions in or to the Premises, and
redecorate the same to the extent deemed by Landlord necessary or desirable,
and Tenant shall, upon demand, pay the cost thereof, together with all expenses
of the reletting. If the consideration collected by Landlord upon any such
reletting for Tenant's account is not sufficient to pay the full amount of
unpaid Rent reserved in this Lease, together with the cost of repairs,
alterations, redecorating and Landlord's expenses, Tenant shall pay to Landlord
the amount of any deficiency, upon demand. If the consideration so collected
from any-such reletting is more than sufficient to pay the full amount of the
rent reserved herein, together with the costs and expenses of Landlord,
Landlord, at the end of the stated term of this Lease, shall account for the
surplus to Tenant.
E. **INTENTIONALLY OMITTED**
F. Any and all property which may be removed from the
Premises by Landlord pursuant to the authority of this Lease or of law, to
which Tenant is or may be entitled, may be handled, removed or stored in a
commercial warehouse or otherwise by Landlord at the risk, cost and expense of
Tenant, and Landlord shall in no event be responsible for the value,
preservation and safekeeping thereof. Tenant shall pay to Landlord, upon
demand, any and all expenses incurred in such removal and all storage charges
against such property so long as the game shall be in Landlord's possession or
under Landlord's control. Any such property of Tenant not removed from the
Premises or retaken from storage by Tenant at the end of the term, however
terminated, shall by Landlord's election made at any time be conclusively
deemed to have forever abandoned by Tenant.
G. The prevailing party shall be entitled to collect, all
costs, charges and expenses, including the fees of counsel, agents and others
retained by the prevailing party, incurred by the prevailing party in enforcing
the non-prevailing party's obligations hereunder or incurred by the prevailing
party in any litigation, negotiation or transaction in which the non-prevailing
party causes prevailing party, without its fault, to become involved or
concerned.
H. If Tenant violates any of the terms and provisions of this
Lease, or defaults in any of its obligations hereunder, other than the payment
of Rent or other
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sums payable hereunder, such violations may be restrained or such obligation
enforced by injunction.
I. Tenant hereby grants to Landlord a second lien and
security interest upon the interest of Tenant under this Lease and the personal
property of the Tenant located in the Premises to secure the payment of monies
due under this Lease, which lien may be foreclosed.
19. EMINENT DOMAIN. If the Property, or any portion thereof which
includes a substantial part of the Premises, shall be taken or condemned by any
competent authority for any public use or purpose, the term of this Lease shall
end upon, and not before, the date when the possession of the part so taken
shall be required for such use or purpose, and without apportionment of the
award. Rent shall be apportioned as of the date of such termination. If any
condemnation proceeding shall be instituted in which it is sought to take or
damage any part of the Property, or if the grade of any street or alley
adjacent to the Property is changed by any competent authority and such change
of grade makes it necessary or desirable to remodel the Property to conform to
the changed grade, Landlord shall have the right to cancel this Lease upon not
less than ninety (90) days' notice prior to the date of cancellation designated
in the notice. No money or other consideration shall be payable by Landlord to
Tenant for said cancellation, and the Tenant shall have no right to share in
the condemnation award or in any judgment for damages caused by said eminent
domain proceeding. Notwithstanding the foregoing, Tenant shall have the right
to make a separate claim with the condemning authorities for Tenant's moving
costs and unamortized costs of Tenant improvements paid for by the Tenant.
20. SUBORDINATION OR SUPERIORITY OF THIS LEASE. The rights and
interests of Tenant under this Lease shall be subject and subordinate to any
mortgage or trust deed that exists now or may hereafter be placed upon the
Building or Real Estate or Property and to any and all advances to be made
thereunder and to the interest thereon, and to all renewals, replacements and
extensions thereof. Any mortgagee or trustee may elect to give the rights and
interests of Tenant under this Lease priority over the lien of its mortgage or
trust deed. In the event of such election and upon notification by such
mortgagee or trustee to Tenant to that effect, the rights and interests of
Tenant under this Lease shall be deemed to have priority over the lien of said
mortgage or trust deed, whether this Lease is dated prior to or subsequent to
the date of such mortgage or trust deed. Tenant shall promptly execute and
promptly deliver whatever reasonable instruments may be required for such
purposes and in the event Tenant fails to so do within ten (10) days after
demand, in writing, Tenant shall, without further notice, be deemed in default
hereunder.
In the event of a foreclosure of a mortgage or the sale of the
Property pursuant to a trust deed or if Landlord's interest in the Premises is
conveyed or transferred in lieu of foreclosure (i) the successor landlord shall
not be liable for any default of a prior
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landlord or any other matter which occurred prior to the date such successor
succeeded to the Landlord's interest nor shall such successor be bound by or
subject to any offsets or defenses which Tenant may have against Landlord; (ii)
upon request of the successor landlord, Tenant shall attorn and will execute
and deliver such instruments as may be necessary to evidence such attornment;
and (iii) no successor to Landlord shall be bound to recognize any prepayment
of Rent by more than thirty days, nor (iv) shall any successor to Landlord have
any liability for any security deposit not physically received by it.
21. SPRINKLERS. If at any time during the Term a "sprinkler system"
exists or is installed on the Property and if such "sprinkler system" (if any)
or any of its appliances shall be damaged or injured or not in proper working
order by reason of any act or omission of Tenant, Tenant's agents, servants,
employees, licensees or visitors, Tenant shall forthwith restore the same to
good working condition at its own expense; and if the Board of Fire
Underwriters or Fire insurance Exchange or any bureau, department or official
of the state or city government, requires or recommends that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business or the location of partitions,
trade fixtures, or other contents of the Premises, or for any other reason, or
if any such changes, modifications, alterations, additional sprinkler heads or
other equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate as fixed by said Exchange, or by any fire insurance company, Tenant shall,
at Tenant's expense, promptly make and supply such changes, modifications,
alterations, additional sprinkler heads or other equipment.
22. PRIOR OCCUPANCY. In the event Tenant is permitted to occupy the
Premises prior to commencement of the Term, then all the provisions of this
Lease shall be in full force and effect commencing at such occupancy; such
occupancy shall be on the basis of a month-to-month tenancy, and Rent for such
period shall be paid at the monthly rate set forth in Sections 3 and 4.
23. NOTICE. In every instance where it shall be necessary or
desirable for Tenant to give or serve any notice or demand upon Landlord, such
notice or demand shall be sent by United States Registered or Certified Mail,
postage prepaid, addressed to Landlord c/o the Rental Agent at the place where
rental under this Lease is then being paid. Any notice or demand to be given
or served by Landlord to Tenant shall be effective if mailed or delivered by
Landlord or Landlord's Rental Agent to the Premises, or to such other address
as may appear on the records of Landlord. Notice mailed as aforesaid shall be
conclusively deemed to have been served at the close of the second business day
following the date said notice was mailed.
24. SUCCESSORS AND ASSIGNS. Each provision hereof shall extend to
and shall, as the case may require, bind and inure to the benefit of Landlord
and Tenant and their respective heirs, legal representatives, successors and
assigns, provided that this Lease
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shall not inure to the benefit of any assignee, heir, legal representative,
transferee or successor of Tenant except upon the prior written consent or
election of Landlord, as provided in Section 16.
The term "Landlord", as used in this Lease, means only the owner, or
the mortgagee in possession, for the time being, of the Property (or the owner
of a lease of the Building or of the Real Estate and the Building) of which the
Premises form a part, so that in the event of any sale or sales of said Real
Estate and the Building or of said Lease, or in the event of a lease of the
Building, or of the Real Estate and the Building, Landlord shall be and hereby
is entirely free and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser at any such sale, or the said lessee of the Building, or of the
Real Estate and the Building, that the purchaser or the lessee of the Building
has assumed and agreed to carry out any and all covenants and obligations of
Landlord hereunder.
25. INSURANCE.
(a) Landlord and Tenant agree to have all property insurance
policies which may be carried by either of them endorsed with a clause
providing that any release from liability of or waiver of claim for recovery
from the other party entered into in writing by the insured thereunder prior to
any loss or damage shall not affect the validity of said policy or the right of
the insured to recover thereunder. Without limiting any release or waiver of
liability or recovery contained in any other paragraph of this Lease but rather
in confirmation and furtherance thereof, Landlord and Tenant each hereby waive
any and every claim for recovery from the other, its officers, agents,
employees and beneficiaries for any and all loss of or damage to the Property
or to the contents thereof, which loss or damage is covered by valid and
collectible fire and extended coverage insurance policies, to the extent that
such loss or damage is recoverable under said insurance policies. Inasmuch as
this mutual waiver will preclude the assignment of any such claim by
subrogation (or otherwise) to an insurance company (or any other person),
Landlord and Tenant each agree to give to each insurance company which has
issued, or in the future may issue, to its policies of fire and extended
coverage insurance, written notice of the terms of this mutual waiver, and to
have said insurance policies properly endorsed, if necessary to prevent the
invalidation of said insurance coverage by reason of said waiver.
(b) At all times during the Term of this Lease, Tenant shall
at its sole cost and. expense maintain in full force and effect insurance
protecting Tenant and Landlord and Landlord's beneficiaries and their
respective agents and any other parties designated by Landlord from time to
time, with terms, coverages and in companies at all times satisfactory to
Landlord and with such increases in limits as Landlord may, from time to time,
request. Initially, such coverage shall be in the following amounts:
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(i) Comprehensive General Liability Insurance, including
Contractual Liability insuring the indemnification provisions
contained in this Lease, with limits of not less than One Million
Dollars ($1,000,000.00) combined single limit per occurrence for
Bodily Injury, Death and Property Damage. The Comprehensive General
Liability policy shall include as additional insureds the Landlord,
with a severability of interest endorsement.
(ii) Insurance against (A) "All Risks" of physical loss
coverage for, movable fixtures, office equipment, furniture, trade
fixtures, merchandise and all other items of Tenant's property on the
Premises, and (B)loss of use of the Premises.
Tenant shall, prior to the commencement of the Term hereof and
prior to the expiration of any policy, furnish Landlord certificates evidencing
that all required insurance is in force and providing that such insurance may
not be cancelled or changed without at least thirty (30) days' prior written
notice to Landlord and Tenant (unless such cancellation is due to non-payment
of premiums, in which event ten (10) days' prior written notice shall be
provided).
26. MISCELLANEOUS.
A. Force Majeure. Wherever there is provided in this lease a
time limitation for performance by the Landlord or Tenant of any construction,
repair, maintenance or service (but not the payment of Rent), the time provided
for shall be extended for as long as and to the extent that delay in compliance
with such limitation is due to an act of God, strikes, governmental control or
other factors beyond the reasonable control of the Landlord or Tenant.
B. If any provision of this Lease or application to any party
or circumstances shall be determined by any court of competent jurisdiction to
be invalid and unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law.
C. The headings of sections are for convenience only and do
not define, limit or construe the contents of such sections or subsections.
References made in this Lease to numbered sections and subsections shall refer
to the numbered sections or subsections of this Lease, unless otherwise
indicated.
D. The Lease is to be executed in copies, each of which
executed copy shall constitute an original. In the event of a conflict between
the provisions of any
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original lease with the provisions of any other original lease, then in such
event, the provisions of Landlord's original lease will govern and control.
E. Each of the parties agrees, at the request of the other,
to execute such instruments or documents as any party may reasonably request,
acknowledging: the date of Completion of the Premises; the date of acceptance
of possession of the same; the date of commencement of rentals; the
commencement of the term; the commencement and expiration dates of this Lease;
the Operating Expenses; Taxes for any Lease Year; the number of rentable square
feet demised to the Tenant; Annual Base Rental amount; and the compliance or
noncompliance by any party with any of the terms or provisions of this Lease;
and to evidence such other or further matters as may be so reasonably requested
by Tenant, Landlord or any Mortgagee or Trustee having a valid lien on the
Property or any part thereof.
F. Tenant represents that except for Miglin-Beitler
Management Corporation and C.B. Commercial Real Estate Group, Inc., it has not
dealt with any real estate broker in connection with this Lease and, to its
knowledge, no broker other than Miglin-Beitler Management Corporation and C.B.
Commercial Real Estate Group, Inc. initiated or participated in the negotiation
of this Lease, submitted or showed the Premises or any other space in the
Building to Tenant or is entitled to any commission in connection with this
Lease. Tenant hereby agrees to indemnify, defend, and hold Landlord harmless
from and against any and all claims of any other real estate broker for
commissions in connection with this Lease who claim to have dealt with the
Tenant.
G. No receipt of money by Landlord from Tenant after the
termination of this Lease, the service of any notice, the commencement of any
suit or final judgment for possession shall reinstate, continue or extend the
term of this Lease or affect any such notice, demand, suit or judgment.
H. No waiver of default of Tenant shall be implied, and no
express waiver shall affect any default other than the default specified in
such waiver and that only for the time and to the extent therein stated.
I. Clauses, plats, exhibits and riders, if any, signed by
Landlord and Tenant and endorsed on or affixed to this Lease are part hereof
and in the event of variation or discrepancy, the duplicate original hereof,
including such clauses, plats and riders, if any, held by Landlord shall
control.
J. Submission of this instrument for examination or signature
by Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant. Submission of this instrument to Landlord, signed by
Tenant, shall construe and irrevocable offer to lease the Premises on the terms
herein stated for a period of thirty (30) days from the date of such
submission.
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K. Wherever the consent of either Landlord or Tenant is
required by the provisions of this Lease, such party shall not unreasonably
withhold or delay such consent.
L. Rentable Area of the Premises. Tenant acknowledges that
the rentable square feet of the Premises attributes to the Premises a portion
of the common and service areas of the Building.
M. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein and may be
modified or altered only by agreement, in writing, between Landlord and Tenant.
No modifications, termination or surrender of this Lease or surrender of the
Premises or any part thereof or of any interest therein by Tenant shall be
valid or effective unless agreed to and accepted, in writing, by Landlord, and
no act by any representative or agent of Landlord, other than delivery of such
a written agreement and acceptance by Landlord shall constitute an acceptance
thereof.
N. This Lease shall be construed and enforced in accordance
with the laws of the State of Illinois.
O. As used herein, the terms "Landlord" or "Tenant" and any
pronouns used to refer to Landlord or Tenant shall, as the context requires,
include the singular and the plural, and the masculine, feminine and neuter.
P. This Lease has been jointly reviewed and modified by all
of the parties hereto and shall be construed accordingly; any principle or rule
of construction which construes any provision of this Lease against the draftor
of the Lease is hereby declared to be inapplicable to this Lease and all
parties to this Lease.
Q. Any claim which Tenant may have against Landlord for
default in performance in any of the obligations herein contained to be kept
and per-formed by the Landlord shall be deemed waived, unless such claim is
asserted by written notice thereof to the Landlord within thirty (30) days of
the commencement of the alleged default or of accrual of the cause of action
and unless suit is brought thereon within twelve (12) months subsequent to the
accrual of such cause of action. Furthermore, Tenant agrees to look solely to
Landlord's interest in the Property for the recovery of any judgment from
Landlord, it being agreed that Landlord or if Landlord is a partnership, its
partners, whether general or limited, or if Landlord is a corporation, its
directors, officers or shareholders, shall never be personally liable for any
such judgment.
27. ESTOPPEL CERTIFICATES. The Tenant agrees that, from time to time
upon not less than ten days prior written request by Landlord, the Tenant, or
Tenant's duly authorized representative having knowledge of the following
facts, will deliver to
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Landlord a statement in writing certifying: (i) that this Lease is unmodified
and in full force and effect (or if there have been modifications that the
Lease, as modified, is in full force and effect); (ii) the dates to which Rent
and other charges have been paid; and (iii) that the Landlord is not in default
under any provision of this Lease, or, if in default, the nature thereof in
detail, it being intended that any such statement may be relied upon by any
prospective purchaser or tenant of the Property, any mortgagees or prospective
mortgagees thereof, or any prospective assignee of any mortgage thereof.
Tenant shall execute and deliver whatever instruments may be required for such
purposes and in the event Tenant fails so to do within twenty (20) days after
demand in writing, Tenant shall be considered in default under this Lease.
28. LANDLORD'S EXONERATION. It is expressly understood and agreed by
and between the parties hereto, anything herein to the contrary
notwithstanding, that each and all of the representations, warranties,
covenants, undertakings and agreements herein made on the part of any Landlord
while in form purporting to be the representations, warranties, covenants,
undertakings and agreements of such Landlord are, nevertheless, each and every
one of them made and intended, not as personal representations, warranties,
covenants, undertakings and agreements by such Landlord, or for the purpose or
with the intention of binding such Landlord personally, but are made and
intended for the purpose only of subjecting such Landlord's interest in the
Premises and the Property to the terms of this Lease and for no other purpose
whatsoever, and in case of default hereunder by such Landlord (or default
through, under or by any of its beneficiaries, or any of the agents or
representatives of the Landlord or said beneficiaries), Tenant shall look
solely to the interests of such Landlord in the Premises and the Property; that
no Landlord nor any of the beneficiaries of any Landlord which is a land trust
shall have any personal liability to pay any indebtedness accruing hereunder or
to perform any covenant, either express or implied, herein contained and no
liability or duty shall rest upon any Landlord which is a land trust to
sequester the trust estate or the rents, issues and profits arising therefrom,
or the proceeds arising from any sale or other disposition thereof, that no
personal liability or personal responsibility of any sort is assumed by, nor
shall at any time be asserted or enforceable against, Landlord, individually or
personally, or against any of its beneficiaries or any of the beneficiaries
under any land trust which may become the owner of any representation,
warranty, covenant, if any, being expressly waived and released by Tenant and
by all persons claiming by, through or under Tenant.
29. CONSTRUCTION OF PREMISES - CREDIT AND PAYMENT. The Landlord and
the Tenant do hereby acknowledge that Tenant has delivered to the Landlord and
Landlord has approved that certain set of plans (including Final Working
Drawings) (the "Final Plans") dated January 31, 1992, prepared by The Interior
Design Group, consisting of four pages, labelled 1 of 4, 2 of 4, 3 of 4 and 4
of 5. The Landlord does hereby agree to build out the Premises substantially
in accordance with the Final Plans. Notwithstanding the provisions of Exhibit
B to the Lease to the contrary, the cost of all work (the "Work") necessary to
build out the Premises in accordance with the Final Plans
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(including, but not limited to, Landlord's Work, Extra Work and all plans
(including spare plans), specifications, working drawings, permits, meters,
blinds and all labor and materials) shall, subject to the credit granted
herein, be the responsibility of the Tenant and payment of such amount in
excess of the credit granted herein shall be made by the Tenant to the Landlord
no later than the Completion Date. The Landlord does hereby grant to the
Tenant a credit (the "Construction Credit") equal to the lesser of: (i) the
actual cost of the Work; or (ii) that amount determined by multiplying the
number of rentable square feet contained in the Premises by $12.00. The
Construction Credit shall be applied by the Landlord to pay the cost of all
Work necessary to build out the Premises, pursuant to said Exhibit B as the
Work progresses.
30. OPERATING EXPENSE MODIFICATION. Section 4 of the Lease is
amended by adding thereto the following provision:
"D. OPERATING EXPENSES. Notwithstanding any provision of
this Lease to the contrary, it is mutually agreed that the Base Rent
payable by the Tenant under this Lease does not include Operating
Expenses. The Tenant agrees to pay to Landlord's Rental Agents the
Tenant's Proportionate Share of all Operating Expenses, as follows:
(i) For the Base Year, the greater of either (a) the
Tenant's Proportionate Share of the Operating Expenses paid or
accrued during the Base Year multiplied by that fraction the
numerator of which is twelve (12), minus the number of months
that have elapsed from January 1 of the Base Year to the month
immediately preceding the month in which the Term of this
Lease commences and the denominator of which is twelve, or (b)
one cent (.01);
(ii) For the first Lease Year immediately following
the Base Year, the greater of either (a) the Tenant's
Proportionate Share of the Operating Expenses paid or accrued
during the said Lease Year, but not to exceed one hundred and
eight percent (108%) of the amount that Tenant would have been
required to pay if the Term of this Lease had commenced on
January 1 of the Base Year, or (b) one cent (.01);
(iii) For the second Lease Year immediately
following the Base Year, the greater of either (a) the
Tenant's Proportionate Share of the Operating Expenses paid or
accrued during the said Lease Year, but not to exceed one
hundred sixteen percent (116%) of the amount that Tenant would
have been required to pay if the Term of this Lease had
commenced on January 1 of the Base Year, or (b) one cent
(.01);
(iv) For the third Lease Year immediately following
the Base Year, the greater of either (a) the Tenant's
Proportionate Share of the Operating
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Expenses paid or accrued during the said Lease Year, but not to exceed
one hundred twenty-four percent (124%) of the amount that Tenant would
have been required to pay if the Term of this Lease had commenced on
January 1 of the Base Year, or (b) one cent (.01);
(v) For the fourth Lease Year immediately following the Base
Year, the greater of either (a) the Tenant's Proportionate Share of
the Operating Expenses paid or accrued during the said Lease Year, but
not to exceed one hundred thirty-two percent (132%) of the amount that
Tenant would have been required to pay if the Term of this Lease had
commenced on January 1 of the Base Year, or (b) one cent (.01); and
(vi) For the fifth Lease Year immediately following the Base
Year, subject to the provisions of paragraph 4G of this Lease, the
greater of either (a) the Tenant's Proportionate Share of the
Operating Expenses paid or accrued during the said Lease Year, but not
to exceed one hundred forty percent (140%) of the amount that Tenant
would have been required to pay if the Term of this Lease had
commenced on January 1 of the Base Year, or (b) one cent (.01)."
31. CANCELLATION OPTION. Provided, and only provided, that the
Tenant shall not have exercised either of the "Options" specified in Section 32
below, the Tenant is hereby granted an option to cancel this Lease effective as
of the last day of any full calendar month which is more than _____-five (__)
______________________ the Commencement Date (the "Termination Option") under
the following terms and conditions:
(i) If the Tenant desires to exercise its Termination Option
to so terminate this Lease, it shall so notify the Landlord, in
writing, at least twelve (12) months in advance of the intended date
of termination of this Lease which shall be stated in said notice (the
"Termination Date"), and only at a time when the Tenant is not in
default under the terms of this Lease, the applicable cure period for
which has expired.
(ii) The Tenant, after delivery of said notice, shall
continue to comply with the terms and provisions of this Lease, as
amended (including continuing to pay Rent, when due), to and including
the Termination Date, as if no notice to terminate had been given.
(iii) The Tenant shall on or before the Termination Date
deliver to the Rental Agent a cashier's check (the "Termination Fee")
made payable to the order of the Rental Agent in an amount equal to
the product of $350.00, multiplied by that number of months determined
by subtracting from 60 the number of months from and including the
first full calendar month of the Term to and including the month in
which the Termination Date occurs. The
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Termination Fee is not refundable and is payable by Tenant in addition
to any other Rent payable by the Tenant under the Lease.
(iv) In the event the Tenant shall have delivered the notice
required hereby and shall continue to make payments of Rent and all
other sums due and owing under this Lease in a timely manner, without
default, to and including the Termination Date and further provided
that the Tenant vacates the Premises and returns the same to Landlord
in the condition required by Section 15 of this Lease by the
Termination Date, then in such event, and only in such event and
subject to subparagraph (v) below, this Lease and all of Tenant's
rights and liabilities thereunder shall terminate as of and upon the
end of the Termination Date.
(v) Any attempt by the Tenant to exercise the right to
terminate this Lease in any other manner or at any other time than as
provided above or the Tenant's subsequent failure to make timely
payments of such sums due up to and including the Termination Date,
pursuant to the terms and provisions of this Lease, or to vacate the
Premises within the time and in the manner proscribed above shall
result, at Landlord's election, in either:
(a) The termination of Tenant's right to cancel this
Lease, as provided herein, or
(b) Shall constitute a default under this Lease, the
liability for which (notwithstanding any other provision of
this Section 31 to the contrary), including, but not limited
to, the liability to pay all Rent and the Termination Fee,
shall continue, notwithstanding the termination of this Lease
as of the Termination Date and the Landlord shall be entitled
to all remedies provided in this Lease, as if the Tenant were
holding over after the expiration of the Term.
The Landlord shall notify the Tenant of its election no later than
that date which is thirty business days subsequent to the Termination Date. In
the event the Landlord shall have elected to terminate the Tenant's right to
cancel this Lease, as provided hereinabove, this Lease shall continue in full
force and effect for the remainder of the Term, as if the Tenant had not
elected to exercise the cancellation option described in this Section 31.
32. EXPANSION OPTION. The Tenant is hereby granted two options (the
"Options") to acquire all or any part of:
A. Effective during the first eighteen months of the Term,
Tenant shall have the option (the "First Option") to acquire
approximately 1,000 rentable square feet of additional contiguous
space to the Premises, the location of which
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shall be selected by the Landlord (the "First Option Space") for
occupancy commencing on the "Completion Date" of the First Option
Space on the terms and conditions and only on the terms and conditions
set forth in this subsection 32 A. If the Tenant desires to exercise
the First Option, it shall do so in the following and only in the
following manner:
(i) Tenant shall notify the Landlord of its desire
to exercise the First Option, in writing, given no later than
six (6) months prior to the expiration of the eighteenth
(18th) month of the Term of this Lease and indicate in said
notice the number of rentable square feet (up to 1,000)
desired. Such notice shall only be effective if delivered at
a time when the Tenant is not in default of its obligations
pursuant to the terms of the Lease, as amended.
(ii) As soon as practical after the receipt of the
notice by the Tenant electing to exercise the First Option,
the Landlord shall forthwith prepare and transmit to the
Tenant an appropriate lease amendment, specifying the location
of the First Option Space, increasing the number of rentable
square feet contained in Section 1 of the Lease by the number
of rentable square feet designated in Tenant's notice and
modifying Exhibit A to the Lease to indicate the inclusion of
the First Option Space in the Premises. Such amendment shall
also increase the Base Rent by the product of the then
escalated per square foot rental rate (including Rent
Adjustments), multiplied by the number of rentable square feet
contained in the First Option Space and modifying the monthly
installments of Base Rent to equal one-twelfth (1/12th) of the
new Base Rent, as determined aforesaid. Such amendment shall
also increase the numerator set forth in subsection 4A(iii) of
the Lease by the number of rentable square feet contained in
the First Option Space and modify the percentage contained in
such subsection accordingly. Such amendment shall also
increase the security deposit described in Section 5 by an
amount equal to the monthly increase in Base Rent caused by
the addition of the First Option Space.
If the First Option Space has been previously
improved for another tenant, the Tenant shall take possession
thereof in its then "as is" condition. If the First Option
Space has not been previously improved for another tenant,
there will be attached as an exhibit to the amendment an
Exhibit B, identical in form to the Exhibit B to the Lease,
with the following modifications:
(a) Any reference to the Premises in such
Exhibit B will be construed as meaning only the First
Option Space.
