United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year end December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-28082
KVH Industries, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 05-0420589
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 Enterprise Center, Middletown, RI 02842
(Address of principal executive offices) (Zip code)
(401) 847-3327
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.01
par value, per share.
(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 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 ( ).
As of March 23, 1999, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $7,096,642 based upon a total of
4,125,955 shares held by non-affiliates and the last sale price on that date of
$1.72. As of March 23, 1999, the number of shares outstanding of the
Registrant's common stock was 7,205,928.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement relating to the
1999 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Report on Form 10-K. The Company anticipates that its definitive Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year end December 31, 1998.
<PAGE>
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
<S> <C> PART I <C> Page
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 7A. Market Risk Disclosure 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 17
</TABLE>
"Safe Harbor" statement under the Private Securities
Litigation Reform Act of 1995
With the exception of historical information, the matters discussed in this
Annual Report on Form 10-K include certain forward-looking statements that
involve risks and uncertainties. Among the risks ands uncertainties to which the
Company is subject are product life cycles, technological change, the Company's
relationship with its significant customers, market acceptance of new product
offerings, reliance on outside resources such as satellite networks, dependence
on key personnel, fluctuations in annual and quarterly performance and worldwide
economic conditions. As a result the actual results realized by the Company
could differ materially from the statements made herein. Shareholders of the
Company are cautioned not to place undue reliance on forward-looking statements
made in the Annual Report on Form 10-K or in any document or statement referring
to this Annual Report on Form 10-K. For a more detailed discussion of risks and
uncertainties, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Forward Looking Statements."
<PAGE>
PART I
Item 1. Business.
Overview
KVH Industries, Inc. ("KVH" or the "Company") was organized in Rhode Island
in 1978 and was reincorporated in Delaware on August 16, 1985. The Company
completed its initial public offering in April 1996. The Company's executive
offices are located at 50 Enterprise Center, Middletown, RI, and its telephone
number is (401) 847-3327. Unless the context otherwise requires, references to
KVH or the Company include KVH Industries, Inc. and its Danish sales subsidiary.
KVH utilizes its proprietary fiber optic, autocalibration and fluxgate
technologies to produce sensor systems with multiple market applications. The
Company currently sells its sensors as integrated components of navigation and
satellite communications systems for mobile marine and land applications in the
commercial, military and original equipment manufacturers ("OEM") markets. KVH's
digital navigation systems provide accurate, real-time heading, orientation,
position and pointing information. The Company's satellite communications
systems provide two-way voice, fax and data connections and deliver television
and certain data via direct broadcast satellite (DBS) services.
Since introducing the world's first commercial digital fluxgate compass in
1982, KVH has demonstrated a commitment and the ability to continually advance
the capabilities and applications of its sensors and the systems into which they
are integrated. KVH first enhanced its stand-alone compass for sailing vessels
by developing proprietary software that automatically calibrated the system. The
Company further increased its marine product capabilities by incorporating
Global Positioning System ("GPS") compatibility for precise location data,
adding gyroscopes to measure pitch, roll and yaw, enhancing display readability
and designing compact, integrated systems that interface with other navigation
devices and sensors. By continually advancing product applications and designing
components to meet the needs of new customer groups, such as powerboat owners,
the Company broadened its reach in the marine market. To support its
international marketing of marine navigation products, the Company has
established a broad network of international distributors and in 1991
established KVH Europe A/S in Hoersholm, Denmark.
In its first foray into the land navigation market, KVH developed
militarized versions of its electronic compasses and began supplying them to the
United States Navy for amphibious vehicles in 1988. To expand its land
navigation product capabilities and market depth, the Company combined its
sensor and autocalibration technologies into fully integrated systems. In 1991,
the United States Marine Corps used KVH self-calibrating compasses for on-board
military land vehicle navigation during the Persian Gulf War. Subsequently, the
Company achieved increased accuracy and capabilities in its land mobile
navigation systems through GPS integration, incorporating navigation
capabilities for turreted armored vehicles and, ultimately, producing a fully
integrated tactical navigation system that provides heading, location and
targeting data to military vehicle commanders. Tactical navigation and digital
compass systems are sold directly to the United States Department of Defense and
the armed forces of other countries in Europe and the Middle East. Major defense
contractors, including United Defense LP and General Motors Corporation, also
incorporate KVH navigation products in manufacturing military land vehicles.
Sensor technologies were further leveraged when the Company created and
introduced in 1993 an active-stabilized antenna-aiming system that maintains a
continuous satellite link from moving platforms. KVH combined its sensors and
software to integrate real-time heading, orientation and position data and then
position the antenna to compensate for the ongoing, often severe directional
changes that vessels experience at sea. Initially, the antennas were used for
mobile marine voice transmission via Inmarsat M satellites. Ongoing advances in
satellite capabilities provide KVH with a continual flow of product
opportunities, as demonstrated by Inmarsat's launch of its mini-M satellite
constellation. The higher-powered mini-M satellites made it possible for the
Company to develop and in 1997 launch a system that is significantly smaller and
costs less per minute than earlier products while delivering mobile voice, fax
and data access worldwide. Further technological advances led to the 1998
introduction of one of the smallest and lowest-cost fully stabilized marine
telephony systems available for Inmarsat mini-M service.
In a parallel expansion of its stabilized antenna technology, in 1994 the
Company introduced its first TracVision(R) system to enable mobile television
reception via direct broadcast satellite ("DBS") providers. Additional
development efforts led to the 1998 launch of the world's smallest fully
stabilized antenna for mobile marine television reception with systems designed
for reception in North America and Europe. Also in 1998, the Company exploited
its TracVision capabilities and took a major step in enabling broadband data
delivery by offering users access to real-time stock market and weather
information. Most recently, KVH developed an advanced TracVision system that
incorporates the Company's newest digital gyro compass to provide vessel
navigation capabilities in addition to antenna control. The Company also has
developed a system for mobile television reception from land vehicles such as
recreational vehicles (RVs) and motor coaches. Mobile communications products
are marketed through the Company's third-party distributor network.
KVH enhanced its sensor capabilities in 1997 by acquiring the assets of the
fiber optic sensor group of Andrew Corporation. With no moving parts, fiber
optic sensors offer the benefits of long and stable operation and a lack of
sensitivity to shock and acceleration that makes them valuable in a broad range
of environments. For example, integrated fiber optic gyroscopes (FOGs) have the
ability to significantly increase heading and location accuracy at a lower cost
than comparable tactical navigation systems. Combining FOGs and the TracVision
control system can potentially enable highly accurate antenna pointing for the
impending X-, K- or Ka-band communication systems that will provide ultra-high
data rate transmissions. FOGs also have potential applications in military
navigation, turret stabilization, merchant vessel navigation, precision
agriculture, aviation flight control and positive train control. Fiber optic
products are manufactured at the Company's Tinley Park, Illinois, facility and
some development efforts are conducted at a St. Petersburg, Florida, facility.
Company Products
KVH has determined that there are significant opportunities for its
sensor-based systems in the mobile communications market where the worldwide
growth in demand for audio, data and video accessibility is eliciting
significant growth in satellite availability. Advantages that satellites offer
over land-based communications technologies include rapid service
implementation, broad market reach that is independent of customer density,
global access for mobile travelers throughout the world and broadband
capabilities. Bandwidth on demand is required for delivering television,
high-speed data and multimedia (e.g., Internet access, corporate networking and
video conferencing) services.
KVH is using its core sensor, robotic and software technologies to develop
systems that are synergistic with the escalating demand for mobile
communications applications and that benefit from the related growth in
satellite availability. The Company also recognizes that mobile users need, and
are seeking, integrated, simplified access to those capabilities. As a result,
the Company focuses on designing turnkey and OEM systems in the areas of
broadcast, datacast and telephony.
A key component of KVH communications products is the Company's proprietary
three-axis, fully stabilized antenna, which maintains satellite contact with
geostationary satellites when a vessel or vehicle platform is in motion. The
antennas use a KVH digital gyro compass and inclinometer to measure precisely
the pitch, roll and yaw of an antenna platform in relation to the earth. The
Company's proprietary stabilization and control software and on-board
microprocessors use that data to compute the antenna movement necessary to
maintain satellite contact and then transmit precise motor control instructions
to aim the antenna. KVH has designed its antennas to permit rapid initial
acquisition of the satellite signal without operator intervention.
KVH sells two telephony systems, Tracphone 25 and Tracphone 50, to mobile
users worldwide. The Company introduced Tracphone 25 in 1998 and that year the
system was named Best Satellite Telephone System by the National Marine
Electronics Association ("NMEA"). Tracphone 50, which was introduced in 1997, is
used primarily on larger vessels such as fishing boats and bulk carrier fleets.
Basic prices for the systems are $7,000 and $8,000, respectively. Tracphones
deliver voice, fax and data via the mini-M satellite constellation operated by
Inmarsat (the International Maritime Satellite Organization), a consortium of 79
countries that operate a network of geostationary satellites providing worldwide
communications services through mobile terminals on air, sea and land. The
per-minute airtime rates for mini-M service, which average $2.40 compared to
Iridium's voice-only service for $5.00-$9.00 and Inmarsat's A/B services for
$7.00, gives the Company an additional competitive edge.
Under a new 1998 co-marketing agreement with American Mobile Satellite
Corporation ("AMSC"), the Company also offers customers AMSC's cost-effective
SKYCELL services with certain Tracphone sales. As a result of the collaborative
agreement, KVH has become an authorized SKYCELL Agent and is supporting both
hardware sales and services for AMSC Tracphones. The Tracphones covered by the
agreement were produced under an earlier $10.2-million contract with AMSC and
these units have been incorporated into KVH's telephony line. AMSC Tracphones
range in price from $5,500 to $6,900 and SKYCELL service covers as far north as
the Bering Sea and as far south as the northern tip of South America, including
all of the Caribbean. Since SKYCELL service costs are significantly lower than
global Inmarsat service, KVH telephone customers can benefit from a more
cost-effective service for North American coverage and use mini-M service for
global coverage. Distributors in the KVH network sell AMSC packages for SKYCELL
Satellite Telephone Services and the Company is using its dealer base to promote
Tracphone and service package sales. A three-year agreement between KVH and
Station 12 to co-market Tracphone 50 and Altus service will end in August 2000.
KVH markets all of its communication products through a broad network of more
than 260 national and international dealers.
KVH also sells DBS antenna systems for mobile television and data
reception. Marine systems include TracVision II, which was named Best Satellite
Television System by NMEA in 1998, for coverage in North America and
TracVision(R) 45 for coverage in a range of European countries. In North
America, TracVision II users can choose to subscribe to a variety of services
from any of three DBS providers: DIRECTV(R), a subsidiary of GM Hughes
Electronics, U.S. Satellite Broadcasting, Inc. ("USSB(R)") and EchoStar(R).
TracVision 45 provides television reception via Astra and Hotbird satellite
service to mariners in Europe, primarily in the coastal waterways of Germany,
The Netherlands, Belgium, France and sections of the United Kingdom. With
TracVision antennas, mariners can access such provider services as laser disc
quality television, subscription programming, pay-per-view services and
CD-quality audio channels. KVH introduced TracVision II in 1997 and launched
TracVision 45 in 1998. The Company is developing a TracVision II upgrade that
incorporates an optional KVH GyroTrac that controls antenna pointing and
integrates with other electronic systems such as radar and autopilots.
TracVision turnkey systems range in price from $5,000 to $7,100. Service
activation capabilities are built in and costs depend upon which packages a user
selects when establishing service with the provider.
KVH plans to introduce TracVision LM, its first land mobile satellite
communications product and another evolution in the Company's stabilized antenna
product line, in 1999 at a cost of $2,995. TracVision LM is designed to
integrate with television systems to deliver DBS channels to on-the-move
recreational and sports utility vehicles, motor coaches, vans, mini-vans and
long-haul trucks.
KVH also sells sensor-based products into marine and military markets.
Compass systems utilize the Company's digital fluxgate heading sensor to sample
the surrounding magnetic field and output precise heading data. These signals
are relayed to an on-board microprocessor, where filtering and averaging
algorithms developed by the Company translate the output to stable heading
information. The Company's proprietary autocalibration software continuously and
automatically compensates for the effects of magnetic interference. In highly
dynamic applications where greater accuracy and fully stabilized heading output
is required, KVH integrates the sensor with one or more angular rate gyros and
inclinometers. This integration provides three-dimensional error correction and
stabilization capabilities previously available only from more costly systems.
The Company is integrating FOG sensors into its navigation and communication
product lines to create enhanced systems with broader market potential.
The Azimuth GyroTrac introduced in 1998 is the successor to the Company's
Azimuth Digital Gyro Compass, which the NMEA named Best Gyro Compass in 1998.
The newly designed system incorporates in one package multiple navigation
capabilities that previously were available as options, thereby reducing the
overall cost to customers and making installation easier and more efficient.
NMEA also selected the Company's Azimuth 1000 as Best Electronic Compass in
1998. In addition to its Azimuth product line, the Company sells Sailcomp
digital compass systems, the Quadro line of integrated instrument systems and
DataScope, a hand-held compass and rangefinder that also is used in outdoor,
military, technical, sporting and commercial applications.
In the military market, KVH sells TACNAV systems in a variety of
configurations ranging from a simple GPS-compatible compass system with a single
commander's display to a complete, integrated system that provides full tactical
navigation and targeting capabilities and includes up to three separate
commander's, gunner's and driver's displays. TACNAV systems are installed in a
variety of light-armored fleets, including the United States AAV-7, LAV-25 and
Bradley ODS, the Swedish Army's CV90 fleet and the Canadian Army's RECCE and
APC.
Several new TACNAV orders that contributed modest revenues in 1998 have
potential for more significant sales going forward. The United States Army
extended its TACNAV use by installing systems in National Guard vehicles, the
first deployment that expanded upon the initial contracted applications. TACNAV
systems also were selected in 1998 as a key component for testing in the U.S.
Army's Task Force XXI Battle Command Brigade and Below (FBCB2) program. FBCB2 is
the digital battlefield effort that the Army has underway to provide battlefield
commanders with comprehensive, real-time digital information, electronic
coordination and situational awareness through an integrated tactical computer
system. Also in 1998, the United States Marine Corps selected TACNAV Light
systems for a rebuild of AAV-7's.
With the aid of Small Business Innovation Research (SBIR) grants awarded in
1998, the Company is integrating fiber-optic components to enhance the
performance of TACNAV systems. KVH is developing ToFOG Navigator, a
next-generation upgrade to TACNAV, to offer the military increased accuracy in
pointing and targeting over the TACNAV system. ToFOG Navigator also is designed
to solve the problem of GPS jamming, which the United States military has
identified as an existing and growing problem with potentially serious
consequences in battlefield situations. The Company is integrating GPS, FOGs and
accelerometer sensors to create a three-axis, non-magnetic fiber optic gyroscope
that will deliver reliable, highly accurate navigation and targeting
capabilities in mobile environments. The system is designed to increase
bandwidth, improve accuracy and ensure the continuous delivery of attitude and
azimuth functions even when GPS is blocked at less cost than existing inertial
systems. KVH also sells its FOG sensors and a variety of digital heading
sensors, stabilized gyro compasses, rate sensors, inclinometers, sensing coils
and other standard sensors and sensor systems to a variety of commercial OEMs.
Sales and Marketing. The Company sells its sensor products and systems
through a variety of channels, including a direct sales force and a network of
dealers, value-added resellers, distributors and sales representatives. KVH's
commercial and recreational marine navigation products are sold through a
domestic dealer network of more than 400 catalog chain outlets, including West
Marine, Boaters' World and Boat U.S., more than 200 technical marine electronics
value-added resellers, over 60 overseas distributors, and are supported through
an independent manufacturer's sales representative network in all domestic sales
regions. KVH markets its military navigation products to the armed forces of the
United States and other countries and to OEM manufacturers through a direct
sales force, distributors and sales representatives. The Company also uses its
direct sales force, distributors and sales representatives to sell embedded
sensors and sensor systems to a broad range of OEM manufacturers, including
Lockheed, Harris and Raytheon. A world-wide network of technical dealers and
distributors established by KVH sells the Company's antenna-aiming systems
directly to both OEM manufacturers of satellite telephone transceivers and as
turnkey systems to end-users. FOG sensors are sold directly to OEM customers
through the same distribution system that the Company utilizes to sell its
commercial digital sensors. The Company's agreements with its dealers, value
added resellers, distributors and sales representatives generally are
non-exclusive. The Company's products are sold in Europe through KVH Europe A/S
and elsewhere in the world through a network of distributors.
Until recently, a significant portion of the Company's sales depended on a
small number of customers placing large orders. During 1998 the Company made
significant progress in shifting its communication revenues towards stronger
direct sales and away from a predominance of OEM sales, a strategy that the
Company initiated in 1997. The Company expects this strategy to replace sporadic
and notable variances in sales revenues with a more level revenue stream from
repeat orders and a broader customer base, particularly in the communications
industry. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations Forward Looking Statements-Risk Factors.")
Backlog. The Company includes in its backlog only firm orders for which it
has accepted a written purchase order. Many of the Company's orders are subject
to cancellation, generally without penalties. In particular, the Company's
military orders can generally be canceled at any time for the convenience of the
customer, without penalty other than recovery of the Company's actual costs
incurred through the date of cancellation.
The Company's revenue from commercial and recreational marine markets is
derived primarily from sales to non-stocking distributors, retail chains, OEMs
and other resellers who require short lead times for delivery of products to
end-users. The Company manufactures its products on a just-in-time basis.
Customers may cancel or reschedule orders without significant penalty and the
prices of products may be adjusted between the time the purchase order is booked
into backlog and the time the product is shipped to the customer. For these
reasons, the Company believes that its backlog in general, and its backlog of
commercial and recreational marine orders in particular, are not necessarily
meaningful in predicting the Company's actual revenue for any future period.
The Company's backlog at December 31 was $3.0 million in both 1998 and
1997. The Company expects to ship all its backlog at December 31, 1998, during
1999. The Company's total backlog at December 31, 1998 includes $2.0 million in
military navigation system orders and $1.0 million in mobile satellite
communication and FOG product orders. The Company's total backlog at December
31, 1997 included $1.4 million in military navigation system orders and $1.6
million in mobile satellite communication and FOG product orders.
Research and Development. The Company's research and development efforts are
based on its core sensor technologies and focused on developing new products
that will have broad application across existing and anticipated strategic
markets while improving performance and reducing manufacturing costs for
products in the market. A substantial portion of the Company's research and
development expenditure is devoted to basic research for core technology
development projects.
The Company's research and development activities fall into two categories:
internally funded research and development and customer-funded research and
development. The Company has financed virtually all of the cost of developing
the Company's marine navigation and satellite communications products. However,
much of the funding used to develop KVH's products for the military navigation
market, in which a significant engineering effort to develop enhanced features
requested by the customer is frequently involved, has been derived from
government sources. Development of the Company's core sensor technologies has
also been subsidized to a large extent by grants under the United States
government's SBIR program. Customer-funded research and development is included
in cost of sales.