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(b) The date contained in subsection 3(d) of
Exhibit B to the Lease will be deleted and in
substitution thereof a date which is thirty days from
the date of notice of exercise of the First Option by
the Tenant will be inserted in lieu thereof.
(c) All references in said Exhibit B to
"Completion", "Completion Date" shall refer solely
and only to the improvements required to be made in
and to the First Option Space as a result of Tenant's
exercise of its Option.
(d) The provisions of subsection 6(b) of the
current Exhibit B to the Lease shall have no
application to the Exhibit B attached to said
amendment and such provision shall be deleted.
(e) Paragraph 29 of the Lease, modified by
deleting therefrom the phrase "contained in the
Premises" and substituting therefor the phrase
"contained in the 'First Option Space'", will be
applicable to the First Option Space.
The effective date of the amendment shall be as of
the Completion Date pursuant to the new Exhibit B attached to
the amendment.
(iii) Promptly upon receipt of said amendment, the
Tenant shall execute the same, and transmit it, together with
the amount of the additional security deposit, to the Landlord
within ten (10) days of the date of such receipt. The failure
of the Landlord to receive the amendment so executed within
ten days of the date of Landlord's transmission of the same to
the Tenant will result, at Landlord's option, in the Tenant's
exercise of the First Option automatically being null and void
and of no further force or effect. Any attempt by the Tenant
to exercise the Option granted hereby at a time or in a manner
other than as specifically set forth herein shall be at the
Landlord's sole option of no force or effect.
B. Provided and only provided Tenant has validly exercised
the option granted to it pursuant to the provisions of subsection 32A
and Tenant has not theretofore exercised its option to cancel granted
to it pursuant to the provisions of Section 31, then in such event,
effective during the period commencing on the first day following the
Tenant's exercise of its First Option and ending on the last day of
the thirty-sixth (36th) month of the Term, Tenant shall have the
option (the "Second Option") to acquire approximately 1,000 rentable
square feet of additional contiguous space to the Premises, the
location of which shall be selected by the Landlord (the "Second
Option Space") for occupancy commencing on the "Completion Date" of
the Second Option Space on the terms and
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conditions and only on the terms and conditions set forth in this
subsection 32 B. If the Tenant desires to exercise the Second Option,
it shall do so in the following and only in the following manner:
(a) Tenant shall notify the Landlord of its desire
to exercise the Second Option, in writing, given no later than
six (6) months prior to the expiration of the thirty-sixth
(36th) month of the Term of this Lease and indicate in said
notice the number of rentable square feet (up to 1,000)
desired. Such notice shall only be effective if delivered at
a time when the Tenant is not in default of its obligations
pursuant to the terms of the Lease, as amended.
(b) As soon as practical after the receipt of the
notice by the Tenant electing to exercise the Second Option,
the Landlord shall forthwith prepare and transmit to the
Tenant an appropriate lease amendment, specifying the location
of the Second Option Space, increasing the number of rentable
square feet contained in Section 1 of the Lease by the number
of rentable square feet designated in Tenant's notice and
modifying Exhibit A to the Lease to indicate the inclusion of
the Second Option Space in the Premises. Such amendment shall
also increase the Base Rent by the product of the then
escalated per square foot rental rate (including Rent
Adjustments), multiplied by the number of rentable square feet
contained in the Second Option Space and modifying the monthly
installments of Base Rent to equal one-twelfth (1/12th) of the
new Base Rent, as determined aforesaid. Such amendment shall
also increase the numerator set forth in subsection 4A(iii) of
the Lease by the number of rentable square feet contained in
the Second Option Space and modify the percentage contained in
such subsection accordingly. Such amendment shall also
increase the security deposit described in Section 5 by an
amount equal to the monthly increase in Base Rent caused by
the addition of the Second Option Space.
If the Second Option Space has been previously improved for
another tenant, the Tenant shall take possession thereof in its then
"as is" condition. If the Second Option Space has not been previously
improved for another tenant, there will be attached as an exhibit to
the amendment an Exhibit B, identical in form to the Exhibit B to the
Lease, with the following modifications:
(a) Any reference to the Premises in such Exhibit B
will be construed as meaning only the Second Option Space.
(b) The date contained in subsection 3(d) of Exhibit
B to the Lease will be deleted and in substitution thereof a
date which is thirty days
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<PAGE> 39
from the date of notice of exercise of the Second Option by the Tenant
will be inserted in lieu thereof.
(c) All references in said Exhibit B to
"Completion", "Completion Date" shall refer solely and only to
the improvements required to be made in and to the Second
Option Space as a result of Tenant's exercise of its Option.
(d) The provisions of subsection 6(b) of the current
Exhibit B to the Lease shall have no application to the
Exhibit B attached to said amendment and such provision shall
be deleted.
(e) Paragraph 29 of the Lease, modified by deleting
therefrom the phrase "contained in the Premises" and
substituting therefor the phrase "contained in the 'Second
Option Space'", will be applicable to the Second Option Space.
The effective date of the amendment shall be as of the
Completion Date pursuant to the new Exhibit B attached to the
amendment.
(iii) Promptly upon receipt of said amendment, the
Tenant shall execute the same, and transmit it, together with
the amount of the additional security deposit, to the Landlord
within ten (10) days of the date of such receipt. The failure
of the Landlord to receive the amendment so executed within
ten days of the date of Landlord's transmission of the same to
the Tenant will result, at Landlord's option, in the Tenant's
exercise of the Second Option automatically being null and
void and of no further force or effect. Any attempt by the
Tenant to exercise the Option granted hereby at a time or in a
manner other than as specifically set forth herein shall be at
the Landlord's sole option of no force or effect.
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<PAGE> 40
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as of the date. first above written.
LANDLORD TENANT
THE FIRST NATIONAL BANK OF CONFERENCE PLUS, a Delaware
BOSTON, as Trustee aforesaid: corporation
BY: CIGNA INVESTMENTS, INC., acting
pursuant to Power of Attorney
BY: /s/ Mark DePucchio BY: /s/ Richard P. Riviere
TITLE: Vice President Its: President & CEO
Attest: /s/ Melvin J. Simon
Its: Secretary
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<PAGE> 41
LANDLORD'S ACKNOWLEDGEMENT
STATE OF CONNECTICUT )
) ss
COUNTY OF HARTFORD )
I, Mary Caron, in and for said County, in the State aforesaid,
DO HEREBY CERTIFY that Mark V. DePucchio, Vice President of CIGNA Investments,
Inc., and ______________________, personally known to me to be the Vice
President and Secretary, of said corporation, and personally known to me to be
the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that as such
Vice President and ________________ Secretary, they signed and delivered the
said instrument as ___________ President and _______________ Secretary of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of __________________ of said
corporation as their free and voluntary act and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and ___________ seal this 6th day of February,
1992.
/s/ Mary Caron
Notary Public
My Commission Expires: 3/31/95
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<PAGE> 42
TENANT'S ACKNOWLEDGMENT
STATE OF ILLINOIS )
) SS
COUNTY OF DUPAGE )
I, Kendra K Szymanski, in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that Richard P. Riviere, President of CONFERENCE
PLUS, a Delaware corporation and Melvin J. Simon, personally known to me to be
the Secretary of said corporation, and personally known to me to be the same
persons whose names are subscribed to the foregoing instrument, appeared before
me this day in person and severally acknowledged that as such President and
Secretary, they signed and delivered the said instrument as President and
Secretary of said corporation, and caused the corporate seal of said
corporation to be affixed thereto, pursuant to authority given by the Board of
Directors of said corporation as their free and voluntary act and as the free
and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and ___________ seal this 8th day of January,
1992.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/93
STATE OF ILLINOIS )
) SS
COUNTY OF DUPAGE )
I, the undersigned, a Notary Public in and for said County, in
the State aforesaid, DO HEREBY CERTIFY that Richard P. Riviere and Melvin J.
Simon, personally known to me to be the same persons whose names are subscribed
to the foregoing instrument appeared before me this day in person and
acknowledged that _________________________ signed, sealed and delivered the
said instrument as __________ free and voluntary act, for the uses and purposes
therein set forth, including the release and waiver of the right of homestead.
GIVEN under my hand and official seal this 8th day of January,
1992.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/93
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<PAGE> 43
CORPORATE GUARANTEE
The undersigned, in consideration of the leasing of the Premises
described in the attached Lease to the Tenant therein mentioned, does hereby
absolutely, unconditionally and irrevocably guarantee to Landlord the full and
complete performance of all of Tenant's covenants and obligations under such
lease and the fall payment by Tenant of all Rent and other charges and amounts
required to be paid thereunder.
The undersigned does hereby waive any and all requirements of notice
of the acceptance of this Guarantee and all requirements of notice of breach or
non-performance by Tenant. The undersigned further waives any demand by
Landlord and/or prior action by Landlord of any nature whatsoever against
Tenant. The undersigned's obligations hereunder shall remain fully binding
although Landlord may have waived one or more defaults by Tenant or granted
indulgences to the Tenant, or extended the time of performance by Tenant,
modified or amended the Lease, released, returned or misapplied other
collateral given later as additional security (including other guarantees),
released Tenant from the performance of its obligations under such Lease, or
failed or neglected to exercise any of Landlord's rights against the Tenant.
This Guarantee shall be binding upon the undersigned and its
respective successors, successors in interest, representatives and assigns and
shall continue in effect subsequent to any assignment of the Lease by Tenant or
by operation of law.
This Guarantee shall be governed and construed under the laws of the
State of Illinois. This Guarantee shall be construed as an absolute,
continuing and unlimited Guarantee of all of the Tenant's obligations under
said Lease, without regard to regularity, validity or enforceability of any
liability or obligation of the Tenant hereby guaranteed; the Landlord shall not
be obligated to proceed first against the Tenant or any other person, firm or
corporation or against any collateral, if any, held by or on behalf of the
Landlord and the undersigned shall be bound on this Guarantee to the Landlord
as if the Tenant's obligations under the Lease were the primary obligations of
the undersigned.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed on its behalf by its duly authorized officers and its corporate seal
affixed hereto all on this 10th day of January, 1992.
R-COM, INC.,
a Delaware corporation
BY: /s/ Gary F. Seamans
ITS: Chairman
-40-
<PAGE> 44
STATE OF )
) SS
COUNTY OF )
On this 10th day of January, 1992, before me, a Notary Public in and
for said County, appeared Gary F. Seamans, to me personally known, who being by
me sworn, did say that he is the Chairman of R-COM, Inc., the corporation named
in and which executed the within instrument, and that the seal affixed to said
instrument is the corporate seal of said corporation, and that said instrument
was signed and sealed on behalf of said corporation by authority of its Board
of Directors, and said G.F. Seamans acknowledged said instrument to be the free
act and deed of said corporation.
/s/ Mary Lou Meyers
Notary Public
My Commission Expires: October 5, 1992
-41-
<PAGE> 45
NON-CORPORATE GUARANTEE
The undersigned, in consideration of the leasing of the Premises
described in the attached Lease to the Tenant therein mentioned, do hereby
absolutely, unconditionally and irrevocably guarantee to Landlord the full and
complete performance of all of Tenant's covenants and obligations under the
Lease and the full payment by Tenant of all Rent and other charges and amounts
required to be paid thereunder.
The undersigned do each hereby waive any and all requirements of
notice of the acceptance of this Guarantee and all requirements of notice of
breach or nonperformance by Tenant. The undersigned further waive any demand
by Landlord and/or prior action by Landlord of any nature whatsoever against
Tenant. The undersigned's obligations hereunder shall remain fully binding
although landlord may have waived one or more defaults by Tenant, or granted
indulgences to the Tenant, or extended the time of performances by Tenant,
modified or amended the Lease, released, returned or misapplied other
collateral given later as additional security (including other guarantees),
released Tenant from the performances of its obligations under such Lease, or
failed or neglected to exercise any of Landlord's rights against the Tenant.
If this Guarantee is signed by more than one person, their obligations
shall be joint and several and the release of one of such guarantors shall not
release any other of such guarantors. This Guarantee shall be binding upon the
undersigned and their respective heirs, successors, successors of interest,
executors, administrators, representatives and assigns and shall continue in
effect subsequent to any assignment of the Lease by Tenant or by operation of
law.
This Guarantee shall be governed and construed under the laws of the
State of Illinois. This Guarantee shall be construed as an absolute,
continuing and unlimited Guarantee of all of the Tenant's obligations under
said Lease, without regard to regularity, validity or enforceability of any
liability or obligation of the Tenant hereby guaranteed; the Landlord shall not
be obligated to proceed first against the Tenant or any other person, firm or
corporation or against any collateral, if any, held by or on behalf of the
Landlord and the undersigned shall be bound on this Guarantee to the Landlord
as if the Tenant's obligations under the Lease were the primary obligations of
the undersigned.
IN WITNESS WHEREOF, the undersigned have set their bands and seals
this ____ day of __________, 19__.
__________________________________________
__________________________________________
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<PAGE> 46
STATE OF )
) SS
COUNTY OF )
On this ____ day of __________, 19__, before me, a Notary Public in
and for said County, personally appeared __________________,
_________________________, and _________________________, to be known to be the
person(s) described in and who executed the foregoing instrument and
acknowledged that (he) (they) executed the same as (his) (their) free act and
deed.
__________________________________________
Notary Public
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<PAGE> 47
EXHIBIT A
(Plan of Premises)
The Premises consist of that area outlined in red or a heavy line on
the plan affixed (excluding from the foregoing any, if any: elevator shafts;
flues; stacks; pipes; shafts; vertical and horizontal ducts; pillars; demising
walls; electrical boxes; firehose cabinets; telephone closets; janitorial
closets; mechanical closets; and stairways) together with the right to use in
common with all other occupants of the Building, their invitees and the
Landlord, the common areas of the Building consisting of corridors, elevators
and lobby for ingress and egress to the Premises, washrooms and similar common
facilities for their intended purposes, all subject to the terms and provisions
of the Lease.
LANDLORD TENANT
THE FIRST NATIONAL BANK OF CONFERENCE PLUS, a Delaware
BOSTON, corporation
as Trustee
BY: CIGNA INVESTMENTS, INC.,
acting pursuant to Power of BY: /s/ Richard P. Riviere
Attorney Its President & CEO
ATTEST: /s/ Melvin J. Simon
BY: /s/ Mark DePucchio Its Secretary
Title: Vice President
A-1
<PAGE> 48
[drawing of floor plan]
A-2
<PAGE> 49
EXHIBIT B
Construction Rider
THE FIRST NATIONAL BANK OF BOSTON, as Trustee (the "REMIC Trustee")
pursuant to that certain Pooling and Servicing Agreement dated as of April 1,
1988 by among CIGNA Mortgage Securities, Inc. and CIGNA INVESTMENTS, INC., as
Servicer ("Servicer) (the REMIC Trustee and Servicer are collectively referred
to herein as the "Landlord") and CONFERENCE PLUS, a(n) _______________
corporation, as tenant (the "Tenant") are executing simultaneously herewith a
written lease (the 'Lease') leasing certain space (the "Premises") in a
building (the "Building") situated on real estate (the "Real Estate") commonly
known as the THREE NATIONAL PLAZA AT WOODFIELD, 999 Plaza Drive, Schaumburg,
Illinois and more particularly described in the Lease. In consideration of the
respective covenants of the parties described in the Lease, Landlord and Tenant
further mutually agree as follows:
CONSTRUCTION OF THE PREMISES: The Landlord and the Tenant agree that
their respective rights and obligations in reference to the construction of the
Premises shall be as follows:
1. LANDLORD'S PLANS AND SPECIFICATIONS
a. Landlord shall cause to be prepared complete mechanical
plans and specifications where necessary for the installation of the building
standard air conditioning systems and ductwork, heating, electrical and
plumbing and other mechanical plans for Landlord's Work.
b. Landlord may make such changes in the mechanical plans and
specifications described in subparagraph la hereof as Landlord may desire,
excepting that any such changes shall not materially or adversely affect
Tenant's occupancy.
c. Landlord, at its sole option, may substitute for building
standard materials described in paragraph 2 hereof other materials of
comparable kind and quality.
2. LANDLORD'S WORK - STANDARD OF THE BUILDING
Landlord shall furnish and install the following labor and
materials ("Landlord's Work") ("Building Standard"):
1. One lineal foot of partition for each 15 usable square feet of floor area
within the Premises to enclose interior offices. There shall be no jogs,
curves, angles or irregular offsets in any partition. Partitions terminating
at the Building exterior walls shall either be aligned with a window mullion or
meet column enclosure.
B-1
<PAGE> 50
2. One pre-finished solid core wood veneer interior door, with frame, hinges
and latchset hardware, for each 25 lineal feet of partition, and one
pre-finished solid core wood veneer entrance door.
3. 2' x 4' suspended tile ceiling throughout the Premises.
4. One 24" x 48" recessed fluorescent light fixture with prismatic cell
lenses for each 80 usable square feet of ceiling area within the Premises and
one wall switch for each 350 usable square feet of floor area within the
Premises.
5. Carpet allowance of $1.00 per square foot of usable area within the
Premises. Floor slab finished to standard industry tolerances and suitable for
padded carpeting installation.
6. 2 1/2" vinyl base in building standard color.
7. Thin slat horizontal blinds in building standard color on all peripheral
windows.
8. Painting of building standard partitions and columns in Landlord's
__________________________________ selected by Tenant from Landlord's building
standard colors.
9. One duplex electrical wall receptacle for each 150 usable square feet of
floor area within the Premises.
10. One wall telephone outlet for each 200 usable square feet of floor area
within the Premises.
11. A heat pump system and central circulating unit providing heating,
ventilation and air conditioning service to the Premises during the hours set
forth in the Lease such that the temperature conditions described in the Lease
are maintained during such hours, with tolerances normal in first-class office
buildings.
12. Landlord's Work does not include hardware, 2-1/2" vinyl base or painting
for any door or partition supplied as Extra Work.
No credit shall be granted by Landlord for any of the Building Standard Work
which is not used by Tenant.
3. TENANT'S PLANS AND SPECIFICATIONS
a. Tenant, at Tenant's sole cost and expense, shall cause to
be prepared complete, finished, detailed architectural, telephone and
electrical plans including all
B-2
<PAGE> 51
dimensions and specifications for all Extra Work to be performed by Landlord
pursuant to Section 4 hereof ("Tenant's Plans").
b. Tenant's Plans shall also include all information as shall
be required by Landlord's engineers to prepare mechanical plans pursuant to
Section 1 hereof, which information shall include, but not be limited to, the
following:
(1) Any special floor loading conditions which may
exceed the structural weight limits of the floor.
(2) Specifications of any heat emanating equipment
to be installed by Tenant which may require special air conditioning.
(3) Electrical specifications of any equipment that
requires non-standard electrical power outlets.
(4) Complete specifications of any data-line wiring
required, including cable routing, conduit size, cable type, etc.
c. Tenant's Plans are expressly subject to Landlord's prior
written approval, which shall not be unreasonably withheld. Upon such
approval, landlord shall cause Tenant's Plans, together with the mechanical
plans and specifications provided for in paragraph 1 hereof, to be filed with
the governmental agencies having jurisdiction thereof, in order to obtain all
governmental permits and authorizations which may be required in connection
with the work to be done.
d. **INTENTIONALLY OMITTED**
4. EXTRA WORK
a. Tenant, on Tenant's Plans, may designate substitutions
(except for Building Standard Blinds), additional or extra work and/or
materials over and above Landlord's Work ("Extra Work") to be performed by
Landlord, provided that the Extra Work, at Landlord's option, (i) shall not
delay completion of Landlord's Work or the Commencement Date of the Lease; (ii)
shall be practicable and consistent with the existing physical conditions in
the Building and with the plans, for the Building which have been filed with
the governmental authorities having jurisdiction thereover; (iii) shall not
impair Landlord's ability to perform any of Landlord's obligations hereunder or
under the Lease or any other lease of space in the Building; and (iv) shall not
affect any portion of the Building other than the Premises. Without the prior
written consent of Landlord, Tenant shall make no changes in Tenant's Plans
after approval thereof by Landlord.
B-3
<PAGE> 52
(1) In the event Tenant requests Landlord to perform
Extra Work and if Landlord accedes to such request, then and in that event,
prior to commencing such Extra Work, Landlord shall submit to Tenant a written
estimate ("Estimate") for said Extra Work to be performed. Within five (5)
days after Landlord's submission of the Estimate, Tenant shall, in writing,
either accept or reject the Estimate. Tenant's failure either to accept or
reject the Estimate within said five (5) day period shall be deemed rejection
thereof.
(2) In the event that Tenant rejects the Estimate or
the Estimate is deemed rejected, Tenant shall within five (5) days after such
rejection furnish Landlord with necessary revisions of Tenant's Plans, so as to
enable Landlord to proceed as though no such Extra Work had been requested.
Should Tenant fail to submit such necessary revisions of Tenant's Plan within
said five day period, Landlord, in its sole discretion, may proceed to complete
Landlord's Work (building standard work) in accordance with Tenant's Plan
already submitted, with such variations as in Landlord's sole discretion may be
necessary so as to eliminate the Extra Work set forth on Tenant's Plans.
b. Tenant may request the omission of an item of Landlord's
Work provided that such omission shall not delay the completion of Landlord's
Work, and Landlord thereafter shall not be obligated to install the same. No
credit shall be granted to Tenant for items omitted or not installed. Credits
for substitution shall be granted in amounts determined by Landlord's unit
prices for substitutions and shall be applied against the final payments by
Tenant for all Extra Work to be performed by Landlord. In no event shall there
be any cash credits.
c. In the event Landlord performs Extra Work hereunder,
Tenant shall pay to Landlord, upon acceptance of the Estimate, or submission of
Landlord's bid therefor, as the case may be, a sum equal to twenty percent
(20%) of the Estimate or bid price. Thereafter, Tenant shall pay to Landlord
the balance of the cost of the Extra Work at such time or times as agreed to,
but in no event shall the balance be paid later than the completion of the
Extra Work.
5. COMPLETION - PUNCH LIST
When the Landlord is of the opinion that the Landlord's Work
is Complete, then the Landlord shall so notify the Tenant. The Tenant agrees
that upon such notification, the Tenant promptly (and not later than two
business days after the date of Landlord's said notice) will inspect the
Premises and furnish to the Landlord a written statement that the Building and
Premises have been completed and are complete as required by the provisions of
this Exhibit B and the Lease with the exception of certain specified and
enumerated items (hereinafter referred to as the "Punch List"). The Tenant
agrees that at the request of the Landlord from time to time hereafter, the
Tenant will promptly furnish to the Landlord revised Punch Lists
B-4
<PAGE> 53
reflecting any completion of any prior Punch List items. It is mutually agreed
that if the Punch List or any revised Punch List consists only of items that
can be completed within a relatively short period of time, and if the
non-completion of such Punch List items would not materially impair the
Tenant's use or occupancy of the Premises, then, in such event, the Tenant will
acknowledge in writing that the Premises are Complete and accept possession of
the Premises; provided, however, that such acknowledgment or acceptance shall
not relieve the Landlord of its obligations to promptly complete all such Punch
List items. The date which is the earlier of either (i) the date on which the
Tenant acknowledges that the Premises are Complete, or (ii) the date on which
the Premises were Complete, pursuant to the provisions of this subparagraph 6
is sometimes referred to as the 'Completion Date'.
6. POSSESSION - EXTENSION OF TERMS AND ACKNOWLEDGMENTS
a. Possession. The Tenant will take possession of the
Premises as of and on the Completion Date. Landlord has not agreed or
represented that the Premises will be substantially ready for occupancy on the
date specified in Section 2 of the Lease for the commencement of the Term. If
for any reason whatsoever the Premises are not Complete on said date, this
Lease shall nevertheless continue in full force and effect, and no liability
shall arise against Landlord because of any such delay; provided, however, that
all Rent due hereunder shall abate on a per diem basis until the Completion
Date. Notwithstanding the foregoing, there shall be no abatement of Rent if
the Premises are not substantially Complete due to any special equipment,
fixtures, changes, alterations, or additions requested by Tenant, any delay of
Tenant in submitting plans, supplying information or approving or authorizing
plans, specifications, estimates or other matters, or any other act or omission
of Tenant. If Tenant shall occupy all or any part of the premises prior to the
Completion Date, all of the covenants and conditions of this Lease, including
the obligation to pay Rent, shall be binding upon the parties hereto in respect
to such occupancy as if the first day of the Term had been the date when Tenant
began such occupancy.
b. **INTENTIONALLY OMITTED**
7. TENANT'S ENTRY PRIOR TO COMPLETION DATE
Landlord may permit Tenant and/or its agents or laborers to
enter the Premises at Tenant's sole risk prior to the Completion Date in order
to perform through Tenant's own contractors such work as Tenant may desire, at
the same time that Landlord's contractors are working in the Premises. The
foregoing license to enter prior to the Completion Date, however, is
conditioned upon Tenant's labor not interfering with Landlord's contractors or
with any other tenant or its labor. If at any time such entry shall cause
disharmony, interference or union disputes of any nature whatsoever, or if
Landlord shall, in Landlord's sole judgment, determine that such entry, such
work or the continuance thereof shall interfere with, hamper or prevent
Landlord from
B-5
<PAGE> 54
proceeding with the completion of the Building or the Premises at the earliest
possible date, this license may be withdrawn by Landlord immediately upon
written notice to Tenant. Such entry shall be deemed to be under and subject
to all of the terms, covenants and conditions of the Lease and Tenant shall
comply with all of the provisions of the Lease which are the obligation or
covenants of the Tenant, except that the obligation to pay Rent shall not
commence until the Completion Date or as otherwise provided for in the Lease.
In the event that Tenant's agents or labor incurs any charges from Landlord,
including but not limited to charges for the use of construction or hoisting
equipment on the building site, then and in that event, such charges shall be
deemed an obligation of Tenant and shall be collectible as Rent pursuant to the
Lease and upon default in payment thereof, Landlord shall have the same
remedies as for a default in payment of Rent pursuant to the Lease.
8. LANDLORD'S ENTRY AFTER SUBSTANTIAL COMPLETION
Landlord's Work shall be substantially complete prior to the
Completion Date. At any time after the Completion Date, Landlord may enter the
Premises to complete unfinished details of Landlord's Work and such entry by
Landlord, its agents, servants, employees or contractors for such purpose shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents.
9. DELAYS
Landlord and Tenant mutually acknowledge that the Landlord's
construction process in order to Complete the Building and the Premises
requires a coordination of activities and a compliance by the Tenant without
delay with all matters imposed upon the Tenant pursuant to this Exhibit B and
that time is of the essence of the Tenant's obligation and compliance with the
terms and provisions of this Exhibit B. The parties further mutually
acknowledge that delays in such compliance by the Tenant would cause injury to
the Landlord, delays in the completion of the Building and the Premises and
damages to the Landlord, the nature and extent of which are difficult to
ascertain and accordingly, the Tenant agrees to pay to the Landlord as
liquidated damages and not as a penalty, a sum equal to 1/365 of the annual
rent described in paragraph 3 of the Lease for each day of delay in:
a. The failure of the Tenant to deliver Tenant's Plans
strictly in accordance with the Plans Submission Date set forth in subparagraph
3d of this Exhibit B; or
b. The failure of the Tenant to submit revisions of the
Tenant's Plans strictly in accordance with the provisions of subparagraph 4a(2)
of this Exhibit B, including, but not limited to, the five (5) day period
described in said subparagraph.