The Company's total expenditures for research and development during 1998,
1997 and 1996 were as follows:
Year ended December 31,
1998 1997 1996
( in thousands)
Internally funded research and development $3,991 3,175 2,431
Customer funded research and development 936 630 869
Total research and development $4,927 3,805 3,300
Manufacturing. The Company's manufacturing operations consist primarily of
final assembly and test of products, materials procurement management and
quality assurance. The Company manufactures a unique, proprietary optical fiber
and certain subassemblies and components, such as fluxgate and fiber optic
sensor coils. The Company contracts with third parties for some services, such
as the fabrication and assembly of printed circuit boards, injection-molded
plastic parts and machined metal components.
KVH believes there are a number of acceptable vendors for most components
and third-party services used in manufac-turing its products and the Company
actively evaluates and selects suppliers for quality, dependability and cost
effective-ness. In some instances where KVH has obtained certain components and
services from a sole source to maintain quality control or develop a strategic
supplier relationship supplier, the Company has experienced production delays
due to insufficient supplies, delivery delays, poor quality control or failure
to meet design requirements. Future shortages, delays or other problems could
adversely affect production and, consequently, Company operating results. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward Looking Statements-Risk Factors.")
Competition. The Company encounters significant competition in each of its
markets. In the mobile satellite antenna-aiming market, the Company faces
competition with its antenna systems primarily from SeaTel Corporation, which
manufactures and markets a broad line of marine satellite communications and
satellite tracking equipment, including antenna systems for Inmarsat and DBS-TV
applications. For large dish marine satellite systems, SeaTel has greater
marketing experience and a larger installed base than the Company. A second
competitor, Datron Corporation, provides a stabilized antenna design for RV and
marine reception of DBS-TV that competes with the company's turnkey DBS
products. Other competitors include Nera Corporation and Westinghouse, plus a
few smaller manufacturers of active stabilized antenna-aiming systems that may
in the future develop antenna-aiming systems or other mobile satellite
communications systems or equipment. The Company's satellite phone products also
could be affected adversely by the advent of hand-held worldwide satellite
voice, data and fax services provided by companies such as Iridium World
Communications, Ltd., Globalstar Telecommunications Ltd. and ICO Global
Communications. Iridium, the only hand-held system currently on the market,
offers voice service only and the costs per minute exceed those available
through KVH's Inmarsat service by as much as 75 percent. KVH believes that there
are certain mobile applications where hand-held systems will be ineffective and
that the Company's antennas will be required. The Company has determined that
the principal bases of competition in the satellite communications market are
system performance, reliability, antenna size, cost and customer support.
In the market for military vehicle tactical navigation systems, the Company
competes with a large number of domestic and international companies that
produce dead-reckoning, inertial, GPS-based, or radio-based navigation systems
and systems that provide integrated magnetic heading and GPS navigation
capabilities. Most of these competitors have more experience than the Company in
manufacturing and marketing products for the military marketplace. The Company
believes that the principal bases of competition in the market for military land
vehicle navigation systems are: product performance; field reliability; ease and
flexibility of installation, maintenance and field modification; size and weight
of the unit; size and stability of the vendor; and price.
In the commercial and recreational marine navigation market, the Company's
principal competitors include a large number of domestic and international
companies that manufacture and market stand-alone digital compasses, digital
heading sensors and integrated instrument systems. The Company believes that the
principal bases of competition in the commercial and recreational marine
navigation market include product design and performance; flexibility and
ease-of-use; product quality and the quality of customer support; and vendor
reputation.
The Company's fiber optic gyro and embedded sensors compete with products
of a large number of companies that pro-duce magnetic sensors and gyroscopic
rate sensors for sale in the OEM market. A number of these sensors are less
accurate and substantially less expensive than the Company's products. Some
larger competitors in the gyroscopic rate sensor market are Litton Corporation
and Honeywell Corporation.
Intellectual Property
The Company's ability to compete effectively depends to a significant extent
on its ability to protect its proprietary information. The Company relies
primarily on trade secret laws, confidentiality procedures and licensing
arrangements to protect its intellectual property rights. The technology
licenses on which the Company relies include an angular rate gyro license from
Etak, Inc. and a license from Thomson Consumer Electronics, Inc. relating to
certain consumer electronic components.
The Company has 27 issued United States patents covering the Company's core
sensor and fiber optic technologies. The Company intends to seek further patents
on its technology, if appropriate. In addition to patents, the Company registers
its product brand names and trademarks in the U.S. and other key markets where
the company does business around the world. Expiration of the Company's patents
and trademarks range from March 3, 2000, to April 7, 2015.
The Company generally enters into confidentiality agreements with its
consultants, key employees and sales representatives and generally controls
access to and distribution of its technology, software and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Also, the Company
has delivered certain technical data and information to the United States
government under procurement contracts, and the United States government may
have unlimited rights to use such technical data and information or to authorize
others to use such technical data and information.
Employees
As of December 31, 1998, the Company employed 154 full-time employees. The
decline in total employees from 191 at December 31, 1997, is due primarily to a
1998 restructuring when the Company reduced staff levels, reengineered processes
and streamlined job responsibilities. KVH utilizes the services of temporary or
contract personnel within all functional areas to assist on project-related
activities. The Company generally enters into non-disclosure agreements with
temporary or contract personnel or firms to protect the confidentiality of its
proprietary technology.
The Company believes its future success will depend in large part upon the
continued service of its key technical and senior management personnel and upon
the Company's continuing ability to attract and retain highly qualified
technical and managerial personnel. None of the Company's employees are
represented by a labor union. The Company has not experienced any work stoppage
and considers its relationship with its employees to be good.
Government Regulation
The Company's manufacturing operations are subject to various laws
governing the protection of the environment. These laws and regulations are
subject to change, and such change may require the Company to improve technology
or incur expenditures to comply with such laws and regulation. The Company
believes that it complies in all material respects with applicable environmental
laws and regulations and does not expect that any costs in connection with
complying with such laws or regulations will have a material effect on the
Company's results of operations, financial position or liquidity.
The Company is subject to compliance with the United States Export
Administration Regulations. Because some of the Company's products have military
or strategic applications, some products are on the Munitions List of the
International Trafficking in Arms Regulations ("ITAR") or are subject to a
requirement for an individual validated license from the Department of Commerce
in order to be exported to certain jurisdictions. Under the Exon-Florio
Amendment to the Defense Production Act of 1950, the United States President has
authority to investigate and unwind any investment by foreign persons that could
result in foreign control of an entity, if the President determines that foreign
control would threaten national security.
Item 2. Properties.
The Company's executive offices, administration, product development and
manufacturing facilities are housed in two adjacent buildings in Middletown,
Rhode Island containing approximately 75,000 and 6,000 square feet. The Company
occupies the smaller of the two facilities under a lease that expires in
September 1999 and purchased the larger facility in May 1996. KVH relocated
operations into the wholly owned, larger facility in 1997 and subsequently made
a one-time payment of $210,000 to reduce the leased space in its smaller
facility to 6,000 square feet from approximately 30,000 square feet. The smaller
facility is being used as a warehouse for Tracphone inventory and may be
rendered idle as product ships. The Company utilized approximately $4.0 million
of the proceeds of its 1996 public offering to purchase and build out the wholly
owned 75,000-square-foot building to accommodate manufacturing and operations
needs.
The Company's fiber optic sensor group occupies approximately 23,000 square
feet in a Tinley Park, Illinois, facility under a seven-year lease agreement
that began April 1, 1998. The cost to build out the facility was approximately
$800,000 and the initial annual rent is $152,121 with a 3% escalation each year
thereafter.
Item 3. Legal Proceedings.
In the ordinary course of business, the Company is a party to legal
proceedings and claims. In addition, from time to time, the Company has
contractual disagreements with certain customers concerning the Company's
products and services. In the opinion of the Company's management, none of the
current matters or proceedings, when ultimately concluded, are likely to have a
material adverse effect on the results of operations or financial position of
the Company and its subsidiary taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock has traded on the NASDAQ National Market under
the symbol KVHI since April 8, 1996. As of [ ??], 1999, there were [ ] holders
of record of the Company's Common Stock. The Company has never declared or paid
any cash dividends on its Common Stock and does not intend to pay cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain
earnings for reinvestment in its business.
The Company's stock commenced trading on April 2, 1996 at $6.50. On March
23, 1999, the closing sale price for the Company's Common Stock was $1.75.
1998 1997
---------------------- ----------------------
High Low High Low
First Quarter 6.25 3.25 8.00 6.25
Second Quarter 4.00 2.13 10.00 5.00
Third Quarter 3.50 1.75 9.50 7.13
Fourth Quarter 2.06 0.88 8.13 3.75
<PAGE>
Item 6. Selected Financial Data.
The following selected financial data is derived from the Company's
financial statements. This data should be read in conjunction with Item 8,
Financial Statements and Supplementary Data, and with Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
(in thousands, except per share data)
Consolidated Statement of Operations:
Net sales $ 20,630 25,570 25,687 14,150 8,565
Cost of goods sold 14,100 14,085 14,607 8,447 5,082
------------ ------------ ------------ ------------ --------------
Gross profit 6,530 11,485 11,080 5,703 3,483
Operating expenses:
Research and development 3,991 3,175 2,431 1,279 727
Sales and marketing 4,470 3,738 3,040 2,494 1,652
General and administrative 2,225 1,895 1,624 1,058 763
------------ ------------ ------------ ------------ --------------
Operating (loss) profit (4,156) 2,677 3,985 872 341
Other (income) expense:
Interest (income) expense, net (57) (327) (278) 27 60
Other (income) expense (27) (95) 14 20 (172)
(Gain) loss on currency translation (198) (138) 50 (4) (44)
------------ ------------ ------------ ------------ --------------
(Loss) income before income tax
(benefit) expense (3,874) 3,237 4,199 829 497
Income tax (benefit) expense (1,608) 1,020 1,743 (365) (48)
------------ ------------ ------------ ------------ --------------
Net (loss) income $ (2,266) 2,217 2,456 1,194 545
============ ============ ============ ============ ==============
Per share information (1):
Net (loss) income per common share -
basic $ (0.32) 0.31 0.39 0.25 0.11
============ ============ ============ ============ ==============
Net (loss) income per common share -
diluted $ (0.32) 0.30 0.35 0.21 0.09
============ ============ ============ ============ ==============
Weighted average number of shares outstanding:
Basic 7,124 7,049 6,370 4,862 4,970
============ ============ ============ ============ ==============
Diluted 7,124 7,498 7,055 5,710 5,851
============ ============ ============ ============ ==============
December 31,
1998 1997 1996 1995 1994
(dollars in thousands)
Consolidated Balance Sheet Data:
Working capital $ 8,486 12,410 12,570 3,214 2,110
Total assets 18,746 21,805 21,544 7,931 3,644
Long-term obligations (2) 0 7 61 113 579
Total shareholders' equity 17,070 19,194 16,563 3,654 2,451
</TABLE>
(1) See note 1 of Notes to Consolidated Financial Statements for an explanation
of the method of calculation.
(2) Includes obligations under capital leases. See
notes 6 and 15 of Notes to Consolidated Financial Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
KVH Industries, Inc. (the "Company") derives its revenues from sensor
products and systems sold to a range of commercial, military and OEM markets in
the communications and navigation industries. The Company's products include:
stabilized antenna systems for mobile satellite applications such as voice, fax
and data transmission and television reception; positional and heading systems
for tactical military applications in amphibious and land vehicles and for
commercial applications in land vehicles; digital compasses and instrument
systems for recreational, commercial and military applications; and embedded
fiber optic sensors. The Company's in-house sales and marketing groups have
established a worldwide network of independent sales representatives and
distributors to market the Company's products. The majority of the Company's
sales, product distribution and customer service is conducted at the Company's
headquarters in Middletown, Rhode Island, and the European market is managed
through the Company's subsidiary in Hoersholm, Denmark. The Company's
manufacturing process consists primarily of light assembly and final test, which
is conducted at its facilities in Middletown, Rhode Island, and Tinley Park,
Illinois.
There was a notable impact on sales in 1998 as the Company completed its first
full fiscal year following a strategic marketing shift towards direct sales with
repeat orders and away from dependence upon large, one-time OEM sales. The
Company implemented the new strategy in mid-1997 to replace the significant
revenue fluctuations caused by non-recurring large sales, particularly of its
sensor-based products for communications applications, with repeat sales that
would provide a more consistent revenue stream. A decrease in military orders
during 1998 was related to customary funding procedures that commonly cause
periodic sales fluctuations in the defense industry. Fiber optic gyro (FOG)
sales did not meet internal expectations, primarily because the Company withdrew
its CPS(TM)-based BusNav(TM) system from the mass transportation market when the
cost of supplying full-service support to customers buying product at OEM prices
became financially counter-productive. The Company has determined that there are
greater opportunities for CPS systems in other markets such as precision
agriculture, power sensors, trains and robotics.
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
Year Ended December 31,
1998 1997 1996
Net sales 100.0% 100.0% 100.0%
Gross profit 31.7 45.0 43.2
Research and development 19.3 12.4 9.5
Sales and marketing 21.7 14.6 11.8
General and administrative 10.8 7.4 6.3
Operating (loss) profit (20.1) 10.6 15.6
Interest income, net (0.3) (1.3) (1.0)
Other income, net (0.1) (0.3) 0.0
(Gain) loss on currency
translation ( 1.0) (0.5) 0.2
(Loss) income before income tax
(benefit) expense (18.7) 12.7 16.4
Income tax (benefit) expense (7.8) 4.0 6.8
Net (loss) income (10.9)% 8.7% 9.6%
Years Ended December 31, 1998 and 1997
Net Sales. Net sales decreased to $20.6 million in 1998 from $25.6 million
in 1997, primarily due to an anticipated fluctuation in military orders and an
unexpected lack of FOG revenues that would have offset lower defense sales. FOG
revenues were adversely affected by KVH's decision to remove its CPS products
from the bus navigation market and focus on other markets that the Company
believes have significantly more sales potential. Product sales were $19.6
million in 1998 and $24.6 million in 1997 with customer-funded research at $1.0
million in both 1998 and 1997. Communications revenues increased 27% in 1998 to
$6.6 million from $5.2 million in 1997 as strong growth in direct sales of
turnkey mobile satellite systems continued to supplant previous non-recurring
OEM sales. Navigation sales were $14.0 million in 1998 compared to $20.3 million
in 1997, a 31% decrease attributable to a decline in high-margin military
contracts that adversely affected gross profits. Fiber optic sensor sales
constituted $1.7 million or 12% of 1998 navigation revenues. This compares to
fiber optic revenues of $0.4 million for the two-month period in 1997 following
the Company's October 30 acquisition of the fiber optic group assets from Andrew
Corporation.
Cost of Goods Sold. The Company's cost of goods sold consists primarily of
direct labor, material and indirect manufacturing costs and includes
customer-funded research and development costs of $0.9 million in 1998 and $0.6
million in 1997. Cost of goods sold as a percentage of net sales increased to
68% in 1998 from 55% in 1997 due to a proportional decrease in higher-margin
military product sales. In addition, fiber optic manufacturing costs exceeded
fiber optic revenues to negatively impact gross margins by $0.7 million.
Manufacturing overheads increased to $3.8 million in 1998 from $2.8 million in
1997 as the company moved its fiber optic group from the former Andrew
Corporation site to a new facility in Tinley Park, Illinois. Excluding fiber
optic facility and manufacturing costs of $1.5 million, overhead would have
decreased 11 percent in 1998 from 1997. The Company anticipates that cost of
goods sold will be level or decrease slightly in 1999 as a result of increased
manufacturing efficiencies and expected sales increases in high-margin military
products.
Research and Development Expense. Research and development expense consists
primarily of direct labor and material, labor and material overhead and other
direct costs associated with the Company's internally funded product development
efforts. The Company expenses all of its software development costs in the
period incurred. Research costs increased 25 percent to $4.0 million in 1998
from $3.2 million in 1997 due to costs for developing new directional antenna
systems and $1.4 million for fiber optic sensor integration and development.
Total research and development expenditures, including customer-funded product
development expenditures included in cost of goods sold, were $4.9 million in
1998 and $3.8 million in 1997, a 29% increase that reflects general growth in
Company-funded research expenditures. The Company expects ongoing growth in
research and development expenses as it continues to develop advanced-capability
products for tactical navigation and broadband communications.
Sales and Marketing Expense. Sales and marketing expense consists primarily
of salaries and related expenses for sales and marketing personnel, sales
commissions, travel expenses, cooperative advertising, sales literature,
advertising and trade shows. Sales and marketing costs grew 22% to $4.5 million
in 1998 from $3.7 million in 1997. Major factors contributing to the growth of
sales expenses were staffing, travel and new product introduction costs. The
Company anticipates that sales and marketing expense will continue to grow to
promote expected new-product introductions.
General and Administrative Expense. General and administrative expense
consists primarily of costs attributable to the Company's management, finance,
accounting and human resources operations and legal and other professional
services. Administrative costs increased 16% to $2.2 million in 1998 from $1.9
million in 1997, primarily due to staffing and increased professional fees
related to maintaining the Company's patent portfolio.
Interest income. Interest income reflects the interest earned by investing
excess cash in Federal short-term obligations.
Gain on Foreign Currency Translation. The results of operations of the
Company's foreign subsidiary, KVH Europe, are determined by re-measuring its
foreign currency-denominated operations as if they had taken place in United
States dollars. Gains and losses resulting from this translation are included in
the Company's net income. The translation gain increase to $0.2 million in 1998
from $0.1 million in 1997 reflects changes in the relative strength of the
United States dollar in relation to the Danish krone.
Income Tax (Benefit) Expense. The Company realized an income tax benefit in
the amount of $1.6 million in 1998 as compared with income tax expense of $1.0
million in 1997, due to the Company's 1998 operating loss. The Company's
effective tax rate in both years was positively affected by the utilization of
state and Federal research and development and investment tax credits.
<PAGE>
Years Ended December 31, 1997 and 1996
Net Sales. Net sales decreased slightly to $25.6 million in 1997 from $25.7
million in 1996. Product sales were$24.6 million in both 1997 and 1996 while
customer-funded research was $1.0 and $1.1 million in 1997 and 1996,
respectively. Navigation sales grew 28% to $20.3 million in 1997 from $15.9
million in 1996. Navigation sales increases resulted primarily from a $3.8
million or 40% increase in navigation defense shipments. Communications sales
were $5.2 million in 1997, a decrease of 47% from $9.8 million in 1996. The
anticipated decreases in communication revenues reflected a large non-recurring
OEM sale amounting to $5.6 million in 1996 that was somewhat off-set by direct
sales of turnkey mobile satellite communications systems that increased to just
under $1.0 million in 1997 from $0.1 million in 1996.