B-6
<PAGE> 55
10. PROVISIONS SUBJECT TO LEASE
The provisions of this Exhibit B are specifically subject to
the provisions of the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Exhibit B as
of the date of the said Lease.
LANDLORD TENANT
THE FIRST NATIONAL BANK OF CONFERENCE PLUS, a Delaware
BOSTON, corporation
as Trustee
BY: CIGNA INVESTMENTS, INC.,
acting pursuant to Power of BY: /s/ Richard P. Riviere
Attorney Its President & CEO
ATTEST: /s/ Melvin J. Simon
BY: /s/ Mark DePucchio Its Secretary
Title: Vice President
B-7
<PAGE> 56
EXHIBIT C
THREE NATIONAL PLAZA AT WOODFIELD
RULES AND REGULATIONS
1. REMOVAL PERMIT. Tenant shall list all furniture, equipment and
similar articles Tenant desires to remove from the Premises or the Building and
deliver a copy to Landlord and procure a removal permit from the Office of the
Building authorizing Building employees to permit such articles to be removed.
2. DOORS TO BE LOCKED. Before leaving the Premises unattended,
Tenant shall close and securely lock all doors and transoms and shut off all
utilities in the Premises. Any damage resulting from failure to do so shall be
paid by Tenant.
3. SIGNS. Tenant shall not paint, display, inscribe or affix any
sign, trademark, picture, advertising, notice, lettering or direction on any
part of the outside or inside of the Building, or on the Premises, except on
the public hallway doors of the Premises, and then only such name or names or
matter and of such color, size, style, character and material as shall be first
approved by Landlord in writing. Landlord reserves the right to remove any
other matter, without notice to Tenant and at the cost and expense of Tenant.
4. SOUND DEVICES. Tenant shall not place any radio or television
antenna on the roof or on or in any part of the inside or outside of the
Building other than the inside of the Premises, or operate or permit to be
operated any musical or sound producing instrument or device inside or outside
the Premises which may be heard outside the Premises, or operate any electrical
device from which may emanate electrical waves which may interfere with or
impair radio or television broadcasting or reception from or in the Building or
elsewhere.
5. NUISANCES. Tenant shall not bring or permit to be in the Building
any bicycle or other vehicle, or dog (except in the company of a blind person)
or other animal or bird; make or permit any noise, vibration or odor to emanate
from the Premises; or do anything therein tending to create, or maintain, a
nuisance; or disturb, solicit or canvass any occupant of the Building, or do
any act tending to injure the reputation of the Building.
6. CLEANLINESS AND OBSTRUCTION OF PUBLIC AREAS. Tenant shall not
place anything or allow anything to be placed near the glass of any door,
partition, or window which may be unsightly from outside the Premises; or take
or permit to be taken in or out of other entrances of the Building, or take or
permit on other elevator, any item normally taken in or out through the
trucking concourse or service doors or in or on freight elevators; or, whether
temporarily, accidentally, or otherwise, allow anything to remain in, place or
store anything in, or obstruct in any way, any passageway, exit, stairway,
C-1
<PAGE> 57
elevator, shipping platform, or truck concourse. Tenant shall lend its full
cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and move all supplies, furniture and equipment as soon as
received directly to the Premises and move all such items and waste, other than
waste customarily removed by employees of the Building, being taken from the
Premises, directly to the shipping platform at or about the time arranged for
removal therefrom.
7. ADDITIONAL LOCKS. Tenant shall not attach or permit to be
attached additional locks or similar devices to any door, transom or window; or
change existing locks or the mechanism thereof; or make or permit to be made
any keys for any door other than those provided by Landlord. (If more than two
keys for one lock are desired, Landlord will provide them upon payment therefor
by Tenant.)
8. OVERLOAD ANY FLOOR. Tenant shall not overload any floors.
9. DEFACING PREMISES. Tenant shall not do any painting or decorating
in the Premises; or mark, paint, cut or drill into, drive nails or screws into,
or in any way deface any part of the Premises or the Building, outside or
inside, without the prior written consent of Landlord. (If Tenant desires
signal, communication, alarm or other utility or service connections installed
or changed, the same shall be made by and at the expense of Tenant, with the
approval and under direction of Landlord.)
10. SPECIAL FREIGHT ELEVATOR SERVICE FOR TENANT. Upon written
application by Tenant, and approval thereof by Landlord, Landlord shall furnish
freight elevator service for Tenant at times other than those times provided
for in the Lease at rates for such usage from time to time maintained in effect
by Landlord.
11. EMERGENCY PROCEDURES. Tenant shall appoint a floor warden from
Tenant's organization who shall be responsible for educating Tenant's employees
in the proper fire evacuation procedures and the scheduling and conducting of
at least one (1) fire drill per year for Tenant's employees who normally occupy
the Tenant's Premises in the Building. The Tenant shall notify the Office of
the Building of the date and time of Tenant's scheduled fire evacuation drill.
C-2
<PAGE> 58
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is made and entered into as of
the 27th day of April, 1992 at Chicago, Illinois by and between THE FIRST
NATIONAL BANK OF BOSTON, as Trustee (the "REMIC Trustee") pursuant to that
certain Pooling and Servicing Agreement dated as of April 1, 1988 by and among
CIGNA Mortgage Securities, Inc. and CIGNA INVESTMENTS, INC., as Servicer
("Servicer") (the REMIC Trustee and Servicer are collectively referred to
herein as the "Landlord") and CONFERENCE PLUS, a Delaware corporation (the
"Tenant").
RECITALS:
A. The Landlord and the Tenant have previously executed a
written lease dated as of December 24, 1991 (the "Lease"), leasing certain
premises (the "Premises") in a building (the "Building") located on the real
estate commonly known as Three National Plaza at Woodfield, located at 999
Plaza Drive, Schaumburg, Illinois, as more particularly set forth in the Lease.
B. The Tenant desires to expand the Premises by an additional
668 rentable square feet (the "Expansion Space"). The location of the
Expansion Space (and the original Premises) is indicated on Exhibit A-E
attached hereto.
C. The Landlord and Tenant desire to modify and amend some of
the provisions of the Lease by the terms and provisions of this First Amendment
to Lease (the "First Amendment").
NOW, THEREFORE, in consideration of the respective covenants of the
parties hereto contained in the Lease, Landlord and Tenant further mutually
agree as follows:
1. CONTROLLING LANGUAGE. Insofar as the specific terms and
provisions of this First Amendment purport to amend or modify or are in
conflict with the specific terms and provisions of the Lease (the specific, but
not implied), the terms and provisions of this First Amendment shall govern and
control; in all other respects, the terms and provisions (and definitions) of
the Lease shall remain in full force and effect and unmodified.
2. PREMISES. Effective immediately: (i) Section 1 of the Lease is
hereby amended by deleting the number of rentable square feet contained
therein, "969", and in lieu thereof, substitute the number "1, 637", and (ii)
Exhibit A attached to the Lease showing the, location of the original Premises
is hereby deleted and in lieu thereof, Exhibit A-E attached hereto is
substituted.
<PAGE> 59
3. TERM. The Tenant and Landlord do hereby acknowledge that the Term,
as set forth in Section 2 of the Lease, shall, in relation to both the original
Premises and the Expansion Space added to the Premises hereby end on the last
day of February, 1997.
4. BASE RENT. Effective as of May 15, 1992, the Base Rental table
set forth in subsection 3 A of the Lease is hereby deleted and in lieu thereof
Tenant shall pay as and for Base Rent and monthly installments of Base Rent
during the remainder of the Term those amounts set forth in the following
rental table in relation to the applicable months of the remainder of the Term:
<TABLE>
<CAPTION>
RATE MONTHLY
MONTH PER INSTALLMENT ANNUAL
OF TERM SQUARE FOOT OF BASE RENT BASE RENT
- ------- ----------- ------------ ---------
<S> <C> <C> <C>
1 - 12 $5.25 $ 716.19 $ 8,594.25
13 - 24 5.36 731.19 8,774.32
25 - 36 5.47 746.20 8,954.39
37 - 48 5.58 761.21 9,134.46
49 - 6 5.69 776.21 9,314.53
</TABLE>
For the purposes of determining the applicable Base Rent and
monthly installments of Base Rent, the beginning and ending
months are inclusive in the applicable rate periods above.
Notwithstanding the foregoing, Landlord and Tenant do hereby
acknowledge that due to the fact that the monthly installment of Base Rent for
May, 1992 is determined, in part, pursuant to the Base Rental table set forth
in the original Lease and in part by the table contained in this Section 4, the
monthly installment of Base Rent payable by Tenant to Landlord for and in
relation to the month of May, 1992 shall be the sum of $570.07.
5. SECURITY DEPOSIT. The Landlord and Tenant do hereby acknowledge
that the Tenant has delivered to the Landlord and the Landlord has received
from the Tenant pursuant to Section 5 of the Lease a security deposit in the
amount of $1,043.16. Effective immediately, the security deposit required by
Section 5 of the Lease shall be the sum of $1,359.90. The Tenant shall deliver
to the Landlord the additional $316.24 necessary to increase the amount of the
security deposit held by the Landlord pursuant to Section 5 of the Lease, as
modified by this Section 5 of the First Amendment
-2-
<PAGE> 60
concurrently with the execution and delivery of this First Amendment by the
Tenant to the Landlord.
6. TENANT'S PROPORTIONATE SHARE. Effective as of and including May
15, 1992, the provisions of subsection 4A(iii) of the Lease are hereby amended
by deleting the numerator of the fraction contained therein, "969", and in lieu
thereof, inserting the figure of "1,637" and by deleting the percentage
contained in said subsection, "0.7218 percent", and in lieu thereof, inserting
the percentage figure of "l.2194 percent".
7. ELIMINATED PROVISIONS. Effective immediately, the provisions of
Exhibit B attached to the Lease and Section 31 of the Lease are hereby deleted
in their entirety.
8. BROKERS. The Tenant does hereby represent to the Landlord that
except for Miglin-Beitler Management Corporation, no broker has been involved
in this transaction concerning the Expansion Space. The Tenant does hereby
agree to indemnify, defend and hold the Landlord harmless from and against any
and all claims of any real estate broker except for Miglin-Beitler Management
Corporation who claims to be entitled to commissions in connection with this
Lease as a result of representing Tenant.
9. OPERATING EXPENSE MODIFICATION. Notwithstanding any provision of
Section 30 of the Lease to the contrary, the Landlord and Tenant do hereby
acknowledge that for the purposes of determining the percentage limitations on
the Tenant's duty to pay Tenant's Proportionate Share of all Operating Expenses
set forth in subparagraphs 30D(ii), (iii), (iv), (v) and (vi) of the Lease,
such percentage limitations shall be determined as if the Expansion Space added
by this First Amendment had been a part of the Premises from inception of the
Lease and the Tenant's Proportionate Share during the entire Base Year had been
1.2194 percent.
10. MUTUAL INCORPORATION. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by agreement, in writing, between
Landlord and Tenant. No modifications, termination, or surrender of this First
Amendment or surrender of the Premises or any part thereof or of any interest
therein by Tenant shall be valid or effective unless agreed to and accepted, in
writing, by the Landlord and no act by any representative or agent of the
Landlord other than delivery of such a written agreement and acceptance by the
Landlord shall constitute acceptance thereof. Any prior negotiations or
intentions of the parties, whether oral or evidenced by written documentation
dated prior to the date of this First Amendment, are null and void.
11. EXPANSION OPTION. The Landlord and Tenant do hereby acknowledge
and agree that for the purposes of subsection 32 A of the Lease:
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<PAGE> 61
(i) The Tenant has exercised its First Option;
(ii) The Expansion Space added hereby constitutes the First
Option Space;
(iii) The First Option Space had been previously improved for
another tenant;
(iv) This First Amendment constitutes the amendment required
by subparagraph 32A(iii) of the Lease;
(v) Neither the addition of the Expansion Space to the
Premises nor the execution of this First Amendment by Tenant and Landlord shall
be deemed or construed as eliminating the Tenant's right to exercise the Second
Option, as set forth and in accordance with the provisions of subsection 32B of
the Lease.
12. REDECORATING. The Landlord and Tenant do hereby acknowledge that
the Expansion Space has been previously built out for a prior tenant.
Notwithstanding the provisions of subsection 32 A of the Lease which provides
that in such circumstances the Tenant is required to take the Expansion Spare
in its then "as is" condition, the Landlord does hereby agree at Landlord's
sole cost and expense, to cause the Expansion Space on or about May 15, 1992 to
be completely recarpeted with Building Standard carpet and to be repainted with
one coat of Building Standard paint. The Tenant shall select from the Building
Standard colors for carpet and paint those colors for said carpeting and
painting desired by the Tenant and notify the Landlord of such selection as
soon as feasible. Except as provided in this Section 12, the Tenant does
hereby acknowledge that the Landlord has made no promise to the Tenant to
construct, alter or otherwise decorate or redecorate the Expansion Space.
13. LANDLORD'S EXONERATION. Landlord's exoneration clause, as set forth
in Paragraph 28 of the Lease, is hereby incorporated herein by reference, as if
fully set forth.
LANDLORD TENANT
THE FIRST NATIONAL BANK OF CONFERENCE PLUS, a Delaware
BOSTON, corporation
as Trustee
BY: BY:
------------------------------- ---------------------------------
Its Its
ATTEST: ATTEST:
--------------------------- ------------------------------
Its Its
-4-
<PAGE> 62
STATE OF CONNECTICUT )
) SS
COUNTY OF HARTFORD )
I, ________________________________________________, in and for said
County, in the State aforesaid, DO HEREBY CERTIFY that
_______________________________, President of _______________________________
and _____________________________, personally known to me to be the
__________________ Secretary of said corporation, and personally known to be to
be the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that as such
__________________ President and __________________ Secretary of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of __________________ of said
corporation as their free and voluntary act and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and _____________ seal this ______ day of
__________________, 19__.
________________________________
Notary Public
-5-
<PAGE> 63
STATE OF CONNECTICUT )
) SS
COUNTY OF HARTFORD )
I, ________________________________________________, a Notary Public
in and for said County, in the State aforesaid, DO HEREBY CERTIFY that
______________________________, personally known to me to be the ______________
President of CONFERENCE PLUS, a Delaware corporation authorized to conduct
business in the State of Illinois, and _______________________________________,
said corporation, personally known to me to be _______________ Secretary of
said corporation, and personally known to me to be the same persons whose names
are subscribed to the foregoing instrument, appeared before me this day in
person and severally acknowledged that as such ________________ President and
_______________ Secretary, they signed and delivered the said
instrument as _____________ President and _______________ Secretary of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of __________________ of said
corporation as their free and voluntary act for the uses and purposes therein
set forth.
GIVEN under my hand and __________ seal this ______ day of
____________________, 19__.
________________________________
Notary Public
-6-
<PAGE> 64
______________________________________________________________________________
Third Floor Plan
Plan Grid is 2' x 4'
_______________________________________________________________________________
WOODFIELD PARK OFFICE PLAZA
999 PLAZA DRIVE
Schaumburg, Illinois
______________________________________________________________________________
EXHIBIT A-E
<PAGE> 65
[MIGLIN-BEITLER LETTERHEAD]
March 10, 1993
Mr. Rick Riviere
Conference Plus, Inc.
999 Plaza Drive, Suite 370
Schaumburg, Illinois 60173
Dear Rick;
Enclosed please find an executed copy of your Second Amendment to Lease at
National Plaza at Woodfield for your files.
Congratulations on your new expansion, we hope to continue meeting your needs
here at Miglin-Beitler Management. Please feel free to call me if you have any
questions.
Sincerely,
MIGLIN-BEITLER ASSET MANAGEMENT
James G. Bushy
General Building Manager
JGB/dg
enc.
<PAGE> 66
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease is made and entered into as of
the 13th day of January, 1993 at Chicago, Illinois by and between CONNECTICUT
GENERAL LIFE INSURANCE COMPANY, BY: CIGNA INVESTMENTS, INC., its agent, as
Landlord, and CONFERENCE PLUS, a Delaware corporation (the "Tenant").
R E C I T A L S:
A. The Tenant, as tenant, and The First National Bank of
Boston, as Trustee (the "REMIC Trustee") pursuant to that certain Pooling and
Servicing Agreement dated as of April 1, 1988 by and among CIGNA Mortgage
Securities, Inc. and CIGNA INVESTMENTS, INC., as Servicer ("Servicer") (the
REMIC Trustee and Servicer collectively referred to herein as the "Prior
Landlord"), as landlord, previously executed a written lease dated as of
December 24, 1991 (the "Lease") and a first amendment to lease dated the 27th
day of April, 1992 (the "First Amendment") (collectively, herein referred to as
the "Lease"), leasing certain premises (the "Premises") in a building (the
"Building") located on the real estate commonly known as Three National Plaza
at WoodfIeld, located at 999 Plaza Drive, Schaumburg, Illinois, as more
particularly set forth in the Lease.
B. The Landlord has succeeded to the interests of the Prior
Landlord as the result of mesne conveyances.
C. The Tenant desires to lease an additional 3,183 rentable
square feet, of which 2,689 rentable square feet are contiguous to the Premises
and the remaining 494 rentable square feet are not contiguous to the Premises
(the "Expansion Space"). The location of the Expansion Space is depicted on
Exhibit A-E2 attached hereto.
D. The Landlord and Tenant desire to modify and amend some of
the provisions of the Lease by the terms and provisions of this second
amendment (the "Second Amendment").
NOW, THEREFORE, in consideration of the respective covenants of the
parties hereto contained in the Lease and in this Second Amendment, Landlord
and Tenant further mutually agree as follows:
1. CONTROLLING LANGUAGE. Insofar as the specific terms and
provisions of this Second Amendment purport to amend or modify or are in
conflict with the specific terms and provisions of the Lease (the specific, but
not implied), the terms and provisions of this Second Amendment shall govern
and control; in all other respects, the terms and provisions (and definitions)
of the Lease shall remain in full force and effect and unmodified.
<PAGE> 67
2. PREMISES. Effective as of March 1, 1993 and until the Temporary
Term Expiration Date and not thereafter, Section 1 of the Lease is hereby
amended by deleting the number of rentable square feet contained therein,
"1,637", and in lieu thereof, substitute the number "4,820", and (ii) Exhibit
A-E attached to the Lease showing the location of the original Premises and the
Temporary Expansion Space is hereby deleted and in lieu thereof, Exhibit A-E2
attached hereto is substituted. Effective as of the day immediately following
the Temporary Term Expiration Date, Section 1 of the Lease, as amended above in
this Section 2, shall be further amended by deleting the number of rentable
square feet contained therein, "4,820", and in lieu thereof, substituting the
number "4,152" and by deleting the Temporary Expansion Space from Exhibit A- E2
attached hereto.
3. TEMPORARY TERM. The Tenant and Landlord do hereby agree that
pursuant to the provisions contained in Section 3 of the First Amendment, the
Term, as set forth in Section 2 of the Lease, shall, in relation to the
Temporary Expansion Space added to the Premises by the First Amendment and only
the Temporary Expansion Space (and not the original Premises or the Expansion
Space added by this Second Amendment) end on the earlier of (i) the "Early
Termination Date" (as defined in Section 13 of the First Amendment); or (ii)
the last day of May, 1993 (the earlier of (i) and (ii) above being hereinafter
referred to as the "Temporary Term Expiration Date").
4. BASE RENT. Effective as of March 1, 1993 (and not before), the
Base Rental tables set forth in subsection 3 A of the Lease, as amended by
Section 4 of the First Amendment are hereby deleted and in lieu thereof, Tenant
shall pay as and for Base Rent and monthly installments of Base Rent during the
remainder of the Term those amounts set forth in the following rental table in
relation to the applicable months of the remainder of the Term:
<TABLE>
<CAPTION>
RATE MONTHLY
MONTH PER INSTALLMENT ANNUAL
OF TERM SQUARE FOOT OF BASE RENT BASE RENT
- ------- ----------- ------------ ---------
<S> <C> <C> <C>
1 - 12 $5.25 $2,108.75 $ 25,305.00
13 - 24 5.36 2,152.93 25,835.20
25 - 36 5.47 2,197.12 26,365.40
37 - 48 5.58 2,241.30 26,895.60
49 - 60 5.69 2,285.48 27,425.80
</TABLE>
For the purposes of determining the applicable Base Rent
and monthly installments of Base Rent, the beginning and
-2-
<PAGE> 68
ending months are inclusive in the applicable rate periods above.
Notwithstanding the foregoing, the Landlord and Tenant do hereby
acknowledge that effective as of the Temporary Term Expiration Date, the
amounts set forth in the annual Base Rent column in the table above for and in
relation to each of applicable rate periods specified above occurring after the
Temporary Term Expiration Date shall be reduced by that amount determined by
multiplying the rate per square foot figure contained in the table above for
such rate period by 668, and the monthly installments of Base Rent for each
such rate period shall be modified in relation to each such rate period
occurring after the Temporary Term Expiration Date to equal one-twelfth
(1/12th) of the new annual Base Rent, as determined aforesaid.
5. SECURITY DEPOSIT. The Landlord and Tenant do hereby acknowledge that
the Tenant has delivered to the Landlord and the Landlord has received from the
Tenant pursuant to Sections 5 of the Lease and First Amendment, a security
deposit in the amount of $1,359.90. Effective immediately, the security deposit
required by Sections 5 of the Lease and First Amendment shall be the sum of
$2,781.64. The Tenant shall deliver to the Landlord the additional $1,421.74
necessary to increase the amount of the security deposit held by the Landlord
pursuant to Section 5 of the Lease, as modified by this Section 5 of the Second
Amendment, concurrently with the execution and delivery of this Second
Amendment by the Tenant to the Landlord. Nothing herein contained shall be
deemed or construed as eliminating Landlord's duty to return to the Tenant
pursuant to Section 5 of the First Amendment the $316.24 delivered by the
Tenant concurrently with the execution of the First Amendment upon the
occurrence of the Temporary Term Expiration Date, as determined pursuant to
Section 3 of this Second Amendment.
6. TENANT'S PROPORTIONATE SHARE. Effective as of and including March
1, 1993 to and including the Temporary Term Expiration Date, the provisions of
subsection 4A(iii) of the Lease, as modified by Section 6 of the First
Amendment, is hereby amended by deleting the numerator of the fraction
contained therein, "1,637", and in lieu thereof, inserting the figure of
"4,820" and by deleting the percentage contained in said subsection, "l.2194
percent", and in lieu thereof, inserting the percentage figure of "3.59"
percent". Effective as of and including the first day following the Temporary
Term Expiration Date, the provisions of subsection 4A(iii) of the Lease, as
modified by both Section 6 of the First Amendment and the modifications
contained above in this Section 6 shall be further amended by deleting the
numerator of the fraction contained therein, "4,820", and in lieu thereof,
inserting the figure of, "4,152", and by deleting the percentage contained in
said subsection, "3.59 percent", and in lieu thereof, inserting the percentage
figure of "3.09 percent".
7. ELIMINATED PROVISIONS. Effective immediately, the provisions of
Section 11 of the First Amendment and Subsection 32A of the Lease are hereby
deleted
-3-
<PAGE> 69
in their entirety. It is hereby acknowledged that for the purposes of
Subsection 32B of the Lease, Tenant has exercised its First Option and the
Tenant's right to exercise the Second Option remains unaffected by this Second
Amendment.
8. BROKERS. The Tenant does hereby represent to the Landlord that
except for Miglin-Beitler Management Corporation, no broker has been involved
in this transaction concerning the Expansion Space. The Tenant does hereby
agree to indemnify, defend and hold the Landlord harmless from and against any
and all claims of any real estate broker except for Miglin-Beitler Management
Corporation who claims to be entitled to commissions in connection with this
Lease as a result of representing Tenant.
9. OPERATING EXPENSE MODIFICATION. Notwithstanding any provision of
Section 30 of the Lease to the contrary, the Landlord and Tenant do hereby
acknowledge that for the purposes of determining the percentage limitations on
the Tenant's duty to pay Tenant's Proportionate Share of all Operating Expenses
set forth in subparagraphs 30D of the Lease, such percentage limitations shall
be determined:
(a) For that period of time commencing March 1, 1993 and
ending on the Temporary Term Expiration Date as if the Temporary Expansion
Space added by the First Amendment and the Expansion Space added by this Second
Amendment had been a part of the Premises from inception of the Lease and the
Tenant's Proportionate Share during the entire Base Year had been 3.59 percent.
(b) For that period of time commencing on the date
immediately following the Temporary Term Expansion Date and for the remainder
of the Term, as if the Expansion Space added hereby had been a part of the
Premises from the inception of the Lease and Tenant's Proportionate Share
during the entire base year had been 3.09 percent.
10. MUTUAL INCORPORATION. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by agreement, in writing, between
Landlord and Tenant. No modifications, termination, or surrender of this
Second Amendment or surrender of the Premises or any part thereof or of any
interest therein by Tenant shall be valid or effective unless agreed to and
accepted, in writing, by the Landlord and no act by any representative or agent
of the Landlord other than delivery of such a written agreement and acceptance
by the Landlord shall constitute acceptance thereof. Any prior negotiations or
intentions of the parties, whether oral or evidenced by written documentation
dated prior to the date of this Second Amendment, are null and void.
11. REDECORATING. The Landlord and Tenant do hereby acknowledge that
the Expansion Space has been previously built out for a prior tenant. The
Tenant does hereby acknowledge that the Landlord has made no promise to the
Tenant to construct, alter or otherwise decorate or redecorate the Expansion
Space, except as indicated
-4-
<PAGE> 70
below. Notwithstanding the foregoing, the Landlord and Tenant do hereby
acknowledge that the Tenant has submitted and the Landlord has approved that
certain plan, prepared by I.D.G., Ltd. and dated 1/8/93 consisting of one (1)
page, labelled Scope of Work (the "Tenant's Plans"). Except as hereinafter
provided, the Landlord does hereby agree to build out the Premises at
Landlord's sole cost and expense in accordance with the items indicated on the
Tenant's Plans. Notwithstanding the foregoing, Tenant shall:
(i) pay for the cost of the Landlord purchasing and
installing interior glass partitioning and building standard mini-blinds, the
cost of which shall be $2,595.00;
(ii) purchase and install, at its own cost with its own
contractors all above building standard electrical work;
(iii) pay to the Landlord the sum of $745.91 for carpeting
installed by Landlord in Suite 385; and
(iv) not require Landlord to construct nor shall Tenant cause
to be constructed the doorway opening in the wall between the Temporary
Expansion Space and the Expansion Space indicated on Tenant's Plans.