Cost of Goods Sold. Cost of goods sold includes customer-funded research
and development costs of $0.6 million in 1997 and $0.9 million in 1996. Cost of
goods sold decreased to 55% as a percentage of net sales in 1997 from 57% as a
percentage of net sales in 1996 due to a 17% mix shift to higher-margin
navigation sales. Manufacturing overheads increased to $2.8 million in 1997 from
$1.9 million in 1996 somewhat off-setting the gains in product cost of sales.
Factors contributing to the manufacturing overhead increase included fiber optic
sensor start-up costs and a one-time lease modification charge.
Research and Development Expense. Research costs increased to $3.2 million
or 33% in 1997 from $2.4 million in 1996. Costs of Company-funded product
development accounted for $0.6 million of the 1997 increase while fiber optic
start-up costs accounted for the remainder of the increase. Total research and
development expenditures, including customer-funded product development
expenditures included in cost of goods sold, were $3.8 million in 1997 and $3.3
million in 1996, reflecting the expected decline in customer-funded research.
Sales and Marketing Expense. Sales and marketing costs grew to $3.7 million
or 23% in 1997 from $3.0 million in 1996. Major factors contributing to the
growth of sales expenses were staffing, travel and new product introduction
costs.
General and Administrative Expense. Administrative costs increased to $1.9
million or 19% from 1996 spending of $1.6 million, in response to fiber optic
start-up costs, increased professional fees and staffing costs.
Interest income. The proceeds of the public offering in April 1996 fully
funded the Company's operating and capital requirements in 1997.
Other (Income) Expense. Other income increased $0.1 million in 1997 from
1996 primarily due to the award of a new-hire training grant from the state of
Rhode Island.
(Gain) Loss on Foreign Currency Translation. The translation gain of $0.1
million in 1997 and the loss of $0.05 million in 1996 reflect changes in the
relative strength of the United States dollar in relation to the Danish krone.
Income Tax Expense. The Company's income tax expense decreased to $1.0
million in 1997 from $1.7 million in 1996. The decrease in income taxes was
attributable to the utilization of state and federal research and development
and investment tax credits. The Company's effective tax rate in 1997 was 31.5%
as a percentage of taxable income versus 41.5% in 1996.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Change 1997 Change 1996
(in thousands)
Cash and cash equivalents $ 1,239 (74%) 4,758 (32%) 7,006
Working capital 8,486 (32%) 12,410 (1%) 12,570
</TABLE>
The Company financed its 1998 operations and fixed asset acquisitions of
approximately $1.6 million dollars through a combination of short-term bank
revolving lines of credit and the remaining proceeds from its public offering.
In January 1999, the Company borrowed approximately $3 million pursuant to a
10-year mortgage note agreement and mortgage on its facility at 50 Enterprise
Center, Middletown, Rhode Island (see note 15 of Notes to Consolidated Financial
Statements).
<PAGE>
The Company believes that existing cash balances, amounts available under
its revolving credit facility and funds generated from the mortgage will be
sufficient to meet anticipated liquidity and working capital requirements for
1999. If the Company decides to expand more rapidly, to broaden or enhance its
products more rapidly, to acquire businesses or technologies or to make other
significant expenditures to remain competitive, then it may need to raise
additional funds.
Other Matters
Recent Accounting Pronouncements. The Financial Accounting Standards Board
("FASB") recently issued Statement of Financial Accounting Standards Number 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging, requiring recognition of all derivatives as either
assets or liabilities in the statement of financial position measured at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The effect of adopting SFAS 133 is not expected
to have a material impact on the Company's financial condition, results of
operations or cash flows.
Year 2000 - The Company has evaluated the impact of the year 2000 issue as
it relates to its navigation and communications products, both sold or intended
to sell, and has concluded that the Company's products are not affected by year
2000 operating issues. The Company has also assessed its software and computer
systems ensuring that its computer software and hardware are year 2000
compliant. The most significant element of this process is the upgrading of its
enterprise resource planning system at a cost estimated at less than $1 million,
of which approximately $0.4 million has been spent to date. The Company is
contacting its customers, suppliers, and financial institutions, with which it
does business, to ensure that any year 2000 issue is resolved. While there can
be no assurance that the systems of other companies will be year 2000 compliant,
the Company has no knowledge of any such third party year 2000 issues that would
result in a material adverse affect on its operations. Should the Company become
aware of any such situation, contingency plans will be developed. The Company
could be adversely affected should the Company or other entities with whom the
Company conducts business be unsuccessful in resolving year 2000 issues in a
timely manner. The Company estimates that it was 90% complete at December 31,
1998, in implementing its new system and believes it will be year 2000 compliant
by the first half of 1999. The Company believes the cost of becoming year 2000
compliant will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
Inflation. The Company believes that inflation has not had a material
effect on its results of operations.
Forward Looking Statements - Risk Factors
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements that are subject to a
number of risks and uncertainties. Among the important factors that could cause
actual results to differ materially from those anticipated by the statements
made above are the following:
The Company's products target two industries that are subject to
volatility, risks and uncertainties. The communications industry is experiencing
rapid growth fueled by strong worldwide demand and buffeted by competing formats
and rapid, unpredictable technology changes. The defense industry historically
experiences variability in supply and demand related to international
conditions, national politics, budget decisions and technology changes, all of
which are difficult or impossible to predict. Factors in both industries could
affect the Company's ability to effectively meet prevailing market conditions.
To position itself in these uncertain industries, the Company has taken a number
of steps that include, but are not limited to: acquisition of the fiber optic
technology and development of new related products; ongoing analysis of
potential technology advances; staff reductions and reallocations; improved
operational efficiencies; inventory reduction; recruiting key personnel and
implementing cost controls. There can be no assurance that the objectives of
these development and cost-reduction activities will be achieved.
Other factors that could cause actual results to differ materially from the
results anticipated by management include:
Dependence on New Products and the Marine Mobile Satellite Communications
Market. The Company's future sales growth will depend to a considerable extent
upon the successful introduction of new mobile satellite communications products
for use in marine and land applications, and those introductions will be
affected by a number of variables including, but not limited to: market
potential and penetration; reliability of outside vendors; satellite
communications service providers' financial abilities and products; regulatory
issues; maintaining appropriate inventory levels; disparities between forecast
and realized sales; and design delays and defects. The occurrence of any of
these factors could have a material adverse effect on the Company's business,
financial condition and results of operations.
FOG Acquisition. The additional personnel and operating expenses associated
with the acquisition of FOG technology and assets from Andrew Corporation in
October 1997 added significant costs to the Company's 1998 operations. As the
Company continues the process of integrating FOG sensors into current product
offerings and identifying new, untapped markets for existing FOG products, it
expects FOG-related costs to remain level or increase. Although the Company
believes these opportunities show great promise, to date the Company has been
successful in marketing only small quantities of products and it does not
anticipate that FOG-enhanced products will provide significant revenues for the
next 9 to 12 months. The Company is designing its FOG-enhanced products to meet
what it believes are customer performance and price criteria; however, at this
early stage of product development and market introduction the Company can
provide no assurance that these objectives will be met or that competing
technologies will not be developed that may supercede FOG technology. The
occurrence of any of these factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
Variability of Quarterly Operating Results. The Company's quarterly
operating results have varied in the past and may vary significantly in the
future depending upon all the foregoing risk factors and including: the size and
timing of significant orders; the ability of the Company to control costs;
changes in Company strategy and the Company's ability to attract and retain key
personnel.
Competition. Competitors in the communications market include SeaTel
Corporation, Datron Corporation and Nera Corporation, any of which could
challenge the Company's pricing or technology platforms. The Company's satellite
phone products could be negatively impacted when Iridium World Communications,
Ltd., Globalstar Telecommunications Ltd. and ICO Global Communications (all
offering hand-held worldwide, satellite voice, data and fax services) commence
operations, scheduled from late 1998 through to 2000. The Company may be faced
with increased competition from the Hitachi Corporation's newly introduced
closed-loop FOG sensor that is targeted at applications and market segments
similar to those the Company is pursuing.
Possibility of Common Stock Price Volatility. The trading price of the
Company's Common Stock has been subject to wide fluctuations. The trading price
of the Company's Common Stock could be subject to wide fluctuations in the
future in response to quarterly variations in operating results, announcement of
new products by the Company or its competitors, changes in the financial
estimates by securities analysts and other events or factors. In addition, the
stock market volatility that affects the market price of many high technology
companies often is unrelated to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
Market Dynamics. KVH's key markets for its sensors and integrated systems
are particularly volatile. In the communications industry, there are many
technologies and large, well-funded companies competing to provide a
single-source solution for broadband voice, fax, data and video access. There
are significant political, economic and business forces that are restraining
near-term growth and influencing how the communications consumer market
ultimately will resolve such issues as technology transfers, diverse and
incompatible encryption standards and the needs of underdeveloped countries. New
initiatives such as the Iridium worldwide, handheld telephone system, the advent
of low earth orbit (LEO) satellites for low-cost messaging and data
communication and developments underway at Teledesic, Alcatel and Motorola may
pose a threat to the Company's products. In the military navigation industry
where governments are the customers, defense funding, equipment focus and
performance criteria are continually evolving in reaction to international
politics, economic conditions and technological changes. A number of companies
in the military navigation industry have established extensive relationships
with United States and foreign defense departments and have the size and capital
to develop new technologies. In the marine navigation industry, there are a
number of companies competing for a portion of a relatively small market.