12. LANDLORD'S EXONERATION. Landlord's exoneration clause, as set
forth in Paragraph 28 of the Lease, is hereby incorporated herein by reference,
as if fully set forth.
LANDLORD TENANT
CONNECTICUT GENERAL LIFE CONFERENCE PLUS, a Delaware
INSURANCE COMPANY, corporation
BY: CIGNA INVESTMENTS, INC.,
its agent BY: /s/ Richard P. Riviere
Its President & CEO
BY: /s/ John R. Schumann
Title: Vice President ATTEST: /s/ Melvin J. Simon
Its Secretary
ATTEST: /s/ William S. Woodsome
Its Vice President
-5-
<PAGE> 71
STATE OF CONNECTICUT )
COUNTY OF HARTFORD )
I HEREBY CERTIFY THAT on this day personally appeared before
me, an officer duly authorized to administer and take acknowledgements, John R.
Schumann, to me known to be Vice President of CIGNA Investments, Inc.; and
William S. Woodsome to me known to be Vice President of CIGNA Investments, Inc.
and they severally acknowledged to and before me that be executed the foregoing
instrument as such officer in the name and on behalf of said corporation and
that he affixed thereto the corporate seal of said corporation, for the uses
and purposes therein set forth and under due authority from said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal in said State and County this 2nd Day of March, 1993.
/s/ Jeannene M. Whitcomb
Notary: Jeannene M. Whitcomb
My Commission Expires: 9/30/97
-6-
<PAGE> 72
STATE OF )
) SS
COUNTY OF )
I, ________________________________________________, in and for said
County, in the State aforesaid, DO HEREBY CERTIFY that
_______________________________, President of _______________________________
and _____________________________, personally known to me to be the
__________________ Secretary of said corporation, and personally known to be to
be the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person and severally acknowledged that as such
__________________ President and __________________ Secretary of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of __________________ of said
corporation as their free and voluntary act and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and _____________ seal this ______ day of
__________________, 19__.
________________________________
Notary Public
-7-
<PAGE> 73
STATE OF ILLINOIS )
) SS
COUNTY OF DUPAGE )
I, Kendra K Szymanski, a Notary Public in and for said County,
in the State aforesaid, DO HEREBY CERTIFY that Richard P. Riviere, personally
known to me to be the President of CONFERENCE PLUS, a Delaware corporation
authorized to conduct business in the State of Illinois, and Melvin J. Simon,
personally known to me to be the Secretary of said corporation, and personally
known to me to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged
that as such President and Secretary, they signed and delivered the said
instrument as President and Secretary of said corporation, and caused the
corporate seal of said corporation to be affixed thereto, pursuant to authority
given by the Board of Directors of said corporation as their free and voluntary
act for the uses and purposes therein set forth.
GIVEN under my hand and ___________ seal this 23rd day of February,
1993.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/97
-8-
<PAGE> 74
CORPORATE GUARANTEE
The undersigned, in consideration of the leasing of the Expansion
Space described in the attached Second Amendment to Lease to the Tenant therein
mentioned (Conference Plus), does hereby absolutely, unconditionally and
irrevocably guarantee to Landlord the full and complete performance of all of
Tenant's covenants and obligations under that certain Lease dated as of the
24th day of December, 1991, as subsequently amended by a First Amendment to
Lease date as of April 27, 1992 and the attached Second Amendment to Lease
dated as of the 13th day of January, 1993 (in the aggregate, the "Lease") and
the full payment by Tenant of all Rent and other charges and amounts required
to be paid thereunder.
The undersigned does hereby waive any and all requirements of notice
of the acceptance of this Guarantee and all requirements of notice of breach or
non-performance by Tenant. The undersigned further waives any demand by
Landlord and/or prior action by Landlord of any nature whatsoever against
Tenant. The undersigned's obligations hereunder shall remain fully binding
although Landlord may have waived one or more defaults by Tenant or granted
indulgences to the Tenant, or extended the time of performance by Tenant,
modified or amended the Lease, released, returned or misapplied other
collateral given later as additional security (including other guarantees),
released Tenant from the performance of its obligations under such Lease, or
failed or neglected to exercise any of Landlord's rights against the Tenant.
This Guarantee shall be binding upon the undersigned and its
respective successors, successors in interest, representatives and assigns and
shall continue in effect subsequent to any assignment of the Lease by Tenant or
by operation of law.
This Guarantee shall be governed and construed under the laws of the
State of Illinois. This Guarantee shall be construed as an absolute,
continuing and unlimited Guarantee of all of the Tenant's obligations under
said Lease, without regard to regularity, validity or enforceability of any
liability or obligation of the Tenant hereby guaranteed; the Landlord shall not
be obligated to proceed first against the Tenant or any other person, firm or
corporation or against any collateral, if any, held by or on behalf of the
Landlord and the undersigned shall be bound on this Guarantee to the Landlord
as if the Tenant's obligations under the Lease were the primary obligations of
the undersigned.
-9-
<PAGE> 75
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed on its behalf by its duly authorized officers and its corporate seal
affixed hereto all on this 23rd day of February, 1993.
ELECTRONIC INFORMATION TECHNOLOGIES, INC.,
a Delaware corporation
BY: /s/ Melvin J. Simon
ITS: Secretary
-10-
<PAGE> 76
STATE OF ILLINOIS )
) SS
COUNTY OF DUPAGE )
On this 23rd day of February, 1993, before me, a Notary Public in and
for said County, appeared Melvin J. Simon, to me personally known, who being by
me sworn, did say that he is the Secretary of ELECTRONIC TECHNOLOGIES, INC.,
the corporation named in and which executed the within instrument, and that the
seal affixed to said instrument is the corporate seal of said corporation, and
that said instrument was signed and sealed on behalf of said corporation by
authority of its Board of Directors, _______________________ and said
_____________________________ acknowledged said instrument to be the free act
and deed of said corporation.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/97
-11-
<PAGE> 77
________________________________________________________________________________
3rd floor plan
Plan Grid is 2' x 4'
________________________________________________________________________________
WOODFIELD PARK OFFICE PLAZA
999 PLAZA RIVE
Schaumburg, Illinois
________________________________________________________________________________
EXHIBIT A-E2
<PAGE> 78
CONSENT BY LANDLORD TO SUBLEASE
The undersigned, CONNECTICUT GENERAL LIFE INSURANCE COMPANY, BY:
CIGNA INVESTMENTS, INC., its agent, as landlord (the "Landlord") under that
certain Lease (as amended, if amended, the "Lease"), dated as of the 24th day
of December, 1991, with CONFERENCE PLUS, INC., as tenant (the "Tenant"),
leasing certain premises (the "Premises") on the 3rd floor of the building
commonly known as Three National Plaza at Woodfield does hereby consent to a
certain sublease (the "Sublease") between the Tenant, as sublessor, and
Information Network Systems, Inc., as sublessee (the "Sublessee"), dated March
5, 1993 , having an effective date as of March 1, 1993 , or the date of
Landlord's consent (the "Effective Date") a copy of which is attached hereto,
upon the express understandings and conditions that:
1. Landlord neither approves nor disapproves of the terms,
conditions,- and agreements contained in the Sublease (all of
which shall be subordinate and subject to the terms,
conditions, and agreements of the Lease) and the Landlord
assumes no liability or obligation of any kind whatsoever to
the Sublessee, or for or on account of anything contained in
the Sublease;
2. Notwithstanding the sublease, or anything in the Sublease to
the contrary, and not withstanding the provisions of this
instrument to the contrary, the Tenant shall continue to
remain liable, primarily as a principal and not secondarily as
a surety or guarantor, for the payment of rent and the full,
faithful, and prompt performance of all of the covenants and
obligations of the Tenant under and as set forth in the Lease,
including, but not limited to, the payment of rent and the
responsibility of the Tenant for all actions and any neglect
of the Sublessee and its officers, partners, employees,
agents, guests, and invitees as if such Sublessee and such
persons were employees of the Tenant;
3. There shall be no further subletting of the Tenant's or
Sublessee's interest in the Lease, or of all or any portion of
the Premises demised under the Lease except strictly in
accordance with the terms, conditions, provisions, and
limitations of the Lease; and
4. It is expressly understood and agreed by and between the
parties hereto, anything herein to the contrary
notwithstanding, that each and all of the representations,
warranties, covenants, undertakings and agreements herein made
on the part of any Landlord while in form purporting to be the
representations, warranties, covenants, undertakings and
agreements of such Landlord are, nevertheless, each and every
one of them made and intended, not as personal
representations, warranties, covenants, undertakings and
agreements by such Landlord, or for the purpose or with
<PAGE> 79
the intention of binding such Landlord personally, but are made and
intended for the purpose only of subjecting such Landlord's interest
in the Premises and the Property to the terms of this Lease and for no
other purpose whatsoever, and in case of default hereunder by such
Landlord (or default through, under or by any of its beneficiaries, or
any of the agents or representatives of the Landlord or said
beneficiaries), Tenant shall look solely to the interests of such
Landlord in the Premises and the Property; that no Landlord nor any of
the beneficiaries of any Landlord which is a land trust shall have any
personal liability to pay any indebtedness accruing hereunder or to
perform any covenant, either express or implied, herein contained and
no liability or duty shall rest upon any Landlord which is a land
trust to sequester the trust estate or the rents, issues and profits
arising therefrom, or the proceeds arising from any sale or other
disposition thereof; that no personal liability or personal
responsibility of any sort is assumed by, nor shall at any time be
asserted or enforceable against, Landlord, individually or personally,
or against any of its beneficiaries or any of the beneficiaries under
any land trust which may become the owner of any representation,
warranty, covenant, undertaking or agreement of Landlord in this Lease
contained, either express or implied, all such personal liability, if
any, being expressly waived and released by Tenant and by all persons
claiming by, through or under Tenant.
Dated: March 23, 1993.
LANDLORD
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
BY: CIGNA INVESTMENTS, INC., its agent
BY: /s/ John G. Eisele
TITLE: Vice President
-2-
<PAGE> 80
[MIGLIN-BEITLER LETTERHEAD]
March 16, 1993
Mr. Richard Riviere
Conference Plus, Inc.
999 Plaza Drive, Suite 370
Schaumburg, Illinois 60173
Dear Rick:
This letter is to confirm that CONFERENCE PLUS, INC. has accepted Suite 370 and
Suite 385 on March 1, 1993. According to the provisions of your Lease,
(Section 2), the term of your expansion will be effective on March 1, 1993 and
end on February 28, 1997.
Please confirm and execute a copy of this letter which will become a permanent
part of your lease file.
Sincerely,
MIGLIN-BEITLER ASSET MANAGEMENT
James G. Bushy
General Building Manager
Agreed and Accepted:
/s/ Richard P. Riviere
Date: 3/18/93
JGB/dg
cc: Prashant Bodhanwala
<PAGE> 81
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease is made and entered into as of
the 20th day of January, 1994 at Chicago, Illinois by and between CONNECTICUT
GENERAL LIFE INSURANCE COMPANY, BY: CIGNA INVESTMENTS, INC., its agent, as
Landlord, and CONFERENCE PLUS, a Delaware corporation (the "Tenant").
R E C I T A L O F F A C T S:
A. The Tenant, as tenant, and The First National Bank of
Boston, as Trustee (the "REMIC Trustee") pursuant to that certain Pooling and
Servicing Agreement dated as of April 1, 1988 by and among CIGNA Mortgage
Securities, Inc. and CIGNA INVESTMENTS, INC., as Servicer ("Servicer") (the
REMIC Trustee and Servicer collectively referred to herein as the "Prior
Landlord"), as landlord, previously executed a written lease dated as of
December 24, 1991 (the "Original Lease"), a first amendment to lease dated the
27th day of April, 1992 (the "First Amendment") and a second amendment to lease
dated January 13, 1993 (the "Second Amendment") (collectively, herein referred
to as the "Lease"), leasing certain premises (the "Premises") in a building
(the "Building") located on the real estate commonly known as Three National
Plaza at Woodfield, located at 999 Plaza Drive, Schaumburg, Illinois, as more
particularly set forth in the lease.
B. The Landlord has succeeded to the interests of the Prior
Landlord as the result of mesne conveyances.
C. Tenant desires to utilize an additional 3,665 rentable
square feet (the "Second Temporary Expansion Space") on a temporary
month-to-month basis (not to exceed six months in total). The location of the
Second Temporary Expansion Space (and the Premises described in the Lease prior
to this Third Amendment) is indicated on Exhibit A-E3 attached hereto.
D. The Landlord and Tenant desire to modify and amend some of
the provisions of the Lease by the terms and provisions of this Third Amendment
to Lease (the "Third Amendment").
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the respective covenants of the
parties hereto contained in the Lease, Landlord and Tenant further mutually
agree as follows:
1. CONTROLLING LANGUAGE. Insofar as the specific terms and
provisions of this Third Amendment purport to amend or modify or are in
conflict with the specific terms and provisions of the Lease (the specific, but
not implied), the terms and
<PAGE> 82
provisions of this Third Amendment shall govern and control; in all other
respects, the terms and provisions (and definitions) of the Lease shall remain
in full force and effect and unmodified. The above set forth "Recital of
Facts" is hereby incorporated herein by reference.
2. PREMISES. Effective as of February 1, 1994 and until the "Second
Temporary Term Expiration Date" (as hereinafter defined) and not thereafter,
Section 1 of the Lease is hereby amended by deleting the number of rentable
square feet contained therein, "4,152", and in lieu thereof, substitute the
number "7,817", and (ii) Exhibit A-E2 attached to the Lease showing the
location of the Premises described in the Lease prior to this Third Amendment
is hereby deleted and in lieu thereof, Exhibit A-E3 attached hereto is
substituted. Effective as of the day immediately following the "Second
Temporary Term Expiration Date" (as hereinafter defined), Section 1 of the
Lease, as amended above in this Section 2, shall be further amended by deleting
the number of rentable square feet contained therein, "7,817", and in lieu
thereof, substituting the number "4,152" and by deleting the Second Temporary
Expansion Space from Exhibit A-E3 attached hereto.
3. TERM. The Tenant and Landlord do hereby acknowledge that the
Term, as set forth in Section 2 of the Lease, shall, in relation to the Second
Temporary Expansion Space added to the Premises hereby and only the Second
Temporary Expansion Space (and not the Premises described in the Lease prior to
this Third Amendment) end on the earlier of (i) the "Early Termination Date"
(as hereinafter defined); or (ii) the last day of July, 1994 (the earlier of
(i) and (ii) above being hereinafter referred to as the "Second Temporary Term
Expiration Date").
4. BASE RENT. Effective as of February 1, 1994 and until the Second
Temporary Term Expiration Date, the Base Rental table set forth in Section 4 of
the Second Amendment forming a part of the Lease is hereby deleted and in lieu
thereof Tenant shall pay as and for Base Rent and monthly installments of Base
Rent during the remainder of the Term those amounts set forth in the following
rental table in relation to the applicable months of the remainder of the Term:
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<PAGE> 83
<TABLE>
<CAPTION>
RATE MONTHLY
MONTH PER INSTALLMENT ANNUAL
OF TERM SQUARE FOOT OF BASE RENT BASE RENT
- ------- ----------- ------------ ---------
<S> <C> <C> <C>
1 - 12 $5.25 $3,419.94 $ 41,039.25
13 - 24 5.36 3,491.59 41,899.12
25 - 36 5.47 3,563.25 42,758.99
37 - 48 5.58 3,634.91 43,618.86
49 - 60 5.69 3,706.56 44,478.73
</TABLE>
For the purposes of determining the applicable Base Rent and
monthly installments of Base Rent, the beginning and ending
months are inclusive in the applicable rate periods above.
Notwithstanding the foregoing, Landlord and Tenant do hereby
acknowledge that effective as of the Second Temporary Term Expiration Date, the
Base Rental table set forth in Section 4 of the Second Amendment forming a part
of the Lease shall apply for the remainder of the Term in relation to the
original Premises described in the Lease prior to this Third Amendment.
5. SECURITY DEPOSIT. The Landlord and Tenant do hereby acknowledge
that the Tenant has delivered to the Landlord and the Landlord has received
from the Tenant pursuant to Section 5 of the Lease a security deposit in the
amount of $2,465.40. Effective immediately, the security deposit required by
Section 5 of the Lease shall be the sum of $3,886.48. The Tenant shall deliver
to the Landlord the additional $1,421.08 necessary to increase the amount of
the security deposit held by the Landlord pursuant to Section 5 of the Lease,
as modified by this Section 5 of the Third Amendment concurrently with the
execution and delivery of this Third Amendment by the Tenant to the Landlord.
Provided Tenant is not in default as of the Second Temporary Term Expiration
Date, the Landlord shall return the $1,421.08 delivered herewith to the Tenant.
6. TENANT'S PROPORTIONATE SHARE. Effective as of and including
February 1, 1994 to and including the Second Temporary Term Expiration Date,
the provisions of subsection 4A(iii) of the Original Lease, as modified by
Section 6 of the First Amendment and Section 6 of the Second Amendment, is
hereby amended by deleting the numerator of the fraction contained therein,
"4,152", and in lieu thereof, inserting the figure of "7,817" and by deleting
the percentage contained in said subsection, "3.09 percent", and in lieu
thereof, inserting the percentage figure of "5.82" percent". Effective as of
and including the first day following the Second Temporary
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<PAGE> 84
Term Expiration Date, the provisions of subsection 4A(iii) of the Original
Lease, as modified by Section 6 of the First Amendment, Section 6 of the Second
Amendment and the modifications contained above in this Section 6 shall be
further amended by deleting the numerator of the fraction contained therein,
"7,817", and in lieu thereof, inserting the figure of, 4,152", and by deleting
the percentage contained in said subsection, "5.82 percent, and in lieu
thereof, inserting the percentage figure of "3.09 percent".
7. BROKERS. The Tenant does hereby represent to the Landlord that
except for Miglin-Beitler Management Corporation, no broker has been involved
in this transaction concerning the Second Temporary Expansion Space. The
Tenant does hereby agree to indemnify, defend and hold the Landlord harmless
from and against any and all claims of any real estate broker except for
Miglin-Beitler Management Corporation who claims to be entitled to commissions
in connection with this Third Amendment as a result of representing Tenant.
8. OPERATING EXPENSE MODIFICATION. Notwithstanding any provision of
Section 30 of the Lease to the contrary, the Landlord and Tenant do hereby
acknowledge that for the purposes of determining the percentage limitations on
the Tenant's duty to pay Tenant's Proportionate Share of all Operating Expenses
set forth in subparagraphs 30D of the Lease, such percentage limitations shall
be determined, for and in relation to that period of time and only that period
of time, commencing February 1, 1994 and ending on the Second Temporary Term
Expiration Date as if the Second Temporary Expansion Space added by this Third
Amendment had been a part of the Premises from inception of the Lease and the
Tenant's Proportionate Share during the entire Base Year had been 5.82 percent.
The percentage limitations on Tenant's duty to pay Tenant's Proportionate Share
of Operating Expenses for the remainder of the Term after the Second Temporary
Term Expiration Date shall be governed by the provisions contained in
subsection 9(b) of the Second Amendment.
9. MUTUAL INCORPORATION. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by agreement, in writing, between
Landlord and Tenant. No modifications, termination, or surrender of this Third
Amendment or surrender of the Premises or any part thereof or of any interest
therein by Tenant shall be valid or effective unless agreed to and accepted, in
writing, by the Landlord and no act by any representative or agent of the
Landlord other than delivery of such a written agreement and acceptance by the
Landlord shall constitute acceptance thereof. Any prior negotiations or
intentions of the parties with respect to this Third Amendment, whether oral or
evidenced by written documentation dated prior to the date of this Third
Amendment, are null and void.
10. REDECORATING. The Landlord and Tenant do hereby acknowledge that
the Second Temporary Expansion Space has been previously built out for a prior
tenant.
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<PAGE> 85
The Tenant does hereby acknowledge that the Landlord has made no promise to the
Tenant to construct, alter or otherwise decorate or redecorate the Second
Temporary Expansion Space, except as indicated below. Notwithstanding the
foregoing, the Landlord, at Landlord's sole cost and expense, agrees to install
standard electrical service to the Second Temporary Expansion Space and open
one passageway between the Second Temporary Expansion Space and the portion of
the Premises known as Suite 370.
11. EARLY TERMINATION RIGHT. Notwithstanding any other provision of
this Third Amendment to the contrary, either the Landlord or the Tenant shall
have the right upon not less than thirty days' advance written notice to the
other party to terminate the Tenant's right to use the Second Temporary
Expansion Space as of the last day of any calendar month which shall be stated
in such notice (the "Early Termination Date"). In the event either party
hereto shall exercise such early termination right, the Tenant shall vacate the
Second Temporary Expansion Space on or before said Early Termination Date and
return the same to the Landlord in the condition required by Section 15 of the
Lease, failing which, the Tenant shall be deemed to be holding over in the
Second Temporary Expansion Space and the Landlord shall have all rights and
remedies available under the Lease in relation to a hold over in the Premises
(however, damages shall be prorated on based on the size and Rent applicable to
the Second Temporary Expansion Space only, and not the original Premises
described in the Lease prior to this Third Amendment and further provided that
Landlord shall not have the right to renew the Second Temporary Expansion Space
for a term of one (1) year, as provided in Section 8D of the Lease).
12. LANDLORD'S EXONERATION. Landlord's exoneration clause, as set
forth in Paragraph 28 of the Lease, is hereby incorporated herein by reference,
as if fully set forth.
LANDLORD TENANT
CONNECTICUT GENERAL LIFE CONFERENCE PLUS, a Delaware
INSURANCE COMPANY, corporation
BY: CIGNA INVESTMENTS, INC.,
its agent BY: /s/ Richard P. Riviere
Its President & CEO
BY: /s/ James H. Rogers
Title: Vice President ATTEST: /s/ Judith H. Riley
Its Vice President-Sales
ATTEST: /s/ Thomas Johnson
Its Vice President
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<PAGE> 86
STATE OF CONNECTICUT )
) SS
COUNTY OF HARTFORD )
I, Jeannene M. Whitcomb, in and for said County in the State
aforesaid, DO HEREBY CERTIFY that James H. Rogers, Vice President of CIGNA
Investments, Inc. and Thomas Johnson, personally known to me to be the Vice
President of said corporation, and personally known to be the same persons
whose names are subscribed to the foregoing instrument, appeared before me this
day in person and severally acknowledged that as such Vice President and Vice
President, they signed and delivered the said instrument as Vice President and
Vice President of said corporation, and caused the corporate seal of said
corporation to be affixed thereto, pursuant to authority given by the Board of
Directors of said corporation as their free and voluntary act and as the free
and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and notarial seal this 24th day of February, 1994.
/s/ Jeannene M. Whitcomb
Notary Public
My Commission Expires: 9/30/97
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<PAGE> 87
STATE OF ILLINOIS )
) Ss
COUNTY OF DUPAGE )
I, Kendra K Szymanski, a Notary Public in and for said County,
in the State aforesaid, DO HEREBY CERTIFY that Richard Riviere, personally
known to me to be the President of CONFERENCE PLUS, a Delaware corporation
authorized to conduct business in the State of Illinois, and Judith H. Riley,
personally known to me to be the Vice President-Sales of said corporation, and
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and severally
acknowledged that as such President and Vice President-Sales of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, pursuant to authority given by the Board of Directors of said
corporation as their free and voluntary act for the uses and purposes therein
set forth.
GIVEN under my hand and ___________ seal this 7th day of February,
1994.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/97
-7-
<PAGE> 88
CORPORATE GUARANTEE
The undersigned, in consideration of the leasing of the Second
Temporary Expansion Space described in the attached Third Amendment to Lease to
the Tenant therein mentioned (Conference Plus), does hereby absolutely,
unconditionally and irrevocably guarantee to Landlord the full and complete
performance of all of Tenant's covenants and obligations under that certain
Lease dated as of the 24th day of December, 1991, as subsequently amended by a
First Amendment to Lease date as of April 27, 1992, the Second Amendment to
Lease dated as of the 13th day of January, 1993 and the Third Amendment to
Lease dated as of the 20th day of January, 1994 (in the aggregate, the "Lease")
and the full payment by Tenant of all Rent and other charges and amounts
required to be paid thereunder.
The undersigned does hereby waive any and all requirements of notice
of the acceptance of this Guarantee and all requirements of notice of breach or
nonperformance by Tenant. The undersigned further waives any demand by
Landlord and/or prior action by Landlord of any nature whatsoever against
Tenant. The undersigned's obligations hereunder shall remain fully binding
although Landlord may have waived one or more defaults by Tenant or granted
indulgences to the Tenant, or extended the time of performance by Tenant,
modified or amended the Lease, released, returned or misapplied other
collateral given later as additional security (including other guarantees),
released Tenant from the performance of its obligations under such Lease, or
failed or neglected to exercise any of Landlord's rights against the Tenant.
This Guarantee shall be binding upon the undersigned and its
respective successors, successors in interest, representatives and assigns and
shall continue in effect subsequent to any assignment of the Lease by Tenant or
by operation of law.
This Guarantee shall be governed and construed under the laws of the
State of Illinois. This Guarantee shall be construed as an absolute,
continuing and unlimited Guarantee of all of the Tenant's obligations under
said Lease, without regard to regularity, validity or enforceability of any
liability or obligation of the Tenant hereby guaranteed; the Landlord shall not
be obligated to proceed first against the Tenant or any other person, firm or
corporation or against any collateral, if any, held by or on behalf of the
Landlord and the undersigned shall be bound on this Guarantee to the Landlord
as if the Tenant's obligations under the Lease were the primary obligations of
the undersigned.
-8-
<PAGE> 89
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed on its behalf by its duly authorized officers and its corporate seal
affixed hereto all on this 7th day of February, 1994.
ELECTRONIC INFORMATION TECHNOLOGIES, INC.,
a Delaware corporation
BY: /s/ Melvin J. Simon
ITS: Secretary
-9-
<PAGE> 90
STATE OF ILLINOIS )
) Ss
COUNTY OF DUPAGE )
On this 7th day of February, 1993, before me, a Notary Public in and
for said County, appeared Melvin J. Simon, to me personally known, who being by
me sworn, did say that he is the Secretary of ELECTRONIC TECHNOLOGIES, INC.,
the corporation named in and which executed the within instrument, and that the
seal affixed to said instrument is the corporate seal of said corporation, and
that said instrument was signed and sealed on behalf of said corporation by
authority of its Board of Directors, _______________________ and said Secretary
acknowledged said instrument to be the free act and deed of said corporation.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/97
-10-
<PAGE> 91
________________________________________________________________________________
3rd floor plan
Plan Grid is 2' x 4'
________________________________________________________________________________
NATIONAL PLAZA AT WOODFIELD
999 PLAZA DRIVE
Schaumburg, Illinois
________________________________________________________________________________
"EXHIBIT A-E3"
<PAGE> 92
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (the "FOURTH AMENDMENT") is
made and entered into as of the 22nd day of December, 1994 at Chicago, Illinois
by and between NATIONAL PLAZA III, an Illinois limited liability company, (the
"LANDLORD") and CONFERENCE PLUS, INC., a Delaware corporation (the "TENANT").
RECITAL OF FACTS:
A. The Tenant, as tenant and The First National Bank of
Boston, as Trustee (the "REMIC TRUSTEE") pursuant to that certain Pooling and
Servicing Agreement dated as April 1, 1988 by and among CIGNA Mortgage
Securities, Inc. and CIGNA INVESTMENTS, INC., as Servicer ("SERVICER") (the
REMIC Trustee and Servicer collectively referred to herein as the "ORIGINAL
LANDLORD"), as landlord, previously executed a written lease dated as of
December 24, 1991 (the "ORIGINAL LEASE"), and a First Amendment to Lease dated
the 27th day of April, 1992 (the "FIRST AMENDMENT") and Connecticut General
Life Insurance Company ("CONNECTICUT GENERAL"), as successor in interest to the
Original Landlord, and Tenant executed a Second Amendment to Lease dated
January 13, 1993 (the "SECOND AMENDMENT") and a Third Amendment to Lease dated
the 20th day of January, 1994 (the "THIRD AMENDMENT") (the Original Lease as
modified by the First Amendment, the Second Amendment and the Third Amendment
being collectively herein referred to as the "LEASE"), leasing certain premises
(the "PREMISES") in a building (the "BUILDING") located on the real estate
commonly known as THREE NATIONAL PLAZA AT WOODFIELD, located at 999 Plaza
Drive, Schaumburg, Illinois, as more particularly set forth in the Lease.
B. The Landlord has succeeded to all of the interest of
Connecticut General in and to the Lease.
C. The Tenant and Landlord desire to substitute space
located on the 4th floor of the Building (the "SUBSTITUTE SPACE") containing
17,343 rentable square feet for the original Premises described in the Lease
(the "ORIGINAL SPACE") located on the 3rd floor of the Building and containing
7,817 rentable square feet. The location of the Substitute Space is indicated
on Exhibit AS-1 attached hereto.
D. The Landlord and Tenant desire to modify and amend
some of the provisions of the Lease by the terms and provisions of this Fourth
Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the respective covenants of the
parties hereto contained in the Lease, Landlord and Tenant further mutually
agree as follows:
<PAGE> 93
1. CONTROLLING LANGUAGE. Insofar as the specific terms and
provisions of this Fourth Amendment purport to amend or modify or are in
conflict with the specific terms and provisions of the Lease (the specific, but
not implied), the terms and provisions of this Fourth Amendment shall govern
and control; in all other respects, the term and provisions (and definitions)
of the Lease shall remain in full force and effect and unmodified. The above
set forth "Recital of Facts" is hereby incorporated herein by reference.
2. TERM/PREMISES.
A. Effective as of the date of this Fourth Amendment the Term
of the Lease is hereby extended until that date (the "TERM ENDING DATE") which
is 60 months subsequent to the "COMMENCEMENT DATE" (as hereinafter defined).
That period of time commencing and including the Commencement Date to and
including the Term Ending Date is hereinafter referred to as the "MODIFIED
TERM". For the purposes of this Fourth Amendment the term "COMMENCEMENT DATE"
shall mean the earlier of (i) the Completion Date for the Substitute Space (as
determined pursuant to Section 8 below) or (ii) the date upon which Tenant
utilizes the Substitute Space for Tenant's reasonable business purposes or
(iii) March 1, 1995. In the event the Commencement Date occurs on a date other
than the first day of a month the Term Ending Date shall be sixty (60) months
following the first day of the, next succeeding month.
B. Effective as of the Commencement Date, the description of
the Premises set forth in the Lease is hereby modified by eliminating any
reference to the Original Space and in lieu thereof, substituting the
description of the Substitute Space as and for the Premises.
3. REMOVAL FROM ORIGINAL SPACE.
A. The Tenant shall vacate all of the original Space and
return the same to the Landlord in the condition required by Section 15 of the
Lease by that date which is ten (10) business days subsequent to the
Commencement Date.
B. In the event the Tenant shall fail to deliver the Original
Space to the Landlord within the time and in the condition required above, such
failure shall constitute a default under the terms and provisions of the Lease
and the Landlord shall be entitled to any and all remedies provided for in the
Lease or at law as a result of such failure to the same extent as if such
failure constituted a hold over in a portion of the Premises after the
expiration of the Term of the Lease in relation and only in relation to the
Original Space. Nothing herein contained shall, be deemed as granting to the
Landlord the right to terminate the Lease, as amended, in relation to the
Substitute Space or shall otherwise affect any other rights or obligations of
Landlord and Tenant, respectively, with respect to the Substitute Space only as
a result of a holdover by the Tenant in the Original Space.
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<PAGE> 94
4. BASE RENT.
A. Effective as of the Commencement Date, Section 4 of the
Third Amendment is hereby amended by deleting the provisions and Rental Table
contained therein, and in lieu thereof, inserting the following Rental Table
and provisions.
"Notwithstanding the provisions contained in Section 3A of the Lease,
as annual Base Rent and monthly installments of Base Rent, the
following sums are due and payable by the Tenant to the Landlord
during the Modified Term:
<TABLE>
<CAPTION>
MONTHLY
MONTHS OF PER SQ. FT INSTALLMENT ANNUAL
MODIFIED TERM RENTAL OF BASE RENT BASE RENT
------------- ------ ------------ ---------
<S> <C> <C> <C>
1-60 $15.07 $21,779.92 $261,359.04
</TABLE>
Each installment of monthly Base Rent shall be due promptly on the
first day of each and every calendar month during the Modified Term.
In the event the Modified Term begins or ends on a date other than the
first or last day of a calendar month, the monthly installment of Base
Rent for such month(s) shall be printed accordingly."
B. Notwithstanding anything to the contrary contained in this
Fourth Amendment, Tenant shall be entitled to an abasement of Base Rent only in
the amount of $9,750.00, which abatement shall be applied at the rate of
$1,625.00 per month for the first six (6) months of the Modified Term and
accordingly the monthly installments of Base Rent payable during the first six
(6) months of the Modified Term shall be $20,154.92.
C. Effective as of the Commencement Date and throughout the
Modified Term, Tenant shall not be required to pay any "Rent Adjustments",
Tenant's Proportionate Share of Operating Expenses", Rent Adjustment Deposits"
and "Operating Expense Deposits" as required under the provisions of Section 3B
of the Lease.
5. TENANT'S PROPORTIONATE SHARE. Effective as of the Commencement
Date throughout the Modified Term, the provision contained in subparagraph
4A(iii) of the Original Lease as modified by the First through Third Amendment
are hereby replaced with the following provision:
"Tenant Proportionate Share" means 17,343/134,249 or 12.92 (12.92%) percent."
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<PAGE> 95
6. BROKERS. Each of the parties hereto does hereby represent to the
other that except for Miglin-Beitler Management Corporation and CB Commercial,
no broker has been involved in this transaction. Each of the parties hereto
does hereby agree to indemnify, defend and bold the other party harmless from
and against any and all claims of any real estate brokers except for
Miglin-Beitler Management Corporation and CB Commercial who claim to be
entitled to commissions in (connection with this Fourth Amendment as a result
of representing such party.
7. MUTUAL INCORPORATION. All negotiations, considerations,
representations and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by agreement, in writing, between
Landlord and Tenant. No modifications, termination, or surrender of this
Fourth Amendment or surrender of the Premises or any part thereof or of any
interest therein by Tenant shall be valid or effective unless agreed to and
accepted, in writing, by the Landlord and no act by any representative or agent
of the Landlord other than delivery of such a written agreement and acceptance
by the Landlord shall constitute acceptance thereof. Any prior negotiations or
intentions of the parties with respect to this Fourth Amendment, whether oral
or evidenced by written documentation dated prior to the date of this Fourth
Amendment, are null and void.
8. CONSTRUCTION OF NEW PREMISES.
A. The Landlord acknowledges that it has approved the
proposed layout of the Substitute Space as indicated in the Preliminary
Electric Voice Data Plan dated November 9, 1994 prepared by The Interior Design
Group, Ltd. under Project Code 1651-93 (the "SPACE PLAN"). Tenant shall also
deliver to Landlord for Landlord's approval, which approval shall not be
unreasonably withheld, detailed working drawings for the Substitute Space
substantially in accordance with the Space Plan. Within five (5) days after
receipt of such drawings Landlord will provide Tenant with any objections
Landlord may have to Tenant's drawings. If Landlord fails to object to such
drawings within said five (5) day period, Landlord shall be deemed to have
approved Tenant's drawings. Tenants drawings as approved pursuant to the
provisions of this Section 8A are hereinafter referred to as the "TENANT'S
PLANS". Except as provided below in this Section 8, the Landlord and Tenant do
hereby agree that the Substitute Space shall be built-out at Tenant's sole cost
and expense in accordance with the items indicated on the Tenant's Plans
attached hereto by Brodrick Construction Company ("TENANT'S CONTRACTOR").
Tenant shall have the right, subject to Landlord's reasonable approval, to
select a general contractor other than Tenant's Contractor (in which event such
general contractor shall be deemed the "Tenant's Contractor" under this Section
8) and/or subcontractors performing work in the Substitute Space pursuant to
Tenant's Plans. For the purposes of this Fourth Amendment, the date upon which
all the work shown on Tenant's Plans is, substantially complete (including the
completion and installation of all modular partitions, electrical wiring and
installation of all computer and telephone systems) such that the noncompletion
of any items of work Indicated on Tenant's Plans would not materially impair
the Tenant's utilization of the Substitute Space for Tenant's
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<PAGE> 96
reasonable business, purposes is hereinafter referred to as the "COMPLETION
DATE FOR THE SUBSTITUTE SPACE". The Tenant's Contractor shall be Permitted to
utilize and occupy the Substitute Space prior to the Commencement Date for
construction purpose only, upon the last to occur of:
(i) The date this Fourth Amendment is signed by all
necessary parties; and
(ii) the date upon which the Tenant or Tenant's Contractor
has supplied all necessary pre-construction
information, documentation and proof required by
subsection 8Q of the Lease to the Landlord
(including, but not limited to proof of appropriate
insurance covering the construction by Tenant's
Contractor in the Substitute Space, copies of all
requisite permits and copies of all executed
contracts for the work to be done in ft Substitute
Space pursuant to Tenant's Plans); provided, however,
that Tenant shall not be required to submit to
Landlord, prior to commencement of construction of
the Substitute Space, copies of executed contracts
for minor items of work not necessary for
commencement of construction of the Substitute Space.
B. The Tenant and Landlord do hereby acknowledge that
Landlord's approval of Tenant's plans does not constitute an agreement or
warranty by the Landlord that the Substitute Space when constructed with the
items shown on Tenant's Plans will be in compliance with all laws, ordinances,
rules and regulations applicable to the Premises nor that the Substitute Space
will be suitable for Tenant's purposes or in compliance with the Americans with
Disabilities Act, as amended from time to time, as the same applies to Tenant's
business from and in the Substitute Space. All such determination as to
compliance and suitability of the Substitute Space when built-out in accordance
with Tenant's Plans shall be the responsibility and obligations of the Tenant.
For the purposes of the Lease, as amended, any and all actions or inactions on
the part of the Tenant's Contractor or any subcontractor in building out the
Substitute Space shall be deemed and construed as actions and inactions of the
Tenant. No delay in the occurrence of the Completion Date for the Substitute
Space shall delay the occurrence of the Commencement Date except to the extent,
on a day for day basis, the cause for such delay is a result of the Landlord's
negligent or willfully intentional acts. The Tenant shall advise the Landlord
of the occurrence of the Completion Date for the Substitute Space as soon as
feasible after occurrence of the same. The occurrence of the Completion Date
for the Substitute Space shall not eliminate or modify the Tenant's obligations
pursuant to subsection 8Q of the Lease to provide the Landlord with all
requisite documentation specified therein upon completion of the work to the
Substitute Space including, but not limited to providing the Landlord with
copies of final sworn general contractor's statement from Tenant's Contractor
and final lien waivers from the Tenant's Contractor and all subcontractors and
material suppliers utilized by Tenant's
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Contractor in performing the work to the Substitute Space pursuant to the
Tenant's Plans.
C. The Landlord does hereby grant the Tenant a credit
("CONSTRUCTION CREDIT") equal to $294,425.20. The Landlord agrees to Pay to
the Tenant the lessor of (i) the actual cost of the work necessary to build-out
the Substitute Space pursuant to Tenant's Plans (including the amount of the
supervisory fee set forth in Section 9 of this Fourth Amendment and the cost of
preparing the Space Plan and Tenant's working drawings) or (ii) the
Construction Credit within thirty (30) days following Landlord's receipt of the
documentation required by subsection 8Q of the Lease and this Section 8
relating to occupancy permits, final general contractor's statement, final lien
waivers and an estoppel certificate in accordance with Section 27 Of the Lease.
In the event the Construction Credit shall exceed the cost of the work
necessary to build-out the Premises pursuant to Tenant's Plans, the Landlord
does hereby agree to credit the lesser of (i) such excess amount or (ii)
$26,014.50 (the "ADDITIONAL CONSTRUCTION CREDIT") against the first monthly
installments of Base Rent to become due pursuant to the terms and provisions of
this Fourth Amendment during the Modified Term.
D. Landlord agrees to cause the Construction Credit to be
deposited with Chicago Title and Trust Company ("CHICAGO TITLE") within ten
(10) days after the execution of this Fourth Amendment. The sum of $184,418.84
has been deposited in a construction escrow between Chicago Title, Landlord and
Connecticut General (the "CONNECTICUT GENERAL ESCROW") and the balance in the
amount of $100,006.36 shall be deposited in a construction escrow between
Landlord, Tenant and Chicago Title (the "LANDLORD ESCROW"; and the Connecticut
General Escrow and the Landlord Escrow being hereinafter collectively refereed
to as the "CONSTRUCTION ESCROWS"). The cost of the Landlord Escrow shall be
divided equally between Landlord and Tenant. Upon completion of Tenant's work
to the Substitute Space pursuant to Tenant's Plans and delivery of the
documentation required in Paragraph C above and compliance with the provisions
of the Construction Escrows. including but not limited to the delivery of final
waivers of lien from Tenant's Contractor and any other contractors and or
subcontractors providing work or materials in connection with building out the
Substitute Space and delivery of an estoppel certificate in accordance with
Section 27 of the Lease, the Construction Credit shall be paid to Tenant within
the time period provided for in Subparagraph C above. All payments shall be
paid to Tenant by Chicago Title to the order of Tenant or at Tenant's
direction.
E. In addition to the Construction Credit Landlord agrees to
reimburse Tenant for one-half (1/2) of the out-of-pocket costs incurred by
Tenant in preparing the Space Plan and Tenant's working drawings for the
Substitute Space; provided, however, that in no event shall Landlord be
required to pay an amount In excess of $6,000.00 (the "PLAN REIMBURSEMENT").
Landlord shall pay Tenant the Plan Reimbursement at such time as Tenant
provides Landlord with copies of the paid bills and lien waivers from the
parties providing such services, provided, however, that Landlord shall not be
required
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to pay the Plan Reimbursement prior to the first disbursement under the
Construction Escrows.
9. ALTERATIONS. Effective as of the date hereof, Section 8Q of the
Lease is hereby amended by deleting the percentage "15%" and substituting in
lieu thereof a percentage of "5%".
10. LANDLORD'S EXONERATION. Landlord's exoneration clause, as set
forth in Section 28 of the Lease, is hereby incorporated herein by reference,
as if fully set forth.
11. EXPANSION OPTION. The Tenant is hereby granted an option (the
"OPTION") to lease all or, subject to the size and configuration limitations
hereinafter specified. any part of that portion of the second (2nd) floor of
the Building containing approximately 7,000 rentable square feet, the location
of which is indicated on Exhibit B attached hereto as the Option Space (the
"OPTION SPACE") for occupancy commencing at any time prior to September 1, 1996
on the terms and conditions and only on the terms and conditions set forth in
this Section 11. In the event the Tenant desires to exercise the Option on
less than all of the Option Space, the Tenant must initially exercise the
Option as to the portion of the Option Space located on the southeast corner of
the second (2nd) floor of the Building located within the Option Space and if
the Tenant thereafter exercises the Option for less than the remaining portion
of the Option Space, the Tenant must exercise the Option for space immediately
contiguous to the portion of the Option Space which has previously been
exercised by Tenant pursuant to this Section 11. In addition, if Tenant
exercises the Option on less than all of the Option Space, such exercise must
result in the, portion of the Option Space on which the Tenant is not
exercising the Option being (i) at least 1,000 rentable square feet in size,
(ii) contiguous within itself, (iii) having a roughly square or rectangular
shape, and (iv) containing a proportionate share of all exterior window
frontage on the second (2nd) floor of the Building, in the same proportion that
the space on the second (2nd) floor of the Building not leased by the Tenant
bears to all rentable square footage (whether leased or unleased) on the second
(2nd) floor of the Building. If the Tenant desires to exercise the Option, it
shall do so in the following and only in the following manner:
A. Tenant shall notify the Landlord of its desire to exercise
the Option, in writing no later than August 1, 1996 and indicate in said notice
the date of occupancy desired by the Tenant (which must be prior to September
1, 1996, the number of rentable square feet (up to 7,000), and the location and
configuration desired by the Tenant; provided, however, that in the event the
size desired is less than the entire Option Space, such size and configuration
shall not violate the limitations contained in the first paragraph of this
Section 11. In the event Tenant does not exercise its right to lease all of
the Option Space, Tenant shall have the further right, from time to time, to
exercise the Option with respect to the remaining portions of the unexercised
Option Space (subject to the requirements set forth in the first paragraph of
this Section 11) provided Tenant exercises such Option prior August 1, 1996 and
Tenant takes
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occupancy of such Option Space prior to September 1, 1996. Any notices
hereunder shall only be effective if delivered at a time when the Tenant is not
in default of its obligations pursuant to the terms of the Lease as amended.
B. As soon as practical after the receipt of the notice or
notices by the Tenant electing to exercise the Option, the Landlord shall
forthwith prepare and transmit to the Tenant an appropriate lease amendment
having as its effective date the date of occupancy specified in Tenant's
notice. Such amendment shall increase the number of rentable square feet
contained in the Premises by the number of rentable square feet designated in
Tenant's notice and modifying Exhibit AS-1 to the Lease to indicate the
inclusion of the portion of the Option Space designated in Tenant's notice in
the Premises. Such amendment shall also increase the Base Rent by the product
of the rental rate set forth in Section 4 hereof, multiplied by the number of
rentable square feet contained in the portion of the Option Space designated in
Tenant's notice and modifying the monthly installments of Base Rent to equal
one-twelfth (1/12th) of the new Base Rent, as determined aforesaid. Such
amendment shall also increase the numerator set forth in subsection 4A(iii) of
the Lease by the number of rentable square feet contained in the Option Space
designated in Tenant's notice and modify the percentage contained in such
subsection accordingly. The Tenant shall take possession of the portion of the
Option Space designated in Tenant's notice for business purposes in its then
"as is" condition on the occupancy date specified in Tenant's notice. Such
amendment shall also grant the Tenant the right to access and utilize the
portion of the Option Space designated in Tenant's notice prior to the
occupancy date specified in Tenant's notice solely and only for the purpose of
constructing such improvements in and to the portion of the Option Space
designated in Tenant's notice as Tenant may desire. The Tenant in making any
such improvements to the portion of the Option Space designated in Tenant's
notice shall comply with all the terms and provision of subsection 8Q of the
Lease. Such amendment shall grant to the Tenant a credit (the "ALTERATION
CREDIT") equal in dollar amount to the lesser of (i) the actual cost of the
alterations made by the Tenant to the portion of the Option Space to which such
amendment relates prior to the occupancy date specified in Tenant's notice or
(ii) did amount equal to the aggregate of both (a) the product of the number of
rentable square feet contend in the portion of the Option Space designated in
Tenant's notice multiplied by $16.40 and further multiplied by that fraction
the numerator of which is equal to the number of months remaining in the
Modified Term as of the date of occupancy specified in Tenant's notice and the
denominator of which is 60 and (b) the portion, if any, of the Construction
Credit specified in Section 8 of this Fourth Amendment, which was neither paid
to the Tenant or credited against the first monthly installments of Base Rent
to become due pursuant to the terms and provisions of this Fourth Amendment.
Said Alteration Credit shall be payable by the Landlord to the Tenant within
thirty (30) days of the Tenant providing the Landlord with all necessary
documentation and proof of payment of all costs relating to the alteration work
desired by the Tenant in and to the portion of the Option Space designated in
Tenant's notice and compliance by the Tenant with the provisions of Section 8Q
of the Lease. In the event the Landlord fails to provide Tenant with the
Alteration Credit when it is then due and payable, Tenant
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shall have the right, upon ten (10) days written notice to Landlord, to set off
as a credit against rent any amounts owing to Tenant for said Alteration
Credit.
C. Provided the amendment conforms to the provisions of
Subsection B above, the Tenant shall execute the same, and transmit it to the
Landlord within ten (10) days of the date of the receipt of the amendment from
Landlord. The failure of the Landlord to receive the amendment so executed
within ten (10) days of the date of Landlord"s transmission of the same to the
Tenant will result, at Landlord's option, in the Tenant's exercise of the
Option automatically being null and void and of no further force or effect.
Any attempt by the Tenant to exercise the Option granted hereby at a time or in
a manner other than as specifically set forth herein shall be at the Landlord's
sole option of no force or effect
D. The provisions of Exhibit B attached to the Lease and
Section 8 of this Fourth Amendment shall be of no force or effect in relation
to such amendment.
E. In the event Tenant exercises the Option for all or any
portion of the Option Space as provided for in this Section 11, the Tenant
Cancellation Option set forth in Section 13 of this Fourth Amendment shall
terminate and be null and void and Tenant shall have no right to terminate the
Lease as provided for in said Section 13.
12. RENEWAL OPTION. The Tenant is hereby granted one (1) five (5)
year option to renew the Lease (the "RENEWAL OPTION") at a Base Rental Rate
equal to the then current Building market rate as mutually determined by
Landlord and tenant (the "EXTENDED TERM RENT"). If the Tenant desires to
exercise its Renewal Option, it shall do so in the following, and only in the
following manner:
A. If the Tenant desires to exercise its Renewal Option, it
shall so notify the Landlord, in writing, no earlier than the first day of the
twelfth (12th) month prior to the expiration date of the Modified Term and no
later than the first day of the tenth (10th) month prior to the expiration date
of the Modified Term. Such notice shall be effective if delivered at a time
when the Tenant is not in default of its obligations under the terms and
provisions of the Lease as amended.
B. Within twenty-one (21) days Of Landlord's receipt of
Tenant's notice of its desire to exercise its Renewal Option, given at the time
and in the manner provided above, the Landlord shall notify the Tenant in
writing of the Landlord's estimate of the Extended Term Rent. The Landlord and
Tenant agree to negotiate in good faith for a period of thirty (30) days after
Tenant's receipt of Landlord's estimate of the Extended Term Rent in an attempt
to mutually agree on the Extended Term Rent. In the event for any reason the
Landlord and Tenant are unable to mutually agree on the Extended Term Rent
within said thirty (30) day period, then in such event the Tenant's purported
exercise of the Renewal option shall be null and void and of no further force
or effect. In the event the Landlord and Tenant are able to mutually agree
upon the Extended Term Rent within said thirty (30) day period, the Landlord
shall as
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soon after the parties have reached mutual agreement as to the Extended Term
prepare and transmit to the Tenant an appropriate lease amendment to the Lease
extending the Term for five years (the "EXTENDED TERM") and modifying the Base
Rent to equal the Extended Term Rent, and modifying the monthly installments of
the Base Rent to equal 1/12th of the new Base Rent, as determined aforesaid.
C. The Landlord shall transmit such lease amendment to the
Tenant for execution and provided the amendment conforms to the provisions of
Subsection B above Tenant shall execute and deliver the same to the Landlord
within ten (10) days of Tenant's receipt thereof. In the event the Tenant
falls for any reason to execute and deliver the lease amendment to the Landlord
within the time period provided herein, then in such event, at Landlord's
option, Tenant's purported exercise of its Renewal Option shall be of no force
or effect and the Renewal Option shall become null and void.
D. The provisions of Exhibit B to the Lease and the
provisions of Sections 4, 8 and 11 of this Fourth Amendment shall be of no
force or effect during such Extended Term brought about as a result of Tenant's
exercise of its Renewal Option.
13. TENANT CANCELLATION OPTION. Tenant shall have an option (herein
referred to as the "TENANT CANCELLATION OPTION") to terminate this Lease
effective as of January 31, 1998 (the forgoing being herein referred to as the
"Early Termination Date") by notifying Landlord of its election, in a written
notice, given not later than January 31, 1997. In the event that Tenant does
not give its notice excising such right by such date, all further rights of
Tenant with respect to the Tenant Cancellation Option shall terminate. In
addition, the Tenant Cancellation Option shall be void and of no force and
effect if Tenant exercises its option to lease all or any part of the Option
Space as provided for in Section 11 of this Fourth Amendment. The Tenant
Cancellation Option is further subject to the following terms, conditions and
limitations:
(i) No later than thirty (30) days prior to the Early
Termination Date, Tenant shall deliver to Landlord a Cancellation fee
in the aggregate mount of (x) six (6) months Base Rent and (y) the
unamortized balance of Landlord's Leasing Costs (as hereinafter
defined) based on a ten (10) year amortization schedule and a ten
(10%) percent interest rate. For purposes hereof, "LANDLORD'S LEASING
COSTS" shall be the aggregate of (A) the leasing commissions paid by
Landlord with respect to this Fourth Amendment plus (B) the amount of
the Construction Credit and the Additional Construction Credit, if any
(as provided for in Article 8 of this Fourth Amendment) plus (C) the
amount of the Base Rent abatement provided for in Section 4B of this
Fourth Amendment.
(ii) Tenant shall have the right to exercise the Tenant
Cancellation Option only if no default exists at the time of such
exercise. Additionally, if a default shall occur at any time after
the election by Tenant of the Tenant Cancellation Option and prior to
the Early Termination Date, and such default is
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not cured during the, applicable grace period, if any, the exercise by
Tenant of the Tenant Cancellation Option shall be deemed null and void
and of no further force and effect, Tenant shall have no further
rights and options under this Section 13 as to the Tenant Cancellation
Option and Landlord shall have an rights and remedies on account of
the occurrence of such default as provided for in the Lease; and
(iii) Notwithstanding anything herein to the contrary, in the
event of any assignment, sublet or transfer by Tenant of this Lease or
any interest under it, Tenant shall have no rights under this Section
13.