The Company's future growth also depends upon expanding sales of its
antenna-aiming and navigation products. Antenna-aiming systems rely upon DBS
providers DIRECTV, EchoStar, ASTRA and HotBird and telephony providers Inmarsat
and SKYCELL. The Company's business, financial condition and results of
operation could be adversely affected if any of these satellite networks
experience operating, financial or regulatory problems. Revenues from
communications products increased in 1998 from 1997 and the Company expects
continued growth in 1999 as new products penetrate the market.
Sales cycles for the Company's TACNAV and TACNAV Light systems for military
navigation applications are long and difficult to predict, resulting in a
variable revenue stream from this market. Military revenues decreased in 1998
from 1997 and the Company anticipates that 1999 revenues will remain relatively
flat.
Research and Development Efforts. The Company's future success depends on
its ability to achieve technological advances that lead to marketable new
products and this requires continued substantial investment in research and
development. A large portion of the Company's product development strategy for
the near future relies upon FOGs and success in product integration, new
development, marketing, increasing manufacturing capabilities, market
acceptance, and the Company's continued ability to fund the fiber optic effort.
Prior to the 1997 acquisition of the fiber optic group from Andrew Corporation,
the Company had no experience with fiber optic manufacturing or applications and
the learning and integration curve to date has taken longer than the Company
initially anticipated. There can be no assurance that the Company will succeed
in achieving its FOG technological and manufacturing goals or continue to have
funds available for developing and marketing fiber optic products.
Item 7A. Market Risk Disclosure.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements and supplementary data,
together with the report of KPMG LLP, independent auditors, are included in Part
IV of this Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the information set forth in the definitive Proxy
Statement relating to the Fiscal 1998 Annual Meeting of Stockholders (to be
filed with the Securities and Exchange Commission within 120 days after December
31, 1998) (the "Proxy Statement"), under the caption "Directors and Executive
Officers".
Item 11. Executive Compensation.
Reference is made to the information in the Proxy Statement under
"Remuneration of Executive Officers and Directors".
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Reference is made to the information set forth in the Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and Management".
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed as part of this report:
Page
1. Financial Statements:
<S> <C>
Report of Independent Auditors 19
Consolidated Balance Sheets as of December 31, 1998, and 1997 20
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 21
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998,
1997 and 1996 22
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 23
Notes to Consolidated Financial Statements 24
2. Financial Statement Schedule. See "Independent Auditors Report" and
"Schedule II - Valuation and Qualifying Accounts" included on pages 34
and 35. All other schedules have been omitted since the information is
not required to be presented, or because the information required is
included in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
Report on Form 8-K was filed on November 14, 1997. The report contains the
asset purchase agreement between the Company and Andrew Corporation and a
Common Stock Warrant both dated October 30,1997.
(c) Exhibit Number Description Page
3.1 Restated Certificate of Incorporation of the Company (1)
3.5 Amended and Restated By-laws of the Company
10.1 1986 Executive Incentive Stock Option Plan (1)
10.2 Amended and Restated 1995 Incentive Stock Option Plan of the Company (1)
10.3 1996 Employee Stock Purchase Plan (1)
10.5 Credit Agreement dated September 8, 1993 between the Company and
Fleet National Bank (1)
10.6 $500,000 Revolving Credit Note dated September 8, 1993 between the Company
and Fleet National Bank (1)
10.7 Security Agreement dated September 8, 1993 between the Company and
Fleet National Bank (1)
10.8 Modification to Security Agreement dated May 30, 1994 between the Company
and Fleet National Bank (1)
10.9 Second Modification to Credit Agreement and Revolving Credit Note dated
May 30, 1994 between the Company and Fleet National Bank (1)
10.10 Second Modification to Security Agreement dated March 17, 1995 between
the Company and Fleet National Bank (1)
10.11 Third Modification to Credit Agreement and Revolving Credit Note dated
March 17, 1995 between the Company and Fleet National Bank (1)
10.12 Third Modification to Security Agreement dated December 12, 1995 between
the Company and Fleet National Bank (1)
10.13 Fourth Modification to Credit Agreement and Revolving Credit Note dated
December 12, 1995 between the Company and Fleet National Bank (1)
10.14 Lease dated February 27, 1989 between the Company
and Middletown Technology Associates IV (1)
10.17 Registration Rights Agreement dated May 20, 1986 by and among the
Company and certain stockholders of the Company (1)
10.18 Amendment to Registration Rights Agreement dated January 25, 1988, by
and among the Company, Fleet Venture Resources, Inc., and Fleet Venture
Partners I and certain stockholders of the Company (1)
10.19 Amendment to Registration Rights Agreement dated
October 25, 1988 by and among the Company and
certain stockholders of the Company (1)
10.20 Amendment to Registration Rights Agreement dated
July 21, 1989 by and among the Company and
certain stockholders of the Company (1)
10.21 Third Amendment to Registration Rights Agreement
dated November 3, 1989 by and among the Company
and certain stockholders of the Company (1)
10.28 Technology License Agreement dated December 22, 1992 between the
Company and Etak, Inc. (1)
10.29 Agreement dated September 28, 1995 between the Company and Thomson
Consumer Electronics, Inc. (1)
10.30 Agreement dated September 28, 1995 between the Company and Thomson
Consumer Electronics, Inc. (1)
10.31 Agreement regarding Technology Affiliates Program between Jet
Propulsion Laboratory and the Company (1)
10.32 Purchase and Sale Agreement dated March 18, 1996, 50 Enterprise Center,
Middletown, Rhode Island between the Company and SKW Real Estate
Limited Partnership (2)
10.33 Fifth Modification to Credit Agreement and Revolving Note dated
August 8, 1996 between the Company and Fleet National Bank
(c) Exhibit Number Description Page
10.34 Andrew Corporation Asset Purchase and Warrant Agreement (3)
11.1 Computation of (Loss) Earnings per Share (2) 36
21.1 List of Subsidiaries of the Company (1)
23.1 Consent of KPMG LLP 37
27.1 Financial Data Schedule 38
99.1 Open End Mortgage, and Security Agreement 39
99.2 Tinley Park, Illinois, lease 70
</TABLE>
(1) Incorporated by Reference to Exhibit Index on Form S-1 filed with the
Securities and Exchange Commission dated March 28, 1996, Registration No.
333-01258.
(2) Filed by paper with the Securities and Exchange Commission..
(3) Incorporated by reference to Exhibits 1 & 2 on Form 8-K filed with the
Securities and Exchange Commission dated November 14, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 the registrant has the duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
KVH Industries, Inc.
DATE: March 23, 1999 By: /s/ Martin A. Kits van Heyningen
Martin A. Kits van Heyningen
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Martin A. Kits van Heyningen President (Chief Executive Officer) March 24, 1999
Martin A. Kits van Heyningen
/s/ Richard C. Forsyth Chief Financial Officer March 24, 1999
Richard C. Forsyth (Principal Financial and Accounting
Officer)
/s/ Arent H. Kits van Heyningen Chairman of the Board March 24, 1999
Arent H. Kits van Heyningen
/s/ Robert W. B. Kits van Heyningen Director March 24, 1999
Robert W. B. Kits van Heyningen
/s/ Werner Trattner Director March 24, 1999
Werner Trattner
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
KVH Industries, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of KVH Industries,
Inc. and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KVH Industries, Inc.
and subsidiary at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
February 10, 1999
<PAGE>
<TABLE>
<CAPTION>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets (note 5) 1998 1997
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,239,227 4,757,614
Accounts receivable, less allowance for doubtful accounts
of $91,604 in 1998 and $73,909 in 1997 (note 12) 3,106,414 4,338,992
Income taxes receivable (note 9) 1,062,494
Contract receivables - 156,777
Costs and estimated earnings in excess of billings
on uncompleted contracts 768,156 406,014
Inventories (note 3) 3,390,787 4,751,792
Prepaid expenses and other deposits 360,346 222,015
Deferred income taxes (note 9) 234,158 387,567
Total current assets 10,161,582 15,020,771
Property and equipment, net (notes 4 and 15) 7,186,539 5,974,635
Other assets, less accumulated amortization of
$107,254 in 1998 and $0 in 1997 (note 2) 972,365 731,000
Deferred income taxes (note 9) 425,150 78,535
$ 18,745,636 21,804,941
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 853,238 1,618,295
Accrued expenses (note 7) 822,533 992,834
Total current liabilities 1,675,771 2,611,129
Total liabilities 1,675,771 2,611,129
Stockholders' equity (note 8):
Preferred stock, $.01 par value. Authorized 1,440,390 shares;
none issued. - -
Common stock, $.01 par value. Authorized 7,490,582 shares;
issued 7,205,928 shares in 1998 and 7,086,046 in 1997 72,059 70,860
Additional paid-in capital 15,439,421 15,298,558
Retained earnings 1,558,385 3,824,394
Total stockholders' equity 17,069,865 19,193,812
Commitment and other information (notes 6, 10 and 15)
$ 18,745,636 21,804,941
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C> <C>
Net sales (note 12) $ 20,630,648 25,570,347 25,687,495
Cost of goods sold 14,100,398 14,085,463 14,607,584
Gross profit 6,530,250 11,484,884 11,079,911
Operating expenses:
Research and development 3,991,193 3,175,181 2,430,755
Sales and marketing 4,469,654 3,738,605 3,039,483
General and administrative 2,225,370 1,895,031 1,624,270
Operating (loss) profit (4,155,967) 2,676,067 3,985,403
Other (income) expense:
Interest income (58,735) (336,157) (293,494)
Interest expense 2,023 8,893 15,938
Other (income) expense (27,392) (95,083) 14,303
(Gain) loss on foreign currency translation (197,663) (138,272) 50,087
(Loss) income before income tax (benefit) expense (3,874,200) 3,236,686 4,198,569
Income tax (benefit) expense (note 9) (1,608,191) 1,020,185 1,742,538
Net (loss) income $ (2,266,009) 2,216,501 2,456,031
Per share information (notes 8 and 14):
Net (loss) income per common share - basic $ (0.32) 0.31 0.39
Net (loss) income per common share - diluted $ (0.32) 0.30 0.35
Weighted average number of shares outstanding:
Basic 7,124,023 7,049,125 6,370,272
Diluted 7,124,023 7,497,695 7,055,309
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additional Retained Total
Preferred Common Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 12,982 16,160 4,473,045 (848,138) 3,654,049
Net income - - - 2,456,031 2,456,031
Exercise of stock options and
warrants- - 3,274 457,203 - 460,477
Initial public offering of common stock, net
of issuance costs of $1,736,555 (note 8) - 18,000 9,945,445 - 9,963,445
Conversion of 1,298,182 shares of preferred
stock to 3,245,500 shares of common stock (12,982) 32,455 (19,473) - -
Issuance of common stock under
benefit plans - 43 28,586 - 28,629
Balances at December 31, 1996 - 69,932 14,884,806 1,607,893 16,562,631
Net income - - - 2,216,501 2,216,501
Issuance of common stock under
benefit plan - 127 67,404 - 67,531
Exercise of stock options - 801 151,913 - 152,714
Issuance of warrants (notes 2 and 8) - - 194,435 - 194,435
- 194,435
Balances at December 31, 1997 - 70,860 15,298,558 3,824,394 19,193,812
Net (loss) - - - (2,266,009) (2,266,009)
Issuance of common stock under
benefit plan - 797 118,620 - 119,417
Exercise of stock options - 402 22,243 - 22,645
Balances at December 31, 1998 $ - 72,059 15,439,421 1,558,385 17,069,865
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (2,266,009) 2,216,501 2,456,031
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 767,289 797,761 285,049
Provision for doubtful accounts 17,695 284 (45,000)
Provision for deferred taxes (193,206) (242,688) 315,381
Decrease (increase) in accounts and contract receivables (note 11) 1,208,198 1,827,202 (2,932,821)
Increase in income taxes receivable (1,062,494) - -
(Increase) decrease in costs and estimated earnings in excess
of billings on uncompleted contracts (362,142) 429,706 80,474
Decrease (increase) in inventories (note 11) 923,345 (649,213) (1,489,098)
Increase in prepaid expenses and other deposits (138,331) (42,310) (23,030)
(Decrease) increase in accounts payable (765,057) 586,986 72,802
(Decrease) increase in accrued expenses (170,301) (554,922) 1,035,297
Decrease in customer deposits - 2,502,432) (342,095)
Net cash (used in) provided by operating activities (2,041,013) 1,866,875 (587,010)
Cash flows from investing activities:
Acquisition (note 2) - (1,946,026) -
Capital expenditures (note 11) (1,619,436) (2,335,423) (3,703,327)
Net cash used in investing activities (1,619,436) (4,281,449) (3,703,327)
Cash flows from financing activities:
Repayments of obligations under capital lease - (53,739) (52,209)
Stock option and benefit plan transactions 142,062 220,245 489,106
Proceeds from initial public offering (note 8) - - 9,963,445
Net cash provided by financing activities 142,062 166,506 10,400,342
Net (decrease) increase in cash and cash equivalents (3,518,387) (2,248,068) 6,110,005
Cash and cash equivalents at beginning of year 4,757,614 7,005,682 895,677
Cash and cash equivalents at end of year $ 1,239,227 4,757,614 7,005,682
Supplemental disclosure of cash flow information (note 11):
Cash paid during the year for interest $ 2,023 8,589 15,938
Cash paid during the year for income taxes $ 137,784 1,872,049 20,250
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Description of Business
KVH Industries, Inc. (the "Company") develops, manufactures and markets
proprietary fiber optic, autocalibration and sensor technologies to
produce navigation and mobile satellite communications systems for
commercial, military and marine applications.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements
of KVH Industries, Inc. and its wholly-owned subsidiary, KVH Europe A/S
("KVH Europe"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity, at
the purchase date, of three months or less to be cash equivalents.
(d) Revenue Recognition
Revenue is recognized when a product is shipped and services are
performed. Revenues on long-term contracts are recognized using the
percentage of completion method. Under this method, income is
recognized as work progresses on the contracts. The percentage of work
completed is determined principally by comparing the accumulated costs
incurred to date with management's current estimate of total costs to
be incurred at contract completion. On certain contracts where the
delivery of equipment is separable from development and other aspects
of the contract, the Company segments the contract and recognizes
revenue on each segment individually. Revisions of costs and income
estimates are reflected in the period in which the facts that require
the revisions become known. If estimated total costs on a contract
indicate a loss, the entire amount of the estimated loss is provided
for currently.
(e) Inventories
Inventories of finished goods for sale and raw materials are stated at
the lower of cost or market using the first-in first-out costing
method. Work in process is valued at production cost represented by
material, labor and overhead, and is not recorded in excess of net
realizable values.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is computed on the straight-line method over the estimated
useful lives of the respective assets. The principal lives, in years,
used in determining the depreciation rates of various assets are:
buildings and improvements, 40 years; leasehold improvements, over term
of lease; machinery and equipment, 5 years; office and computer
equipment, 5-7 years; and motor vehicles, 4 years. Amortization of
property and equipment under capital lease is provided using the
straight-line method over the lease terms.
(g) Other Assets
Other assets consist of patents and capitalized costs of workforce
resulting from the Company's October 1997 acquisition (see note 2).
These costs are being amortized on a straight-line basis over periods
ranging from 5-12 years. The Company continually reviews intangible
assets to assess recoverability from estimated future results of
operations and estimated future cash flows.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(h) Progress Payments
Progress payments received from customers are offset against
inventories associated with the contracts for which the payments were
received. Under contractual arrangements by which progress payments are
received from the United States Government, the United States
Government has a lien on the inventories identified with related
contracts.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(j) Research and Development
Expenditures for research and development, including customer-funded
research and development, are expensed in the year incurred. Revenue
from customer-funded research and development is included in net sales,
and the related product development costs are included in cost of goods
sold. Revenues from customer-funded research and development totaled
approximately $1,169,000, $957,000 and $1,050,000, respectively, in
1998, 1997 and 1996, and related costs included in cost of goods sold
totaled approximately $936,000, $630,000 and $869,000 in such years,
respectively.
(k) Foreign Currency Translation
The financial statements of the Company's foreign subsidiary are
re-measured into the United States dollar functional currency for
consolidation and reporting purposes. Current exchange rates are used
to re-measure monetary assets and liabilities. Historical exchange
rates are used for nonmonetary assets and related elements of expense.
Revenue and other expense elements are re-measured at rates, which
approximate the rates in effect on the transaction dates. Gains and
losses resulting from this re-measurement process are recognized
currently in the consolidated statements of operations.
(l) Stock-based Compensation
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. No compensation cost has been
recognized for these plans in the accompanying consolidated financial
statements.
(m) 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(n) Long-lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(o) Net (Loss) Income per Common Share
In 1997 the Company adopted the provisions of SFAS No. 128, Earnings
Per Share. Under the provisions of SFAS 128, basic earnings per share
replaces primary earnings per share and the dilutive effect of stock
options and warrants are excluded from the calculation. Fully diluted
earnings per share are replaced by diluted earnings per share and
include the dilutive effect of stock options and warrants, using the
treasury stock method. All prior period earnings per share data have
been restated to conform to the requirements of SFAS 128.
A reconciliation of the weighted average number of shares outstanding
used in the computation of the basic and diluted earnings per share for
the three years ended December 31, 1998 is as follows:
1998 1997 1996
Weighted average shares (basic) 7,124,023 7,049,125 6,370,272
Effect of dilutive stock options - 448,570 685,037
Weighted average shares (diluted) 7,124,023 7,497,695 7,055,309
The net (loss) income used in the calculation for basic and diluted
earnings per share calculations agrees with the net (loss) income
appearing in the financial statements.
(p) Fair Value of Financial Instruments
The carrying amounts of accounts receivable, contracts receivable,
costs and estimated earnings in excess of billings on uncompleted
contracts, accounts payable and accrued expenses approximate fair value
due to the short maturity of these instruments.
(2) Acquisition
On October 30, 1997 the Company purchased certain operating assets and
assumed certain liabilities of the Sensor Products Group of the Andrew
Corporation for approximately $1.9 million of cash (including acquisition
costs) and warrants to purchase the Company's common stock, valued at
approximately $0.2 million. The assets acquired will provide the Company
with the ability to produce fiber optic rate sensors that will advance the
Company's existing product performance. The acquisition has been accounted
for as a purchase and the allocation resulted in intangibles, primarily
patents and workforce, of approximately $1.1 million that are being
amortized on a straight-line basis over periods of 5-12 years. In 1998 the
Company revalued certain current acquisition assets downward by $0.6
million, increasing the valuation of property and equipment and intangibles
by approximately $0.3 million each.