14. ELIMINATION PROVISIONS. Effective as of the Commencement Date of
the Modified Term the following provisions are hereby eliminated from the Lease
and shall not apply during the Modified Term:
1. Section 3B of the Original Lease;
2. Sections 4D, 4E, 4F, 4G and 4H of the Original Lease;
3. Section 29 of the Original Lease;
4. Section 31 of the Original Lease; and
5. Section 32 of the Original Lease
15. OPERATING EXPENSE MODIFICATIONS. Landlord and Tenant agree that
Section 30 of the Lease shall be modified as follows:
A. For the calendar year 1994 (being the second (2nd) Lease
Year following the Base Year under the Lease) Tenant shall pay the greater of
either (a) Tenant's Proportionate Share of the Operating Expenses paid or
accrued during said calendar year, but not to exceed one hundred sixteen (116%)
percent of the amount that Tenant would have been required to pay if the Term
of the Lease had commenced on January 1 of the Base Year, or (b) one cent
(.01). The calculation hereunder shall be made based on Tenant's Proportionate
Share of 5.82% as reflected in the Third Amendment.
B. For that portion of the calendar year 1995 commencing
January 1, 1995 and ending on the date immediately preceding the Commencement
Date of the Modified Term Tenant shall pay the greater of either (a) Tenant's
Proportionate Share of the Operating Expenses paid or accrued during such
calendar year, but not to exceed one hundred twenty four (124%) percent of the
amount that Tenant would have been required to pay if the Term of the Lease had
commenced on January 1 of the Base Year, or (b) one cent (.01), which amount
shall be prorated based on the ratio that the number of days between January 1,
1995 through the date preceding the
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Commencement Date bears to 365. The calculation hereunder shall be based on
Tenant's Proportionate Share of 5.82% as reflected in the Third Amendment.
C. For that portion of the calendar year 1995 commencing on
the Commencement Date and continuing through the expiration of the Modified
Term, Tenant shall not be required to pay Tenant Proportionate Share of
Operating Expenses.
16. UPS SYSTEM. Landlord grants to Tenant the right to Install and
maintain an uninterrupted power supply system (hereinafter the "UPS"), on the
roof of the Building, in accordance with all the terms and provisions of this
Section 16:
(a) Tenant shall here all costs of installation of
the UPS, related cables and all other related equipment, including
Landlord approved modifications required for the installation and
costs of fulfilling all the requirements set forth in this Section 16.
(b) Landlord shall designate the actual location of
the UPS so that no interference with the safety of the Building or use
of the Building by Landlord and other tenants will occur.
(c) Tenant shall provide plans and specifications
for the UPS and related equipment for Landlord's approval, which
approval shall not be unreasonably withheld.
(d) Access to the roof, cables, mechanical rooms or
other areas of the Building and all work undertaken by Tenant shall be
in accordance with Landlord's required Procedures and regulations.
(e) If required by local codes or ordinances, Tenant
shall supply stamped engineering drawings in which the installation is
to be accomplished certifying that the proposed location will safely
and legally support the UPS installation.
(f) Installation shall be performed so as to cause
no structural damage to the Building. Any damage to the Building
caused by such installation or by the operation, maintenance or
existence of the UPS shall be repaired by Tenant immediately. At the
termination of this Lease by expiration of time or otherwise, Tenant,
at its sole cost and expense, shall remove the UPS and all related
equipment and shall restore the roof of the Building to its condition
existing prior to the Installation of the UPS, ordinary wear and tear
excepted. Tenant shall further repair, at its sole cost and expense,
any damage or destruction caused by the removal of the UPS.
Restoration and repair hereby required to be performed by Tenant shall
be completed under the supervision of a representative of Landlord at
such time and in such manner as is satisfactory to Landlord.
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In the event Tenant fails to remove the UPS upon the expiration of the
term or fails to repair or restore the roof as required hereunder,
Landlord, at Landlord's option shall have the right to perform any
repairs and removal and restoration at Tenant's sole cost and expense
and such expense shall be reimbursed to Landlord promptly upon demand.
Notwithstanding anything contained herein, Tenant shall not remove,
and shall not be reimbursed for the cost of, any equipment which is
affixed to, embedded in or permanently attached in or to the Building
including, but not limited to, cables and other wiring, unless
Landlord so directs otherwise.
(g) Tenant shall insure that the installation is
accomplished so that the UPS is securely attached to the roof and
Tenant assumes full responsibility for any physical damage to the roof
which may be caused in whole or in part by the UPS or its support
equipment. Tenant shall be responsible for the maintenance and repair
of the UPS System and shall repair any damage to the roof or the
Building in the performance of any such maintenance and repair.
Tenant shall also provide insurance on the UPS System and shall be
solely responsible for any loss or damage to the UPS System.
(h) Tenant shall have the right to negotiate with
and purchase from Delta Air Lines the existing UPS System currently
owned and operated by Delta Air Lines and located on the roof of the
Building. Upon purchase of such UPS System from Delta Air Lines, the
obligations of Tenant set forth above shall apply to such UPS System.
LANDLORD: TENANT:
NATIONAL PLAZA, III, CONFERENCE PLUS, INC., a
an Illinois limited liability Delaware corporation
company
BY: /s/ BY: /s/ Richard P. Riviere
-------------------------
Its Manager Its President
ATTEST: /s/ Melvin J. Simon
Its Secretary
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STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Barbara M. Bermea, in and for said County, in the State aforesaid,
DO HEREBY CERTIFY that Lawrence Weiner, Manager of NATIONAL PLAZA III and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and severally
acknowledged that as such Manager he signed and delivered the said instrument
as Manager of said corporation as his free and voluntary act and as the free
and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and __________ seal this 29th day of December,
1994.
/s/ Barbara M. Bermea
Notary Public
My Commission Expires: 12/21/97
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STATE OF ILLINOIS )
) SS
COUNTY OF DUPAGE )
I, Kendra K. Szymanski, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that Richard P. Riviere, personally known to
me to be the __________ President of CONFERENCE PLUS, INC., a Delaware
corporation authorized to conduct business in the State of Illinois, and Melvin
J. Simon, personally known to me to be the __________ Secretary of said
corporation, and personally known to me to be the same persons whose names are
subscribed to the foregoing instrument, appeared before me this day in person
and severally acknowledged that as such __________ President and __________
Secretary, they signed and delivered the said instrument as __________
President and __________ Secretary of said corporation, and caused the
corporate seal of said corporation to be affixed thereto, pursuant to authority
given by the Board of Directors of said corporation as their free and voluntary
act for the uses and purposes therein set forth..
GIVEN under my hand and __________ seal this 29th day of December,
1994.
/s/ Kendra K. Szymanski
Notary Public
My Commission Expires: 1/16/97
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CORPORATE GUARANTEE
The undersigned, in consideration of the leasing of the Substitute
Space described in the attached Fourth Amendment to Lease to the Tenant therein
mentioned (Conference Plan, Inc.) does hereby absolutely, unconditionally and
irrevocably guarantee to Landlord the full and complete performance of all of
Tenant's covenants and obligations under that certain Lease dated as of the
24th day of December, 1991, as subsequently amended by a First Amendment to
Lease date as of April 27, 1992, the Second Amendment to Lease dated as of the
13th day of January, 1993, the Third Amendment to Lease dated as of the 20th
day of January, 1994 and the Fourth Amendment to Lease dated as of the 22nd
day of December, 1994 (in the aggregate, the "Lease") and the full payment by
Tenant of all Rent and other charges and amounts required to be paid
thereunder.
The undersigned does hereby waive any and all requirements of notice
of the acceptance of this Guarantee and all requirements of notice of breach or
non-performance by Tenant. The undersigned further waives any demand by
Landlord and/or prior action by Landlord of any nature whatsoever against
Tenant. The undersigned's obligations hereunder shall remain fully binding
although Landlord may have waived one or more defaults by Tenant or granted
indulgence to the Tenant, or extended the time of performance by Tenant,
modified or amended the Lease, released, returned or misapplied other
collateral given later as additional security (including other guarantees),
released Tenant from the performance of its obligations under such Lease, or
failed or neglected to exercise any of Landlord's rights against the Tenant.
This Guarantee shall be binding upon the undersigned and its
respective successors, successors in interest, representations and assigns and
shall continue in effect subsequent to any assignment of the Lease by Tenant or
by operation of law.
This Guarantee shall be governed and construed under the laws of the
State of Illinois. This Guarantee shall be construed as an absolute,
continuing and unlimited Guarantee of all of the Tenant's obligations under
said Lease, without regard to regularity, validity or enforceability of any
liability or obligation of the Tenant hereby guaranteed; the Landlord shall not
be obligated to proceed first against the Tenant or any other person, firm or
corporation or against any collateral, if any, held by or on behalf of the
Landlord and the undersigned shall be bound on this Guarantee to the Landlord
as if the Tenant's obligations under the Lease were the primary obligations of
the undersigned.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed on its behalf by its duly authorized officers and its corporate seal
affixed hereto all on this 29th day of December, 1994.
ELECTRONIC INFORMATION TECHNOLOGIES, INC.,
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a Delaware corporation
BY: /s/ Melvin J. Simon
ITS: Secretary
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<PAGE> 1
FOX VALLEY EXECUTIVE OFFICE CENTER LEASE
This Lease, made as of December 10, 1993 between LASALLE NATIONAL TRUST,
N.A., as successor trustee to LaSalle National Bank of Chicago, Illinois, not
individually, but as Trustee under Trust Agreement dated August 1, 1979, known
as Trust No. 101293 (hereinafter called "Landlord"), and Westell, Incorporated,
an Illinois Corporation (hereinafter called "Tenant").
W I T N E S S E T H:
ARTICLE 1: Demised Premises; Term
Landlord does hereby demise and lease to Tenant for use only by Tenant, and
Tenant hereby accepts, the premises shown crosshatched on Exhibits Al and A2
attached hereto and made a part hereof, containing approximately 29,999 square
feet of rentable area (4,753 square feet on Level 1 and 25,246 square feet on
Level 4), commonly known as Suite Nos. 110, 112 & 400 of the Fox Valley
Executive Office Center (hereinafter called the "Premises"), located at 75
Executive Drive in the City of Aurora, Illinois (said building and the land
upon which' it is situated, and such land and improvements as designated by
Landlord for use in conjunction with said building, are hereinafter
collectively referred to as the "Building"), for a term commencing on March 1,
1994 (the "Commencement Date"), and terminating on February 28, 1998
(hereinafter called the "Term") ; unless sooner terminated as herein provided,
subject to the provisions herein contained.
ARTICLE 2: Use
Tenant shall use and occupy the Premises for general office purposes and
incidental uses, and for no other purpose whatsoever. Tenant shall not use or
permit upon the Premises anything that will invalidate any policies of
insurance now or hereafter carried on the Building or that will increase the
rate of insurance on the Premises or on the building. Tenant shall pay all
extra insurance premiums which may be caused by the use over and above the use
described above which Tenant shall make of the Premises. Tenant shall not use
or permit upon the Premises anything that may be dangerous to life or limb.
Tenant shall comply with all governmental, health and police requirements and
regulations respecting the Premises, and shall not conduct or permit to be
conducted on the Premises any business which is contrary to the laws of the
United States of America or of the State of Illinois, or which is contrary to
the ordinances of the City of Aurora. Tenant shall not use the premises for
lodging, sleeping or for any immoral or illegal purposes. Tenant shall not at
any time use the Premises, nor permit the Premises to be used, for the
manufacture, sale, barter, trade, gift or service of any spirituous, fermented,
intoxicating or alcoholic liquors on the Premises. Tenant shall not at any
time sell, purchase or give away, or permit the sale, purchase or gift of, food
in any form by or to any Tenant's agent or employees or any other parties on
the Premises, provided, however the use of vending machines installed in the
Premises for use by Tenant's employees, guests and invitees shall be permitted.
ARTICLE 3: Base Rent
Tenant shall pay to Landlord, at the office of Landlord or at such other
place as Landlord may designate, rent for the Premises (hereinafter called
"Base Rent") at the annual rate specified below during the applicable portion
of the Term payable in equal monthly installments in advance on the first day
of each and every calendar month of the Term specified below:
<TABLE>
<CAPTION>
BASE RENT ANNUAL MONTHLY
LEASE YEAR RENTAL RATE BASE RENT BASE RENT
<S> <C> <C> <C>
1 $ 10.25 $307,489.75 $25,624.15
2 $ 11.00 $329,989.00 $27,499.08
3 $ 12.50 $374,987.50 $31,248.96
4 $ 13.50 $404,986.50 $33,748.88
</TABLE>
<PAGE> 2
All unpaid amounts due to Landlord under this' Lease, including, but not
limited to Base Rent, shall bear interest at the rate of 12% per annum from 10
days after Landlord's notice thereof until paid. Rent for any partial month
shall be prorated based on the monthly rent for the subsequent month.
ARTICLE 4: Rent Adjustments
4.1 In addition to paying the Base Rent specified in Article 3 hereof,
Tenant shall pay as "Additional Rent", the amount determined as hereinafter set
forth. The Base Rent and the Additional Rent are sometimes collectively
referred to as the "Rent". All amounts due under this Section as Additional
Rent shall be payable for the same periods and in the same manner, time and
place as the Base Rent, except that the obligation to pay the Additional Rent
shall not commence until January 1, 1996. Without limitation on other
obligations of Tenant which shall survive the expiration of the Term, the
obligations of Tenant to pay the Additional Rent provided for in Article 4
shall survive the expiration of the term. For any partial Calendar Year,
Tenant shall be obligated to pay only a pro rata share of the Additional Rent,
based on the number of the days of the Term falling within such Calendar year.
4.2 Definitions. As used in this Article 4, the terms:
4.2.1 "Calendar Year" shall mean each calendar year in which any part of
the Term falls, through and including the year in which the Term expires;
4.2.2 "Base Year" shall mean calendar year 1995 as it
relates to Taxes and shall mean calendar year 1996 as it relates to Operating
Expenses.
4.2.3 "Taxes" shall mean all taxes and assessments of every kind and
nature which Landlord shall pay or become obligated to pay in respect to a
Calendar Year because of or in connection with the ownership, leasing,
management, control and operation of the Building, subject to the following:
(i) the amount of ad valorem real and personal property taxes
against Landlord's real and personal property to be included shall be the
amount shown by the latest available tax bills on the last day of the
Calendar Year in respect to which Taxes are being determined;
(ii) the amount of special taxes or special assessments to be
included shall be limited to the amount of the installments (plus any
interest, other than penalty interest, payable thereon) of such special
taxes or special assessments required to be paid during the Calendar Year
in respect to which Taxes are being determined;
(iii) the amount of any tax or excise levied by the State of
Illinois, the City of Aurora, any political subdivision or either, or any
other taxing body on rents or other income from the Building to be included
shall not be greater than the amount which would have been payable on
account of such tax or excise by Landlord during the Calendar Year in
respect to which Taxes are being determined had the income received by
Landlord from the Building (excluding amounts payable under this
subparagraph (iii)) been the sole taxable income of Landlord for such
Calendar Year, and shall not be included unless levied or assessed as a
substitute, in whole or in part, for real property taxes;
(iv) the amounts reasonably expended by Landlord in any Calendar
Year for attorneys, appraisers and other costs and expenses in respect to
any effort by Landlord to minimize Taxes shall be included in Taxes for the
Calendar Year in which such fees, costs or expenses are incurred,
regardless of whether any reduction or limitation is obtained;
(v) there shall be excluded from Taxes all income taxes
(except those which may be included in subparagraph A(iii) above)
<PAGE> 3
excess profits taxes, franchise capital stock, inheritance or estate
taxes, and license, inspection or permit fees.
4.2.4 "Operating Expenses" shall mean all expenses, costs and
disbursements (other than Taxes) of every kind and nature which Landlord shall
pay or become obligated to pay in respect to a Calendar Year because of or in
connection with the ownership, management, maintenance, operation and repair of
the Building and of the personal property, fixtures, machinery, equipment,
systems and apparatus located thereon or used in connection therewith, except
the following:
(i) costs of alterations of tenant spaces (including tenant spaces
pursuant to Article 9 hereof);
(ii) depreciation, interest and principal payments on mortgages,
and other debt costs, if any;
(iii) expenses incurred in leasing or procuring new tenants, such
as real estate brokers' leasing commissions (including all renewal leasing
commissions) or compensation and advertising expenses;
(iv) expenses for repairs or other work occasioned by fire,
windstorm or other casualty;
(v) legal expenses in enforcing the terms of any other lease in the
Building;
(vi) any amount payable by Landlord to any tenant by reason of
Landlord's default in obligations to such tenant or as damages,
reimbursement or indemnity to any person because of any act or omission of
Landlord;
(vii) salary costs for management personnel above level of building
manager; and
(viii) capital expenditures, except those: (a) made primarily to
reduce Operating Expenses, or to comply with any municipal, state or
federal laws or other governmental requirements or (b) for replacements (as
opposed to additions or new improvements) of nonstructural items located in
the common areas of the property required to keep such areas in good
condition; provided all such permitted capital expenditures (together with
reasonable financing charges) shall be amortized for purposes of this Lease
over the shorter of (i) their useful lives, or (ii) the period during which
the reasonably estimated savings in operating Expenses equals the
expenditures.
If the Building is not fully occupied during all or a portion of any Calendar
Year, Landlord may elect to make an appropriate adjustment to the variable
components of operating Expenses for such year employing sound accounting and
management principles, to determine the amount of Operating Expenses that would
have been paid had the Building been fully occupied; and the amount so
determined shall be deemed to have been the amount of Operating Expenses for
such year.
4.2.5 "Tenant's Proportionate Share" shall be the percentage resulting
from dividing the number of square feet of rentable area included in the
Premises, which is 29,999 square feet, by the number of square feet of rentable
area in the Building, which is approximately one Hundred Seven Thousand Two
Hundred Thirty-One (107,231) square feet. Tenant's Proportionate Share is
27.98%.
4.3 Tenant shall pay to Landlord or Landlord's agent as Additional Rent,
in addition to the Base Rent required by Paragraph 3 hereof, an amount
("Expense Adjustment Amount") equal to Tenant's Prorata Share of the amount by
which the Operating Expenses (subject to adjustment pursuant to Subparagraph
4.4 hereof) incurred with respect to each Calendar Year exceeds the operating
Expenses
<PAGE> 4
incurred in the Base Year. The Expense Adjustment Amount with respect to each
Calendar Year shall be paid in monthly installments, in an amount estimated
from time to time by Landlord and communicated by written notice to Tenant.
Landlord shall cause to be kept books and records showing Operating Expenses in
accordance with an appropriate system of accounts and accounting practices,
consistently maintained. Following the close of each Calendar Year, Landlord
shall cause the amount of the Expense Adjustment Amount for such Calendar Year
to be computed based on Operating Expenses for such Calendar Year and Landlord
shall deliver to Tenant a statement of such amount and Tenant shall pay any
deficiency to Landlord as shown by such statement within thirty (30) days after
receipt of such statement. If the total of the estimated monthly installments
paid by Tenant during any Calendar Year exceeds the actual Expense Adjustment
Amount due from Tenant for such Calendar Year, at Landlord's option such excess
shall be refunded by Landlord, provided Tenant is not then in default
hereunder. Delay in computation or billing of the Expense Adjustment Amount
shall not be deemed a default hereunder or a waiver of Landlord's right to
collect the Expense Adjustment Amount.
4.3.1 Tenant shall pay to Landlord or Landlord's agent as Additional Rent,
in addition to the Base Rent required by Paragraph 3 hereof,an amount ("Tax
Adjustment Amount") equal to Tenant's Prorata Share of the amount by which the
Taxes incurred with respect to each Calendar Year exceeds the Taxes incurred in
the Base Year. The Tax Adjustment Amount with respect to each Calendar Year
shall be paid in monthly installments, in an amount estimated from time to time
by Landlord and communicated by written notice to Tenant. Landlord shall cause
to be kept books and records showing Taxes in accordance with an appropriate
system of accounts and accounting practices, consistently maintained.
Following the close of each Calendar Year, Landlord shall cause the amount of
the Tax Adjustment Amount for such Calendar Year to be computed based on Taxes
for such Calendar Year and Landlord shall deliver to Tenant a statement of such
amount and Tenant shall pay any deficiency to Landlord as shown by such
statement within-thirty (30) days after receipt of such statement. If the
total of the estimated monthly installments paid by Tenant during any Calendar
Year exceeds the actual Tax Adjustment Amount due from Tenant for such Calendar
Year, at Landlord's option such excess shall be refunded by Landlord, provided
Tenant is not then in default hereunder. Delay in computation or billing of
the Tax Adjustment Amount shall not be deemed a default hereunder or a waiver
of Landlord's right to collect the Tax Adjustment Amount.
In determining the amount of Taxes for any year, Landlord shall take the
benefit of the provisions of any statute or ordinance permitting any special
assessment to be paid over a period of time, and Tenant shall be obligated to
pay only its proportionate share of the installments (plus any interest payable
thereon) of any such assessments which shall become due and payable during the
term of this Lease. Landlord shall,, where appropriate, protest the assessment
used in computing real estate taxes against the Building or the Premises. All
references to Taxes "for" a particular year shall be deemed to refer to taxes
paid during such year without regard to when such Taxes are assessed or levied.
In the event this Lease shall have been in effect for less than the full
Calendar Year immediately preceding Tenant's receipt of such report, Expense
Adjustment Amount for such Calendar Year shall be prorated.
4.4 If Landlord is not furnishing any particular work or service to
another tenant who has undertaken to perform such work or service in lieu of
the performance thereof by Landlord or for any other reason (the cost of which,
if performed by Landlord, would be included in operating Expenses), Operating
Expenses shall be deemed for the purposes of this Paragraph to be increased by
an amount equal to the additional Operating Expenses which would reasonably
have been incurred during such period by Landlord if it had at its own expense
furnished such work or service to such other tenant.
4.5 In no event shall rent adjustment result in a decrease in the annual
Base Rent payable hereunder.
ARTICLE 5: Services
<PAGE> 5
5.1 Landlord shall provide the following services during the Term
hereof:
5.1.1 All interior and exterior janitorial and maintenance services in a
manner consistent with comparable office buildings in Aurora, including removal
of refuse from the Building's exterior trash collection area, landscape
maintenance, exterior window washing, building maintenance, snow removal and
parking lot maintenance, all at intervals to be reasonably determined by
Landlord.
5.1.2 Heating and air-conditioning to provide, in Landlord's reasonable
judgement, for normal comfort in the Premises from 7:00 a.m. to 7:00 p.m.
Monday through Friday, Saturdays from 7:00 a.m. to 1:00 p.m., Sundays and
holidays excepted.
5.1.3 Water (cold) from regular Building outlets for drinking, lavatory
and toilet purposes, and electric service to the Premises. The cost for water
service shall be included in Operating Expenses. Electric service shall be
individually metered to the Premises at Landlord's sole cost and expense. All
charges for electric service shall be billed directly to Tenant by the company
furnishing same and Tenant shall be solely responsible for making such
arrangements with the utility company as may be necessary for the furnishing
thereof to the Premises.
5.2 Tenant, at Tenant's sole cost and expense, shall provide for
replacement of fluorescent bulbs and ballasts.
5.3 Neither Landlord nor Landlord's beneficiary, nor any company, firm
or individual operating, maintaining, managing or supervising the plant or
facilities furnishing any of the services described in the paragraph
immediately preceding, nor any of their respective agents, customers, or
invitees or anyone claiming through or under Tenant, for any damages, injuries,
losses, expenses, claims or causes of action, because of any interruption or
discontinuance at any time for any reason in the furnishing of any of the
services described in the paragraph immediately preceding; nor shall any such
interruption or discontinuance be deemed an eviction or disturbance of Tenant's
use or possession of the Premises or any part thereof; nor shall any such
interruption or discontinuance relieve Tenant from full performance of Tenant's
obligations under this Lease. Notwithstanding anything to the contrary in the
Lease, if: (a) any services or utilities are interrupted or discontinued (and
not as a result of any act of Tenant), and Tenant is unable to and does not
use, the Premises as a result of such interruption or discontinuance, and (b)
Tenant shall have given written notice respecting such interruption or
discontinuance to Landlord, and Landlord shall have failed to cure such
interruption or discontinuance within five (5) consecutive days after receiving
such notice, or such additional time as may be required due to acts of God,
force majeure, casualty damage, strikes, shortages of labor or materials, or
other causes beyond, Landlord's reasonable control, Rent hereunder shall
thereafter be abated until such time as such services or utilities are restored
or Tenant begins using the Premises again, whichever shall first occur.
ARTICLE 6: Possession
6.1 In the event that Landlord fails (i) to substantially complete any
improvements to the Premises required to be performed by Landlord under any
separate agreement signed by both parties, or (ii) to deliver possession of the
Premises, for any other reason, including but not limited to, holding over by
prior occupants, this Lease shall nevertheless continue in full force and
effect, and no liability shall arise against Landlord out of any such delay
beyond the abatement of rent until the Premises are ready for occupancy;
provided however, there shall be no abatement of rent if the Premises are not
ready for occupancy because of failure to complete the installation of special
equipment, of fixtures or materials ordered by Tenant or due to any fault of
Tenant. If Tenant shall enter into possession of all or any part of the
Premises prior to the Commencement Date, all of the covenants and conditions of
this Lease shall be binding upon the parties hereto in respect to such
<PAGE> 6
possession the same as if the first day of the Term had been fixed as to the
date when Tenant entered into said possession, except that Tenant shall not be
obligated to pay rent to Landlord for the period prior to the Commencement
Date.
ARTICLE 7: Assignment and Subletting
7.1 Tenant shall not transfer, assign, sublet, enter into a license or
concession agreement or hypothecate this Lease or Tenant's interest in and to
the Premises, permit any transfer of Tenant's interest created hereby or allow
any lien upon Tenant's interest whether by operation of law or otherwise, nor
permit the use or occupancy of the Premises or any part thereof by anyone other
than Tenant I without first obtaining the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Any attempt to
transfer, assign, sublet, license, hypothecator transfer by operation of law or
permit the occupancy of the Premises by a party other than Tenant shall be void
and confer no rights on any third party. Each transfer, assignment,
subletting, license, hypothecation, transfer by operation of law or occupation
by a party other than Tenant to which there has been consent shall be by an
instrument in writing, in form reasonably satisfactory to Landlord, and shall
be executed by the transferrer, assignor, sublessor, licensor, hypothecator, or
mortgagor and the transferee, assignee, sublessee, licensee, or mortgagee who
shall agree in writing for the benefit of the Landlord to assume, to be bound
by, and to perform the terms, covenants and conditions of this Lease to be
done, kept and performed by Tenant one executed copy of such written instrument
inform satisfactory to Landlord shall be delivered to Landlord prior to the
effective date thereof.
7.2 Consent by Landlord to any assignment or subletting shall not
include consent to the assignment or transferring of any lease renewal option
rights or space option rights of the Premises, special privileges or extra
services granted to Tenant by this Lease, or rider or amendment hereto or
letter of agreement, unless Landlord specifically grants in writing such
options, rights, privileges, or services to such assignee or sublessee.
7.3 The consent by Landlord to any transfer, assignment, subletting,
license, hypothecation, transfer by operation of law or occupation by a party
other than Tenant shall not constitute a waiver of the necessity of such
consent to any subsequent or additional transfer, assignment, subletting,
license, hypothecation, transfer by operation of law or occupation by a party
other than Tenant, nor constitute a release of Tenant's liability or
responsibility hereunder.
7.4 In the event that Landlord consents to any assignment or sublease of
any portion of the Premises, as a condition of Landlord's consent, if Landlord
so elects to consent, Tenant shall pay to Landlord fifty percent (50%) of all
profit derived by Tenant from such assignment or sublease after deducting any
reasonable tenant improvement allowance or free rent periods. Tenant shall
furnish Landlord with a sworn statement, certified by an independent certified
public accountant, setting forth in detail the computation of profit (which
computation shall be based upon generally accepted accounting principles), and
Landlord, or its representatives, shall have access to the books, records and
papers of Tenant in relation thereto, and to make copies of such assignment
shall be deemed an item of such profit. If a part of the consideration for
such assignment shall be payable other than in cash, the payment to Landlord
shall be payable in accordance with the foregoing percentage of the cash and
other non-cash considerations in such form as is reasonably satisfactory to
Landlord. Such percentage of Tenant's profits shall be paid to Landlord
promptly by Tenant upon Tenant's receipt from time to time of periodic payments
from such assignee or subtenant or at such other time as Tenant shall realize
its profits from such assignment or sublease.
7.5 Notwithstanding anything in this Lease to the contrary, Tenant shall
have the right to assign this Lease or sublet all or a portion of the Premises
to an entity which (i) is a subsidiary of Tenant or is an entity of which the
controlling owners are the controlling owners of Tenant and (ii) has a net
worth substantially similar to that of Tenant.
<PAGE> 7
ARTICLE 8: Condition of Premises
Tenant is taking possession of the Premises shall be conclusive evidence
that the Premises were in good order and satisfactory condition when Tenant
took possession thereof except as to latent defects. No promise of Landlord to
alter, remodel, repair, decorate, clean or improve the Premises or the
Building, and no representation respecting the condition of the Premises or the
Building has been made by Landlord to Tenant, other than as may be contained
herein.
ARTICLE 9: Repairs
Tenant shall, at its sole expense, keep the Premises in good repair and
tenantable condition during the Term, and Tenant shall repair all damages to
the Premises (except for reasonable wear and tear and as otherwise provided in
Article 12 of the Lease), including the replacement or repair of all damaged or
broken glass, fixtures and appurtenances within any reasonable period of time
specified by Landlord, all such repairs and replacements to be made under the
supervision and with the prior reasonable approval of Landlord, using only
contractors or other persons reasonably acceptable to the Landlord. If Tenant
does not promptly after notice by Landlord make such repairs or replacements,
the reasonable amount paid by Landlord for such repairs and replacements shall
be deemed Additional Rent reserved under this Lease due and payable forthwith.
Landlord may, but shall not be required so to do, enter the Premises at all
reasonable times to make any repairs, alterations, improvements or additions
and Landlord shall desire or deem necessary for the safety or preservation of
the Premises or the Building, or as Landlord may be required to do by the City
of Aurora or by the order or decree of any court or by any other proper
authority. The cost of all repairs made by Landlord to the Building which are
made necessary as a result of misuse or neglect by Tenant or its employees,
invitees or agents shall be immediately paid by Tenant to Landlord upon being
billed for same.
ARTICLE 10: Alterations and Improvements
Tenant shall not, without prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed, make any alterations,
improvements, additions or installations or perform any decorating, painting or
other similar work in or about the Premises. If Landlord so consents, before
commencement of any such work or delivery of any materials into the Premises or
the Building, Tenant shall furnish to Landlord for approval architectural plans
and specifications, names and addresses of all contractors, contracts,
necessary permits and licenses, certificates of insurance and instruments of
indemnification against any and all claims, costs, expenses, damages and
liabilities which may arise in connection with such work, all in such form and
amount as may be reasonably satisfactory to Landlord. Whether or not Tenant
furnishes the forgoing, Tenant agrees to hold Landlord, and the Landlord's
beneficiaries, and their respective agents and employees forever harmless
against all claims and liabilities of every kind, nature and description which
may arise out of, or in any way be connected with, such work. All such work
shall be done only by contractors or mechanics approved by Landlord and at such
time and in such manner as Landlord may from time to time designate. Tenant
shall promptly pay the cost of all such work and the cost of decorating the
Premises and the Building occasioned thereby. Upon completion of such work,
Tenant shall furnish Landlord with contractors' affidavits and full and final
waivers of lien and receipted bills covering all labor and materials expended
and used in connection therewith. All such work shall comply with all
insurance requirements and with all laws, ordinances, rules and regulations of
all governmental authorities, and shall be done in a good and workmanlike
manner and with the use of good grades of materials. Tenant shall permit
Landlord to supervise construction operations in connection with such work.
All alterations, improvements, additions and installations to or on the
Premises other than trade fixtures and professional equipment, shall become
part of the Premises at the time of their installation.
ARTICLE 11: Covenant Against Liens
<PAGE> 8
Tenant agrees not to permit or suffer any lien of any mechanic or material
supplier to be placed or filed against the Premises or the Building. Nothing
contained in the Lease shall authorize Tenant to do any act which shall in any
way encumber Landlord's title to any claims by way of lien or encumbrance,
whether claimed by operation of law or by virtue of any expressed or implied
contract of Tenant, and any claim to a lien upon the Building or Premises
arising from any act or omission of Tenant shall attach only against Tenant's
interest and shall in all respects be subordinate to Landlord's title to the
Building and the Premises. In the event any lien (or any notice preliminary to
lien) shall be asserted against Landlord, Tenant shall promptly remove any such
lien or encumbrance by bond or otherwise. If Tenant has not satisfied any such
lien (or notice) within fifteen (15) days after written notice to Tenant by
Landlord, Landlord may pay the amount necessary to satisfy same,, without being
responsible for making any investigation as to the validity thereof, and the
amount so paid shall be deemed Additional Rent reserved under this Lease due
and payable forthwith.
ARTICLE 12: Damage or Destruction by Fire or Casualty
12.1 If the Building (including machinery and equipment used in its
operation) or the Premises are destroyed or made substantially untenantable by
fire or other casualty, and in the event any such damage has not been caused by
any act or neglect of Tenant, its agents, servants, employees, guests,
licensees or invitees, the Base Rent plus rent adjustments shall abate
beginning with the date of such fire or other casualty and ending with the date
when the Premises are again rendered tenantable, such abatement to be in an
amount bearing the same ratio to the total amount of rent for such period as
the untenantable portion of the Premises bears to the entire Premises.
Landlord may elect to: (i) terminate this Lease as of the date of such fire or
other casualty by delivery of a notice of termination to Tenant within sixty
(60) days after said date; or (ii) proceed, at Landlord's expense, with due
diligence to repair, restore or rehabilitate the Building or the Premises,
other than leasehold improvements paid for by Tenant, in as good condition as
when Tenant took possession.
12.2 If the Premises or the Building are damaged by fire or other
casualty, but are not made substantially untenantable, however, then Landlord
shall proceed with due diligence to repair and restore the Building or the
Premises, unless such damage occurs during the last twelve (12) months of the
Term, in which event Landlord shall have the right to terminate this Lease as
of the date of such fire or other casualty by delivery of written notice of
termination to Tenant within thirty (30) days after said date.
12.3 Landlord shall have no duty to repair or restore Tenant's fixtures,
including, but not limited to, office fixtures, special wall and floor
coverings, special lighting fixtures, built-in cabinets and bookshelves,
decorations or furniture.
12.4 Notwithstanding Article 12 of the Lease to the contrary, Tenant may
terminate this Lease if Tenant is unable to use all or a substantial portion of
the Premises as a result of fire or other casualty not caused by Tenant or its
employees or agents and; (a) Landlord fails to commence restoration work to the
Premises and access thereto within sixty (60) days after the damage occurs or
(b) Landlord fails to substantially complete such work within 180 days after
commencing the same, or such additional time as may be necessary due to
strikes, lock-outs or other labor troubles, shortages of equipment or
materials, governmental requirements, power shortages or outages or other
causes beyond Landlord's reasonable control, or (c) such work is reasonably
estimated (which estimate Landlord shall provide within sixty (60) days
following the casualty), to take more than 180 days to substantially complete
after being commenced, or (d) more than 25% of the Premises is affected by the
damage and fewer than 12 months remain in the Term. In order to exercise any
of the foregoing rights, Tenant must send Landlord at least sixty (60) days,
(but not more than 120 days) advance notice specifying the basis for
termination, and such notice shall be given no later than thirty (30) days
following the occurrence of the condition serving as a basis of the termination
right invoked by Tenant. Such termination
<PAGE> 9
rights shall not be available to Tenant if Landlord substantially completes the
repairs to the Premises and access thereto within sixty (60) days after
Tenant's notice. Notwithstanding anything to the. contrary contained herein, if
Tenant or its officers, employees, contractors, invitees or agents delay
Landlord in performing the repairs, Landlord shall have additional time to
complete the work equal to such delay and Tenant shall pay Landlord all Rent
for the period of such delay.
ARTICLE 13: Insurance
13.1 Landlord shall purchase and keep in full force and effect insurance
on the Building, and such other portions of the Building which in Landlord's
reasonable judgment are used in conjunction with or required for the Building,
against fire, extended coverage and "all risks" perils (including flood and
earthquake, if applicable) in an amount not less than the full replacement cost
of the Building, or an amount sufficient to prevent Landlord from becoming a
co-insurer under the terms of the applicable policies.
13.2 Tenant shall purchase and maintain throughout the Term at its sole
expense physical damage insurance from insurers reasonably acceptable to
Landlord covering all additions, improvements and alterations to the Premises
other than the building standard tenant improvements provided by Landlord (or
the equivalent value thereof) and all office furniture, trade fixtures, office
equipment, merchandise and all other items of Tenant's property on the
Premises. Such insurance shall be written on an "all risks" of physical loss
or damage basis, for the full replacement cost value of the covered items and
in amounts that meet any co-insurance clauses of the policies of insurance.
13.3 Landlord and Tenant intend that the risk of loss or damage be borne
by responsible insurance carriers to the extent above provided and Landlord and
Tenant hereby agree to look solely to, and to seek recovery only from the
respective insurance carriers in the event of a loss of a type described above
to the extent that such coverage is agreed to be provided hereunder. For this
purpose, any applicable deductible amount shall be treated as though it were
recoverable under such policies. Landlord and Tenant agree that monies
collected from such insurance shall be used toward the full compliance of the
obligations of Landlord and Tenant under this Lease in connection with damage
resulting from fire or other casualty, subject to the rights and approval of
any ground lessor or any mortgagee holding a first mortgage lien on the
Building or any portion thereof which the Premises are a part.
So long as it may be permitted by Landlord's insurer, without payment of
extra premiums, Landlord hereby agrees to waive its right of recovery against
Tenant, its successors or assigns, for, any fire and or any other peril covered
by any policy of insurance for losses to the Premises, and the building
including any structural alterations. In consideration thereof, Tenant waives,
as long as it may be permitted by Tenants's insurer, without payment of extra
premiums, and shall cause its insurance carrier to waive, its right of recovery
against Landlord, or mortgagee, its partners, affiliates, any ground lessor and
their respective employees, agents, successors and assigns, for any fire or any
other peril covered by policy of insurance for losses occurring to the property
belonging to Tenant which may be placed in the Premises or the Building.
13.4 Tenant shall purchase and maintain, commencing with the date hereof,
insurance coverage with respect to the Premises in companies licensed to do
business in the state where the property is located and reasonably satisfactory
to Landlord and with such increases in limits as Landlord may from time to time
request. All such insurance shall include the condition that it is primary and
that any such insurance maintained by Landlord is excess and noncontributory.
Tenant shall maintain the following coverages in the following amounts:
(i) comprehensive general liability insurance covering Tenant and
Landlord, its partners, affiliates, any ground lessor or mortgagee and
their respective agents and employees as additional insured parties for
claims of bodily injury, personal injury and property damage
<PAGE> 10
arising out of Tenant's operations, assumed liability or use of the
Premises, for limits of liability not less than:
Bodily Injury and Property Damage Liability
$2,000,000 each occurrence/aggregate
Personal Injury Liability
$2,000,000 each occurrence/aggregate
(ii) Comprehensive automobile insurance covering Tenant and
Landlord, its partners, affiliates, any ground lessor or mortgagee and
their respective agents and employees as additional insured parties for
claims of bodily injury, personal injury and property damage arising out of
all owned, non-owned and hired automobiles of Tenant including the loading
and unloading of any automobile with limits of liability not less than:
Bodily Injury and Property Damage
$2,000,000 each accident
Tenant shall provide Landlord with duplicate copies Of policies or original
certificates of insurance ten (10) days after the date hereof and from time to
time thereafter as required by Landlord evidencing that the aforesaid insurance
is in full force and effect. All policies and certificates shall provide that
a minimum of thirty (30) days written notice shall be given to Landlord and to
Landlord's managing agent by any such insurance company prior to the
cancellation, termination or material change of such coverage. All insurance
herein required shall be deemed to be additional obligations of Tenant and not
in discharge of or a limitation to Tenant's obligation to indemnify Landlord,
any ground lessor or mortgagee and their respective employees and agents under
Article 15 hereto. Any insurance policies hereunder may be "blanket policies".
13.5 Tenant shall comply with all applicable laws and ordinances, all
orders and decrees of court and all requirements of other governmental
authorities, and shall not, directly or indirectly, make use of the Premises
which may thereby be prohibited or be dangerous to person or property or which
may jeopardize any insurance coverage or may increase the cost of insurance or
require additional insurance coverage. If by reason of the failure of Tenant
to comply with the provisions of this Paragraph, any insurance coverage is
jeopardized or insurance premiums are increased, Landlord shall have the option
either to terminate this Lease or to require Tenant to make immediate payment
of the increase insurance premium.
13.6 Landlord shall maintain during the Term comprehensive (or
commercial) general liability insurance, with limits of not less than
$1,000,000 combined single limit for personal injury, bodily injury or death,
or property damage or destruction (including loss of use thereof) for any one
occurrence.
ARTICLE 14: Condemnation
14.1 If the whole or any substantial part of the Premises or Building
shall be taken or condemned by any competent authority for any public or quasi-
public use or purpose, this Lease shall terminate upon the date of the taking
of possession by the condemning authority.
14.2 If less than a substantial part of the Building or the Premises
shall be taken or condemned for any public or quasi-public use or purpose, or
if any adjacent property or street shall be condemned or improved in such
manner as to require the use of any part of the Premises or of the Building,
then at the election of Landlord expressed by delivery of written notice to
Tenant within sixty (60) days after said date of taking, condemnation or
improvement, this Lease shall terminate as of said date without any payment to
Tenant therefor. Tenant shall have reciprocal termination rights if the whole
or any material part of the Premises is permanently taken, or if access to the
Premises is permanently materially impaired.
<PAGE> 11
14.3 In the event of any such termination, rent shall be apportioned as
of the date of such termination.
14.4 The entire compensation awarded in or by reason of said eminent
domain proceedings shall belong to Landlord without any deduction therefrom for
any present or future estate or interest of Tenant, and Tenant hereby assigns
to Landlord all of Tenant's rights, title and interest in and to any and all
such compensation together with any and all rights, estate and interest of
Tenant now existing or hereafter arising in and to the same or any part
thereof. Tenant shall have the right to file any separate claim available to
Tenant for any taking of Tenant's personal property and fixtures belonging to
Tenant and removable by Tenant upon expiration of the Term, and for moving
expenses (so long as such claim does not diminish the award available to
Landlord or any Holder, and such claim is payable separately to Tenant).
ARTICLE 15: Waiver of Claims
15.1 Tenant agrees that except for the wrongful actions or negligence of
Landlord, its beneficiaries, agents, invitees and employees, Landlord, its
beneficiaries and their officers, agents, servants and employees shall not be
liable and Tenant waives all claims, for any damage either to persons or
property sustained by Tenant or by other persons due to the Building or
Premises or any part thereof or any appurtenances thereto becoming out of
repair, or due to the happening of any occurrence in or about the Building or
Premises. This provision shall apply particularly (but not exclusively)to
damage caused by: (a) any: equipment or appurtenances becoming out of repair;
(b) the Premises or the Building being out of repair; (c) injury or damage done
or occasioned by wind, water, flooding, freezing, fire, explosion, earthquake,
excessive heat or cold, vandalism, riot or disorder or other casualty; (d) any
defect in or failure of plumbing, heating ventilating or air conditioning
equipment, electric wiring or installation thereof, gas, water, steam pipes,
stairs, railing or walks; (e) broken glass; (f) the backing up of any sewer
pipe or downspout or any sewer gas or other odor; (g) the bursting or leaking
of any tank, tub, washstand, water closet, waste pipe, drain, cooling coil or
any other pipe or tank in, upon or about the Building or Premises; (h) the
escape of steam or hot water; (i) water, snow or ice being upon or coming
through the roof, walls, skylight, trapdoor, stairs, walks or any other place
upon or near the Building or Premises or otherwise; (j) the falling of any
fixture, plaster or stucco; or (k) any act, omission, or negligence of
co-tenants or of other persons or occupants of the Building or of adjoining or
contiguous buildings or of owners of adjacent or contiguous property, and shall
apply without distinction to the person whose act or neglect was responsible
for the damage and whether the damage was due to any of the causes specifically
enumerated above or to some other cause of an entirely different kind or
nature. Tenant further agrees that all personal property upon the Premises
shall be at the risk of Tenant only, and that Landlord shall not be liable for
any damage thereto or theft thereof.
15.2 Except for those arising out of the negligence of Landlord, its
beneficiaries and their agents, servants, invitees and employees, Tenant agrees
to protect, defend, indemnify and save Landlord, Landlord's beneficiaries and
their officers, agents, servants and employees harmless from and against any
and all liabilities, damages and expenses arising out of or in connection with
Tenant's use or occupancy of the Premises or Tenant's activities in the
Building.
15.3 Except for those arising out of the negligence of Tenant, its
beneficiaries and their agents, servants, invitees and employees, Landlord
agrees to protect, defend, indemnify and save Tenant, Tenant's beneficiaries
and their officers, agents, servants and employees harmless from and against
any and all liabilities, damages and expenses arising out of or in connection
with Landlord's use of the Premises or Landlord's activities in the Building.
ARTICLE 16: Default
16.1 It is agreed that in the event: (a) Tenant vacates or abandons the
Premises or permits the same to remain vacant or unoccupied for a period of
<PAGE> 12
twenty (20) days and fails to pay Rent as it comes due, (b) the Base Rent, rent
adjustments or any part thereof shall be paid for five (5) days after written
notice thereof to Tenant; (c) default shall be made in the prompt and full
performance of any covenant, condition or agreement of this Lease to be kept or
performed by Tenant and Tenant shall fail to promptly and fully cure such
default or breach of performance within thirty (30) days after written notice
thereof by Landlord or if such default or breach is not susceptible to cure
within said thirty (30) days, Tenant fails to promptly commence said cure and
diligently prosecute said cure to completion; (d) all or any substantial part
of the assets of Tenant, including the leasehold interest hereunder of Tenant,
are attached, seized, or become subject to a writ or distress warrant, are
levied upon or come within the possession of any receiver, trustee, custodian,
or assignee for the benefit of creditors and such attachment, seizure, writ,
warrant or levy is not withdrawn or removed within twenty (20) days after
becoming effective; (e) a notice of lien or levy is filed with respect to all
or any of Tenant's assets located on the Premises by any federal, state, county
or municipal body, department, agency or instrumentality for taxes or debts
then owing by tenant and such notice is not released or withdrawn within twenty
(20) days after its filing (provided Tenant shall have the right to protest in
good faith); or (f) any proceeding shall be commenced to declare Tenant or any
Guarantor of this Lease bankrupt or insolvent or to obtain relief under any
chapter or provision of any bankruptcy or debtor relief law or act or to reduce
or modify Tenant's or Guarantor's debts or obligations or to delay or extend
the payment thereof, or any assignment of Tenant's or Guarantor's property be
made for benefit of creditors, or if a receiver or trustee be appointed for
Tenant or Guarantor or Tenant's or Guarantor's property or business (unless in
the case of a petition filed against Tenant or Guarantor the same is dismissed
within sixty (60) days), then Landlord may treat the occurrence of any one or
more of the foregoing events as a breach of this Lease and thereupon at its
option, without further notice or demand of any kind to Tenant or Guarantor or
any other person, may have, in addition to all other legal or equitable
remedies, the following described remedies:
(i) Landlord may elect to terminate this Lease and the Term
created hereby in which event Landlord forthwith may repossess the Premises
and Tenant shall pay at once to Landlord as damages, in addition to other
sums of money and damages due or to become due to Landlord from Tenant, a
sum of money equal to the Base Rent and rent adjustments provided in this
Lease and all other sums provided to be paid by Tenant to Landlord for the
balance of the stated term over the fair rental value of the Premises for
said period. For purposes of determining the rent adjustments to be paid
by Tenant pursuant to this subparagraph, Landlord shall use the rent
adjustment payable for the Calendar Year immediately preceding the year in
which the Lease is terminated pursuant to this subparagraph multiplied by
the remaining years and fractions thereof of the stated Term of this Lease.
(ii) Landlord may elect to terminate Tenant's right of possession
without termination of this Lease in which event Tenant agrees to surrender
possession and vacate the Premises immediately and deliver possession
thereof to Landlord, and Tenant hereby grants to Landlord full and free
license to enter into and upon the Premises, in whole or in part, with or
without process of law, to repossess Landlord of the Premises or any part
thereof and to expel or remove Tenant and any other person, firm or
corporation who may be occupying or within the Premises or any part thereof
and remove any and all property therefrom without terminating the Lease or
releasing tenant in whole or in part from Tenant's obligation to pay rent
and perform the covenants, conditions and agreements to be performed by
Tenant as provided in this Lease without being deemed in any manner guilty
of trespass.
16.2 Upon and after entry into possession without terminating this Lease
and subject to the requirement of any applicable law to mitigate damages,
Landlord may, but shall not be obligated to, relet all or any part of the
Premises for such rent and upon such terms and to such person, firm or
corporation and for such period or periods as Landlord in Landlord's sole
<PAGE> 13
discretion shall determine, including the right to relet the Premises for a
term greater or lesser than that remaining under the stated Term of this Lease
and the right to relet the Premises as a part of a larger area and the right to
change the character or use made of the Premises, and Landlord shall not be
required to accept any tenant offered by Tenant, to observe any instruction
given by Tenant about such reletting or to do any act or exercise any care or
diligence with respect to such reletting or to the mitigation of damages of
Tenant. For the purpose of such reletting, Landlord may decorate or make
reasonable repairs, changes, alterations or additions in or to the Premises to
the extent in good faith deemed by Landlord reasonably necessary. All such
consideration so received shall be the sole property of Landlord; provided,
however, if the consideration collected by Landlord upon any such reletting for
Tenant's account is not sufficient to pay the rent and other sums reserved in
this Lease, together with an amount equal to (i) five percent (5%) of the then
unpaid Rent due over the balance of the existing Term as liquidated damages and
(ii) the cost of repairs, alterations, redecorating and Landlord's other
reasonable expenses including brokerage commissions, Tenant agrees to pay to
Landlord such deficiency upon demand. If Landlord has not terminated this
Lease or Tenant's right of possession, Landlord shall have no obligation to
mitigate damages, and may permit the Premises to remain vacant or abandoned; in
such case, Tenant may seek to mitigate damages by attempting to sublease the
Premises or assign this Lease (subject to Article 7).
16.3 Any other act or acts resulting in the termination of Tenant's right
to possession of the Premises shall not relieve Tenant from Tenant's obligation
to pay the rent hereunder during the balance of the Term or any extension
thereof, except as herein expressly provided. Landlord may collect and receive
any rent due from Tenant, and the payment thereof shall not constitute a waiver
of any rights or remedies which Landlord has in equity or at law or by virtue
of this Lease.
16.4 The acceptance of liquidated damages by Landlord shall not preclude
Landlord from the subsequent enforcement of any of the covenants or agreements
of this Lease, nor shall any other act which infers recognition of the tenancy
operate as a waiver of Landlord's right to terminate this Lease or operate as
an extension of this Lease. Notwithstanding any reletting by Landlord without
termination of this Lease as allowed above or by law, Landlord may, at any time
thereafter, elect to terminate this Lease for any such previous breach.
ARTICLE 17: Surrender of Possession
17.1 On or before the date this Lease and the Term hereby created
terminates, or on or before the date Tenant's right of possession terminates,
whether by lapse of time or otherwise, Tenant shall:
17.1.1 restore the Premises to the same condition as they were in at the
beginning of the Term (except for reasonable wear and tear and as otherwise
provided in Article 9 of this Lease) and remove those alterations, improvements
or additions (except the original leasehold improvements) installed by Tenant
or acquired by Tenant from former tenants which Landlord shall request Tenant
to remove;
17.1.2 remove from the Premises and the Building all of Tenant's personal
property; and
17.1.3 surrender possession of the Premises to Landlord.
17.2 If Tenant shall fail or refuse to restore the Premises to the above-
described condition on or before the above-specified date, Landlord may put the
Premises in such condition and recover from Tenant Landlord's reasonable cost
of so doing. If Tenant shall fail or refuse to comply with Tenant's duty to
remove all personal property from the Premises and the Building on or before
the above- specified date, the parties hereby agree and stipulate that Landlord
may, at its election:
<PAGE> 14
17.2.1 treat such failure or refusal as an offer by Tenant to transfer
title to such personal property to Landlord, in which event title thereto shall
thereupon pass under this Lease as a bill of sale to and vest in Landlord
absolutely without any cost either by set-off, credit, allowance or otherwise,
and Landlord may, at its option, dispose of all or any part of said personal
property in any manner that Landlord shall choose;
17.2.2 treat such failure or refusal as conclusive evidence on which
Landlord shall be entitled absolutely to rely and act, that Tenant has forever
abandoned such personal property, and without accepting title thereto, Landlord
may, at Tenant's expense, remove, store, destroy, discard or otherwise dispose
of all or any part thereof in any manner that Landlord shall choose without
incurring liability to Tenant or to any other person.
17.3 The failure of Tenant to remove all personal property from the
Premises and the Building shall forever bar Tenant from bringing any action or
from asserting any liability against Landlord with respect to any such property
which Tenant fails to remove. If Tenant shall fail or refuse to surrender
possession of the Premises to Landlord as required by the terms of this Lease,
Landlord may forthwith re-enter the Premises and repossess itself thereof as of
its former estate and remove all persons and effects therefrom, using such
force as may be necessary, without being guilty of any manner of trespass or
forcible entry or detainer.
ARTICLE 18: Holding Over
Tenant shall pay to Landlord one and one half (1 1/2) times the Base Rent
plus rent adjustments then applicable for each month or portion thereof Tenant
shall retain possession of the Premises or any part thereof after the
termination of this Lease, whether by lapse of time or otherwise, and also
shall pay all damages sustained by Landlord on account thereof. The provisions
of this Article shall not operate as a waiver by Landlord of any right of
re-entry hereinbefore provided. At the option of Landlord, expressed in a
written notice to tenant, such holding over shall constitute a renewal of this
Lease for a period from month to month or a renewal for a period of one year.
ARTICLE 19: Subordination
This Lease and all rights of Tenant hereunder are subject and subordinate
to any mortgage or mortgages, blanket or otherwise, which do now or may
hereafter affect all or a portion of the real property of which the Building
forms a part and to any and all renewals, modifications, consolidations,
replacements and extensions thereof, provided, this Lease shall only be
subordinate to Mortgages entered after the date of this Lease, if the Holders
thereof agree to recognize this Lease, and not disturb Tenant's occupancy
hereunder (so long as Tenant does not commit an uncured Default hereunder).
Tenant shall, upon at least ten (10) days' prior notice execute, acknowledge
and deliver to Landlord any and all instruments that may be necessary or proper
to subordinate this Lease and all rights of Tenant hereunder to any such
mortgage or mortgages or to confirm or evidence such subordination. Tenant
covenants and agrees, in the event any proceedings are brought for the
foreclosure of any such mortgage, or in the event there is a transfer in lieu
of such foreclosure proceedings, to attorn, without any deductions or set-offs
whatsoever, to the purchaser upon any such foreclosure sale, or in such
transfer, if so requested to do by such purchaser, and to recognize such
purchaser as the Landlord under this Lease. Tenant agrees to execute and
deliver at any time and from time to time, within ten (10) days after receipt
of written request of Landlord or of any holder of such mortgage or of such
purchaser, any instrument which, in the sole judgment of such requesting party,
may be necessary or appropriate in any such foreclosure proceeding or otherwise
to evidence such attornment. Tenant further waives the provisions of any
statute or rule of law, now or hereafter in effect, which may give or purport
to give Tenant any right or election to terminate or otherwise adversely affect
this Lease, or the obligations of Tenant hereunder in the event any such
foreclosure proceeding is brought, prosecuted or completed or in the event of
any transfer in lieu thereof.
<PAGE> 15
ARTICLE 20: Compliance with Laws
Tenant and Landlord shall operate the Premises and Building respectively in
compliance with all applicable federal, state and municipal laws, ordinances,
and regulations (except those requiring the installation of a fire-protection
system or structural alterations to the Building) and shall not knowingly,
directly or indirectly, make any use of the Premises or Building which is
prohibited by any such laws, ordinances or regulations.
ARTICLE 21: Estoppel
Tenant agrees that from time to time within ten (10) days after receipt of
written request by Landlord, Tenant, or Tenant's duly authorized representative
having knowledge of the following facts, will deliver to Landlord a statement
in writing certifying: (a) that this Lease is unmodified and in full force and
effect (or if there have been modifications that the Lease as modified is in
full force and effect); (b) the dates to which the rent and other charges have
been paid; (c) that, to the best knowledge of Tenant, the Landlord is not in
default under any provisions of this Lease, or, if in default, the nature
thereof in detail; (d) that all work required to be performed by Landlord has
been substantially completed; (e) Tenant is in possession of the Premises; and
(f) to any other matters which Landlord may reasonably request.
ARTICLE 22: Certain Rights Reserved by Landlord
22.1 Landlord shall have the following rights, exercisable without notice
and without liability to Tenant for damage or injury to property, person or
business and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession or giving rise to any claim for set-
off or abatement of rent:
22.1.1 To change the Building's name or street address.
22.1.2 To install, affix and maintain any and all signs on the exterior
and/or interior of the Buildings (not in Premises).
22.1.3 To designate and/or approve, prior to installation by Tenant, all
types of window shades, blinds, drapes, awnings, window ventilators, and other
similar equipment, and all internal lighting, fixtures or equipment within the
Premises that may be visible from the exterior of the Building.
22.1.4 To reserve to Landlord the exclusive right to designate, limit,
restrict and/or control any business or any service in or to the Building and
its tenants, provided that the charges therefor are reasonable.
22.1.5 To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building.
22.1.6 Upon reasonable advance verbal notice to show the Premises to
prospective tenants at reasonable hours during the last nine (9) months of the
Term and, if vacated during the Term, to prepare the Premises for re-occupancy.
22.1.7 To approve the weight, size and location of safe and other heavy
equipment and bulky articles in and about the Premises and the Building (so as
not to overload the floor of the Premises) . Any damages done to the Building
or Premises or to other tenants in the Building by taking in or putting out
safes, furniture or other articles, or from overloading the floor in any way,
shall be paid by Tenant. Movements of Tenant's property into or out of the
premises are entirely at the risk and responsibility of Tenant.
22.1.8 To retain at all times, and to use in appropriate instances, keys to
all doors within and into the Premises.
22.1.9 To enter the Premises to make inspections, repairs, alterations or
additions in or to the Premises or Building at reasonable times and at any time
<PAGE> 16
in the event of emergency, and to perform any acts related to the safety,
protection, preservation, sale or improvement of the Premises or the Building.
22.1.10 To decorate or make repairs, alterations, additions or
improvements, whether structural or otherwise, in and about the Building, or
any part thereof, and for such purpose upon reasonable advance verbal notice
(except in emergency) to enter into the Premises and during the continuance of
any of said work, to interrupt or temporarily suspend Building services and
facilities, all without abatement of rent or affecting any of Tenant's
obligations hereunder so long as the Premises are reasonably accessible and
provided such work is diligently prosecuted.
22.1.11 To reasonably approve in writing all telegraph, telephone,
signal, alarm and electric connections which Tenant may desire before the same
are installed, and to approve, at Landlord's sole discretion, the location of
all wires and the work in connection therewith.
22.1.12 To control and prevent access to the parking areas, sidewalks,
entrances, passages and roof by all persons whose presence in Landlord's
reasonable judgment shall be prejudicial to the safety, character, reputation
and interest of the Building and the Building's tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of Tenant's business, unless such
persons are engaged in illegal or objectional activities.
22.1.13 To provide for the display of the name and location of tenants
and to specify the manner in which Tenant is listed on the Building directory.
22.1.14 To establish controls for the purposes of regulating all
property and packages, both personal and otherwise, to be moved into or out of
the Building and Premises and all persons using the Building after normal
office hours.
22.1.15 To erect, use and maintain necessary pipes, ducts, wiring and
conduits, and appurtenances thereto, in and through the Premises at reasonable
locations.
22.2 Landlord, its beneficiaries and their respective agents or
employees, may enter upon the Premises and may exercise any or all of the
foregoing rights hereby reserved without being deemed guilty of an eviction or
disturbance of Tenant's use or possession and without being liable in any
manner to Tenant.
ARTICLE 23: Rules and Regulations
23.1 Tenant agrees for itself, its employees, agents, servants, clients,
customers, invitees, licensees and guests to observe and comply at all times
with the following rules and regulations and with. such reasonable
modifications thereof and additions as Landlord may from time to time make for
the building, and that failure to observe and comply with such reservations,
rules and regulations shall constitute a default under this Lease:
23.1.1 No sign, picture, advertisement or notice, typewritten or otherwise,
shall be displayed, inscribed, painted or affixed on any part of the outside or
inside of the Building, except as approved by Landlord.
23.1.2 Tenant shall not, without Landlord's written consent, put up or
operate any steam engine, boiler, stove, machinery or mechanical devices upon
Premises or carry on any mechanical business of a nature not directly related
to Tenant's permitted use of the Premises.
23.1.3 Tenant shall not use oil, burning fluids, camphene, kerosene or
natural gas for heating, warming or lighting in or about the Building or
Premises.
<PAGE> 17
23.1.4 No explosives or other articles deemed extra hazardous shall be
brought into the Premises.
23.1.5 Tenant shall not in any manner deface or injure the Building or any
part thereof or overload the floors of the Premises.
23.1.6 Tenant shall not make noises, cause disturbances or vibrations, or
use or operate any electrical or electronic devices or other devices that emit
sound or other waves of disturbances, or create odors, any of which may be
offensive to other tenants and occupants of the Building, or that would
interfere with the operations of any device or equipment or radio or television
broadcasting or reception from or within the Building or elsewhere, and shall
not place or install any projections, antennae, aerials or similar devices
inside or outside of the Premises.
23.1.7 Tenant, its customers, invitees, licensees, agents, servants,
employees and guests shall not encumber or obstruct sidewalks, entrances,
passages or courts in or about the Building.
23.1.8 No bicycle or other vehicle and no animals, birds or other pets
shall be allowed in any part of the Building or the Premises.
23.1.9 Tenant shall not cause, maintain or permit any nuisance or commit or
suffer the commission of any waste in, on or about the Premises, and Tenant
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building.
23.1.10 Tenant assumes full responsibility for protecting the Premises
from weather, theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed and secured.
23.1.11 Peddlers, solicitors and beggars shall be reported to the
office of the Building or as Landlord otherwise requests.
23.1.12 Tenant shall not install or cause to be installed any
automatic garbage disposal equipment without the prior written consent of
Landlord.
23.1.13 Tenant shall cooperate and participate in all security
programs affecting the Building. The exercise of any security measures by
Landlord, its beneficiaries and their respective agents and employees and the
resulting interruption of service and/or cessation of Tenant's business, if
any, shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or render Landlord, its
beneficiaries and their respective agents and employees liable to Tenant for
any resulting damages or relieve Tenant from Tenant's obligations under this
Lease.
23.1.14 Tenant shall not make any room-to-room canvass to solicit
business from other tenants in the Building.
23.1.15 Tenant shall neither use the name of the Building, except as
the address of its business, nor pictures of the Building in correspondence,
notices, advertising or other publicity without Landlord's prior written
consent.
23.1.16 Tenant shall comply with all applicable codes of professional
conduct and shall not advertise or conduct its profession or business carried
on in the Premises in any manner which violates the letter or spirit of such
codes.
23.1.17 Tenant, its customers, invitees, licensees and guests shall
not go upon the roof of the Building or enter into areas reserved exclusively
for the use of the Landlord, its employees, or invitees.
23.1.18 Whenever requested by Landlord, Tenant will supply upon demand
a list of all Tenant's employees working at the Premises, together with
facsimiles of their signatures.
<PAGE> 18
23.1.19 No locks shall be changed or additional locks installed
without the prior written consent of Landlord. Upon termination of this Lease
or of Tenant's possession, Tenant shall surrender all keys to the Premises and
shall make known to Landlord the combination of all combination locks on all
safes, cabinets and vaults that may be located within the Premises.
23.2 Landlord shall not be responsible to Tenant for the nonperformance
by any other tenant or occupant of the Building of any rule or regulation, nor
shall such non-performance in any way affect Tenant's obligation to adhere to
such rules and regulations.
ARTICLE 24: Miscellaneous
Landlord and Tenant further covenant with each other that:
24.1 All rights and remedies of Landlord under this Lease shall be
cumulative, and none shall exclude any other rights and remedies allowed by
law.
24.2 The word "Tenant" wherever used herein shall be construed to mean
Tenants in all cases where there is more than one (1) tenant, and the necessary
grammatical changes required to make the provisions hereof apply either to
corporations or individuals, men or women, shall in all cases be assumed as
though in each case fully expressed.
24.3 Each of the provisions of this Lease shall extend to and shall, as
the case may require, bind or inure to the benefit of not only Landlord and
Tenant, but also their respective heirs illegal representatives, successors and
assigns. References to "Landlord" herein shall be interpreted as including
Landlord's beneficiaries, who shall have the right to enforce the obligations
of Tenant in this Lease set forth in their own names or through an agent.
24.4 All of the representations and obligations of Landlord are contained
herein and no modification, waiver or amendment of this Lease or any of its
conditions or provisions shall be binding upon Landlord unless in writing
signed by Landlord or a duly authorized agent.
24.5 No rights to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
24.6 Sectional headings in this Lease are solely for the convenience of
reference and shall not in any way limit or amplify the terms and provisions
hereof.
24.7 The submission of this Lease for examination does not constitute an
offer to lease, or a reservation of or option for the Premises,and this Lease
becomes effective only upon execution thereof by Landlord and delivery to
Tenant.
24.8 Landlord's receipt of money from Tenant shall not constitute a
waiver of or affect any notice or demand given, suit instituted or judgment
obtained by Landlord, or be held to waive, affect, change, modify or alter the
rights or remedies which Landlord has in equity or at law or by virtue of this
Lease.
24.9 No waiver of any default of Tenant hereunder shall be implied form
any failure by Landlord to take any action on account of such default, whether
or not such default persists or is repeated, and no express waiver shall affect
any default other than the default specified in such waiver and then only for
the time and to the extent therein stated.
ARTICLE 25: Notice
25.1 Any notice, demand, request or other instrument which may be or is
required to be given under this Lease shall be delivered in person or sent by
United States certified or registered mail, postage prepaid. Such notices
shall
<PAGE> 19
be deemed to have been given upon receipt thereof by the party to whom the
notice was given.
25.2 All notices to Landlord shall be sent to Landlord in care of:
JMB Properties Company
900 North Michigan Avenue
Chicago, Illinois 60611
Attention:General Counsel
or at such other address as Landlord may designate by written notice and all
notices to Tenant shall be sent or delivered to the Premises or such other
address as Tenant shall designate by written notice. All notices to Tenant
shall be sent to Tenant in care of:
Westell Incorporated
101 Kendall Point Drive
Oswego, Illinois 60543
Attention:Curtis L. Benton
ARTICLE 26: Landlord's Obligation on Sale of Building
In case Landlord or any successor-owner of the Building shall convey or
otherwise dispose of any portion thereof to another person, such other person
who shall become owner of the Building or such portion thereof, shall thereupon
be and become Landlord hereunder and shall assume fully in writing and be
liable for all liabilities and obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, and such original
Landlord or successor-owner of the Building or such portion thereof shall, from
and after the date of conveyance, be free of all liabilities and obligations
not then incurred.
ARTICLE 27: Brokers
Tenant represents and warrants to Landlord that neither it nor its officers
or agents nor anyone acting on its behalf has dealt with any real estate
broker, other than CB Commercial and Realsource, Inc., in the negotiation or
making of this Lease, and Tenant agrees to indemnify and hold Landlord harmless
from any claim or claims as well as costs and expenses including attorneys'
fees incurred by Landlord in conjunction with any such claim or claims, or of
any broker or brokers claiming to have interested Tenant in the Building or
Premises or claiming to have caused Tenant to enter into this Lease.
ARTICLE 28: Modifications
Should any mortgage, leasehold or otherwise, require a modification or
modifications of this Lease, which modification or modifications will not bring
about any increased cost or expense to Tenant or in any other way substantially
change the rights and obligations of Tenant hereunder, then and in such event,
Tenant agrees to so modify this Lease.
ARTICLE 29: Quiet Enjoyment
So long as Tenant shall perform its obligations under this Lease, it shall
be entitled to peaceful and quiet enjoyment of the Premises, subject to the
terms hereof.
ARTICLE 30: Costs, Expenses, and Attorneys' Fees
In case Landlord shall, without fault on its part, be made a party of any
litigation commenced by or against Tenant, then Tenant shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Landlord in
connection with such litigation. Tenant shall also pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by Landlord in
successfully enforcing Tenant's covenants and agreements in this Lease.
<PAGE> 20
Landlord shall pay all costs, expenses and reasonable attorneys' fees that may
be incurred or paid by Tenant in successfully enforcing Landlord's covenants
and agreements in this Lease.
ARTICLE 31: Prohibition Against Recording
Neither this Lease, nor any memorandum affidavit or other writing with
respect thereto, shall be recorded by Tenant or by anyone acting through, under
or on behalf of Tenant and the recording thereof in violation of this provision
shall make this Lease null and void at Landlord's election.'
ARTICLE 32: Security Deposit
Intentionally omitted.
ARTICLE 33: Trustee Clause
It is expressly understood and agreed that this Lease is executed on behalf
of LASALLE NATIONAL TRUST, N.A., not personally but as trustee as aforesaid, in
the exercise of the power and authority conferred upon and invested in it as
such Trustee, and under the direction of the beneficiaries of a certain Trust
Agreement, dated August 1, 1979 and known as Trust No. 101293. It is further
expressly understood and agreed that LASALLE NATIONAL TRUST, N.A., as Trustee
as aforesaid, has no right or power whatsoever to manage, control or operate
said real estate in any way or to any extent and is not entitled at any time to
collect or receive for any purpose, directly or indirectly, the rents, issues,
or profits or proceeds of said real estate or any lease or sale of any mortgage
or any disposition thereof. Nothing in this Lease contained shall be construed
as creating any personal liability or personal responsibility of the trustee or
any of the beneficiaries of the trust, and in particular, without limiting the
generality of the foregoing there shall be no personal liability to any
indebtedness accruing hereunder or to perform any covenant, either expressly or
implicitly herein contained, or to keep, preserve or sequester any property of
said trust, or for said trustee to continue as said Trustee; and that so far as
the parties herein are concerned, the owner of any indebtedness or liability
accruing hereunder shall, from time to time look solely to the trust estate,
subject to the provisions of said Trust Agreement thereof, Tenant hereby
expressly waiving and releasing said personal liability and personal
responsibility on behalf of itself and all persons claiming by, through or
under Tenant.
ARTICLE 34: Option to Extend
Tenant is hereby granted an option to extend the Term for two (2)
additional periods of two (2) consecutive years (each such period being
referred to herein as an "Extension Period"), on the same terms and conditions
in effect under the Lease immediately prior to the Extension Period, except
that Monthly Base Rent for the Extension Period shall be increased to the
Prevailing Rental Rate but in no event shall the Prevailing Rental Rate exceed
$16.00 per rentable square foot for the first Extension Period and $17.00 per
rentable square foot for the second Extension Period, and Tenant shall have no
further option to extend. "Prevailing Rental Rate" means the average per
square foot rental rate per month for all leases approximately as long as the
Extension Periods, executed by tenants for similar uses for comparable space in
the Building during the six (6) months immediately prior to the date upon which
such Prevailing Rental Rate is to become effective, where such renewal rates
were not set by the terms of such leases, subject to reasonable adjustments for
comparable space on more desirable, or less desirable, floors or areas of the
Building. If leases for no such comparable space have been renewed during such
six (6) month period, the rental rates used for purposes of this provision
shall, be adjusted to the amounts Landlord would have used had leases for such
comparable space been renewed. The option to extend may be exercised only by
giving Landlord irrevocable and unconditional written notice thereof no later
than six (6) months prior to the commencement of the relevant Extension Period,
and said exercise shall, at Landlord's election, be null and void if Tenant is
in default under the Lease at the date of said notice or at any time thereafter
and prior
<PAGE> 21
to commencement of the Extension Period. In all cases, the Prevailing Rental
Rate shall be determined without regard to any free rent periods, improvement
allowances, take-over lease obligations, or other economic incentives.
If the parties are unable to agree on the Prevailing Rental Rate with sixty
(60) days after the commencement of the Extension Period, either party may
request that the Prevailing Rental Rate by determined by arbitration, under the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Such determination shall be final and binding upon the parties. In
recognition that the Prevailing Rental Rate will not be determined until after
the commencement of the Extension Period, Tenant shall pay, during each
Extension Period until the Prevailing Rental Rate is determined, one hundred
fifty percent (150%) of the amount of Rent in effect immediately prior thereto
(including Base Rent and all other charges). If the Prevailing Rental Rate is
determined to be greater or lesser than such amount, Tenant shall pay Landlord,
or Landlord shall pay Tenant, as the case may be, within thirty (30) days after
written request therefor, the difference between the amount required by such
determination of the Prevailing Rental Rate, and the amount of Rent theretofore
paid by Tenant during the Extension Period.
In no event shall the Prevailing Rental Rate as determined by the parties
or by arbitration be less than the Base Rent rental rate for the Lease Year
immediately preceding the relevant Extension Period nor more than $16.00 per
rsf for the first Extension Period nor more than $17.00 per rsf for the second
Extension Period.
If Tenant shall fail to exercise either the options herein provided, said
options shall terminate, and shall be null and void and of no further force and
effect. Tenant's exercise of said option shall not operate to cure any default
by Tenant of any of the terms or provisions in the Lease, nor to extinguish or
impair any rights or remedies of Landlord arising by virtue of such default.
If the Lease or Tenant's right to possession of the Premises shall terminate in
any manner whatsoever before Tenant shall exercise either option herein
provided., or if Tenant shall have subleased or assigned all or any portion of
the Premises, then immediately upon such termination, sublease or assignment,
the option herein granted to extend the Term, shall simultaneously terminate
and become null and void. Such option is personal to Tenant. Under no
circumstances whatsoever shall the assignee under a partial assignment of the
Lease, or a subtenant under a sublease of the Premises, have any right to
exercise either option to extend granted herein. Time is of the essence of
this provision.
ARTICLE 35: Right of First Offer
Landlord agrees that at any time that Landlord desires to lease any space
in the Building which is or may become available (each such space being
referred to singularly as "Additional Space" and collectively, as, the
"Additional Spaces") to any person or entity (other than to an existing tenant
of Additional Space if such tenant had, with respect to such Additional Space,
in its original lease, a right to renew or extend the term of such lease or,
with regard to an existing tenant in the Building, had a right of first
opportunity to lease in regard to such space), Landlord shall first offer, in
writing (the "Offer Notice") the Additional Space to Tenant upon the basic
economic terms upon which, in Landlord's good faith and judgment, Landlord will
attempt to lease, such space to third parties, provided that the Base Rent for
such Additional Space(s) shall be at the Base Rent set forth in Article 3 of
the Lease until the earlier to occur of (i) the first day of the third Lease
Year or (ii) when the Premises exceeds 45,000 rentable square feet. Tenant
shall then have a period of thirty (30) days (the "Election Period") within
which to elect to lease the Additional Space on the economic terms set forth in
the Offer Notice, such election to be made in a written notice to Landlord
within the Election Period. If Tenant does not so elect within the Election
Period or if after having made such election, Tenant and Landlord fail to amend
this Lease so as to add the Additional space to the Premises (Landlord and
Tenant each hereby agreeing to proceed in good faith to do so), Landlord shall
have the right to lease the Additional Space to any other person or entity.
<PAGE> 22
With respect to any Additional Space added to the Premises pursuant to this
Article 34, Tenant shall receive an improvement allowance for such Additional
Space equal to $5.00 per rentable square foot reduced proportionately to
reflect the number of days remaining in the Term:
$5.00 times number of days remaining in Term divided by number of days in
original Term, e.g. 1,460
The Termination Fee (as defined in Article 36) shall be increased on a per
rentable square foot basis to include all Additional Space added to the
Premises pursuant to this Article 34.
Landlord's obligation to offer the Additional Space at any time shall be
conditioned upon Tenant not then being in default (after expiration of all cure
periods) under the terms of this Lease. All rights under this Article 34 shall
cease and terminate upon Tenant's written exercise of the termination of Lease
as set forth in Article 36 hereof. All rights herein granted to Tenant shall
be subject to any rights of existing tenants to expand and subject to existing
tenants' decisions to renew their existing leases whether or not an extension
or renewal option is granted in such leases.
ARTICLE 36: Exterior Building Signage
Tenant shall have the right to maintain signs (not to exceed two (2)) on
the exterior face of the Building in locations, size and design that are
acceptable to both the Landlord and the City of Aurora. The design,
fabrication, installation and removal of said signs shall be at Tenant's sole
cost and expense, and subject to any reasonable rules or regulations
promulgated by Landlord or the City of Aurora. Landlord may also allow other
tenants leasing space in the Building to maintain signs on the exterior face of
the Building. At the expiration or earlier termination of the lease, Tenant
shall remove all signs and restore any damage caused by such removal, all at
Tenant's sole cost and expense. Any failure by Tenant to do so shall entitle
Landlord to cause the removal of the signs and repair or restoration, all at
Tenant's sole cost and expense and such changes shall constitute "Additional
Rent" under the Lease.
ARTICLE 37: Termination Rights
Subject to the terms and conditions herein contained, Tenant shall have the
right to terminate this Lease as of the end of either of the second or third
Lease Years (each of such Lease Years being herein called a "Lease Termination
Year") by so notifying Landlord, in writing, at least six (6) months prior to
the last day of the applicable Lease Termination Year provided that Landlord
shall have the right to reject and cancel any such election by Tenant if at the
time of such election or at any time thereafter a default has occurred which
has not been cured within any applicable time period outlined in Article 16.
Tenant's exercise of the termination option herein contained shall be subject
to the payment of a termination fee (the "Termination Fee") ninety (90) days
preceding the last day of the applicable Lease Termination Year, in an amount
determined as follows:
after Second Lease Year: $ 5.93 per square foot of rentable area of
the Premises
after Third Lease Year: $ 3.17 per square foot of rentable area of
the Premises
Failure by Tenant to make payment of the Termination Fee as
aforesaid shall cause Tenant's election to terminate to be void and of no
further force or effect and shall further constitute a default hereunder.
ARTICLE 38: Exclusivity
Landlord agrees not to lease space in the Building to any of the following
tenants or knowingly to any other "competitor" of Tenant (as hereafter
defined):
<PAGE> 23
- TELLABS
- TELTREND
- CHARLES INDUSTRIES (WESCOM)
- NORTHERN TELCOM
- ADTRAN
- ADC
- AT&T NETWORK SYSTEMS
- ALCATEL
For purposes of this Article 38 "competitor" of Tenant shall mean any business
that deals in the sale, design and/or manufacture of local telephone network
transmission equipment.
LANDLORD:
LaSalle National Trust, N.A., not individually, but
as Trustee under a Trust Agreement dated August 1,
1979 and known as Trust No. 101293.
By:___________________________________
Its:_______________________________
TENANT:
Westell, Incorporated
By:___________________________________
Its:_______________________________
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-99914.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's year-end financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,789
<SECURITIES> 0
<RECEIVABLES> 10,679
<ALLOWANCES> (462)
<INVENTORY> 10,684
<CURRENT-ASSETS> 50,178
<PP&E> 22,840
<DEPRECIATION> 11,188
<TOTAL-ASSETS> 64,448
<CURRENT-LIABILITIES> 21,437
<BONDS> 0
0
0
<COMMON> 346
<OTHER-SE> 38,639
<TOTAL-LIABILITY-AND-EQUITY> 64,448
<SALES> 83,236
<TOTAL-REVENUES> 83,236
<CGS> 50,779
<TOTAL-COSTS> 50,779
<OTHER-EXPENSES> 34,711
<LOSS-PROVISION> (226)
<INTEREST-EXPENSE> 859
<INCOME-PRETAX> (3,339)
<INCOME-TAX> (1,886)
<INCOME-CONTINUING> (1,453)
<DISCONTINUED> (622)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,075)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