(3) Inventories
Inventories at December 31, 1998 and 1997 consist of the following:
1998 1997
Raw materials $ 2,178,265 3,242,580
Work in process 461,798 356,211
Finished goods 750,724 1,153,001
$ 3,390,787 4,751,792
Project inventories totaling $139,930 and $39,408, respectively, in 1998
and 1997 have been offset against related progress payments and included as
a component of costs and estimated earnings in excess of billings on
uncompleted contracts.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Property and Equipment
Property and equipment, net, at December 31, 1998 and 1997 consist of the
following:
1998 1997
Land $ 806,774 806,774
Building and improvements 3,227,336 3,181,986
Leasehold improvements 712,666 -
Machinery and equipment 2,912,705 1,838,603
Office and computer equipment 2,494,878 2,455,057
Motor vehicles 92,348 92,348
10,246,707 8,374,768
Less accumulated depreciation 3,060,168 2,400,133
$ 7,186,539 5,974,635
Depreciation for the years ended December 31, 1998, 1997 and 1996 amounted
to $660,035, $771,783 and $246,081, respectively.
(5) Notes Payable to Bank
On September 29, 1998, the Company renewed a revolving credit agreement
with its bank. Under the terms of the agreement, the Company may borrow up
to $2.5 million during the term of the loan at an interest rate equal to
the bank's prime rate of interest plus 125 basis points. The credit
agreement expires on June 30, 1999. Borrowings are secured by substantially
all of the assets of the Company, except for land, building and
improvements. At December 31, 1998, the Company had $2.5 million of unused
borrowings with its bank to be drawn upon as needed. The credit agreement
contains various covenants pertaining to the maintenance of certain
financial ratios and maximum operating losses. At December 31, 1998, the
Company's operating loss exceeded the maximum loss provided for in the loan
agreement, a breach of the credit agreement. The bank has waived that
requirement as of December 31, 1998.
(6) Leases
The Company has certain operating leases for facilities, automobiles, and
various equipment. The following is a summary of future minimum payments
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year at December 31, 1998:
Operating
Year ending December 31, Leases
1999 $ 223,421
2000 160,210
2001 165,016
2002 169,967
2003 175,066
Subsequent to 2003 225,728
Total minimum lease payments $1,119,408
Total rent expense incurred under operating leases for the years ended
December 31, 1998, 1997 and 1996 amounted to, $196,780, $433,908 and
$435,124, respectively. In 1997 the Company reduced the amount of square
feet under a facility lease from 30,000 to 6,000. The Company paid $210,000
in the fourth quarter of 1997 to modify the lease agreement. As a
consequence of reducing the leased square footage the Company's lease
liability decreased to $78,000 and $56,000 in 1998 and 1999, respectively.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Accrued Expenses
Accrued expenses for the period ended December 31, 1998 and 1997 consist of
the following:
1998 1997
Accrued payroll, bonus and other related
expenses payable $ 417,406 709,544
State income tax payable - 57,601
Professional fees 110,803 162,133
Accrued sales commissions 120,045 -
Other 174,279 63,556
$ 822,533 992,834
(8) Stockholders' Equity
(a) Sale of Common Stock
On March 28, 1996, the Company's registration statement for an initial
public offering of common stock was declared effective. An aggregate of
1,800,000 shares of common stock were issued by the Company on April 8,
1996 at an initial public offering of $6.50 per share that resulted in
net proceeds of approximately $9.9 million.
(b) Employee Stock Options and Warrants
The Company has a 1986 Executive Incentive Stock Option Plan, a 1995
Incentive Stock Option Plan, and a 1996 Incentive and Non-Qualified
Stock Option Plan (the "Plans").
The Company has reserved 915,000 shares of its common stock for
issuance upon exercise of options granted or to be granted under the
Plans. These options generally vest in equal annual amounts over four
years beginning on the date of the grant. The Plans provide that
options be granted at exercise prices not less than market value on the
date the option is granted and options are adjusted for such changes as
stock splits and stock dividends. No options are exercisable for
periods of more than ten years after date of grant.
The per share weighted-average fair value of stock options granted
during 1998, 1997 and 1996 was $2.74, $4.12 and $1.80 on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1998 1997 1996
Expected dividend yield 0% 0% 0%
Risk-free interest rate 5.84% 5.36% 6.4%
Expected volatility 115.48% 82.71% 3%
Expected life (years) 3 3 4
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net (loss) income would
have been reduced to the pro forma amounts indicated below:
1998 1997 1996
Net (loss) income As reported $ (2,266,009) 2,216,501 2,456,031
Pro forma (3,013,785) 1,942,467 2,109,142
Net (loss) income per As reported $ (0.32) 0.30 0.35
common share-diluted Pro forma $ (0.42) 0.26 0.30
Pro forma net (loss) income reflects only options granted in 1998, 1997
and 1996. The full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net (loss)
income amounts presented above because compensation cost is reflected
in the year of grant.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
At December 31, 1998, warrants, issued in conjunction with the
acquisition of the Sensor Products Group of the Andrew Corporation
(note 2), to purchase 50,000 common shares were outstanding. Each
warrant allows the holder thereof to acquire one share of common stock
for a purchase price of $8.00. The warrants are exercisable through
October 30, 2002.
The changes in outstanding employee stock options for the three years
ended December 31, 1998, 1997 and 1996 is as follows:
Number of Weighted-Average
Shares Exercise Price
Outstanding at December 31, 1995 1,065,139 $ 1.11
Granted 362,000 7.91
Exercised (327,400) 0.75
Forfeited (66,080) 0.60
Expired and canceled (12,332) 5.72
Outstanding at December 31, 1996 1,021,327 3.83
Granted 66,250 7.13
Exercised (86,728) 0.76
Expired and canceled (70,446) 5.93
Outstanding at December 31, 1997 930,403 4.28
Granted 687,950 3.97
Exercised (40,195) 0.60
Expired and canceled (383,525) 7.58
Outstanding at December 31, 1998 1,194,633 $ 3.14
On March 2, 1998, the Compensation Committee of the Board of Directors
approved a stock option repricing program in which all employees and
directors of the company could elect to exchange certain previously granted
incentive and non-qualifying stock options for a "New Option" granted under
the 1996 Plan. The Company repriced the options because the exercise prices
of such options were significantly higher than the fair market value of the
Company's common stock and therefore did not provide the desired incentive
to employees.
Under the terms of the exchange, employees had the option to surrender all
outstanding previously granted options with exercise prices of $5.00 per
share or more for a New Option amounting to 80 percent of the previously
granted options at new exercise prices ranging from $4.125 to $4.538 per
share. Options to purchase 361,500 shares of common stock, with an average
exercise price per share of $7.77, were surrendered and exchanged for
289,200 shares repriced at exercise prices ranging from $4.125 to $4.538
per share, based upon the fair market closing price on March 2, 1998. The
vesting schedule and all other terms and conditions of the options remained
unchanged.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about employee stock options at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Weighted- Number Exercisable Weighted-
Range of Outstanding Remaining Average As of Average
Exercise Prices 12/31/98 Life Exercise Price 12/31/98 Exercise Price
$0.60 - $0.60 73,245 1.53 $0.60 67,818 $0.60
$1.70 - $1.70 400,000 1.82 $1.70 400,000 $1.70
$2.50 - $3.50 120,000 4.53 $2.67 20,000 $3.50
$4.13 - $4.13 452,366 3.30 $4.13 215,948 $4.13
$4.54 - $9.13 149,022 3.67 $5.67 78,782 $6.68
$0.60 - $9.13 1,194,633 2.86 $3.14 782,548 $2.82
</TABLE>
At December 31, 1998, 1997 and 1996 the number of options exercisable
was 782,548, 646,576 and 983,828, respectively, and the weighted
average exercise price of those options was $2.82, $3.87 and $3.83,
respectively.
(c) Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the "ESPP") covers substantially all
employees in the United States and Denmark. The ESPP allows eligible
employees the right to purchase common stock on a semi-annual basis at
the lower of 85% of the market price at the beginning or end of each
six-month offering period. During 1998 and 1997, 80,510 and 12,700
shares, respectively, were issued under this plan. As of December 31,
1998, 52,439 shares were reserved for future issuance under the plan.
(9) Income Taxes
Income tax (benefit) expense for the years ended December 31, 1998, 1997
and 1996 are presented below.
Current Deferred Total
1998:
Federal $(1,237,981) (233,226) (1,471,207)
State (208,595) 40,020 (168,575)
Foreign 31,591 - 31,591
$(1,414,985) (193,206) (1,608,191)
1997:
Federal $ 1,037,954 (212,586) 825,368
State 157,997 (30,102) 127,895
Foreign 66,922 - 66,922
$ 1,262,873 (242,688) 1,020,185
1996:
Federal $ 1,062,392 246,986 1,309,378
State 285,148 68,395 353,543
Foreign 79,617 - 79,617
$ 1,427,157 315,381 1,742,538
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The actual tax (benefit) expense differs from the "expected" tax (benefit)
expense computed by applying the U.S. Federal corporate tax rate of 34% to
(loss) income before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (1,317,228) 1,100,473 1,427,513
Increase (decrease) in income taxes resulting from:
Non-deductible expenses 15,699 26,262 25,025
Utilization of tax credits (176,982) (215,411) -
State income tax (benefit) expense, net of Federal
income tax benefit (168,575) 84,411 233,674
Other 38,895 24,450 56,326
Net income tax (benefit) expense $ (1,608,191) 1,020,185 1,742,538
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1998 and
1997 are as follows:
1998 1997
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 39,810 24,126
Inventories, due to valuation reserve 30,923 204,451
Inventories, due to differences in costing for tax purposes 2,138 4,334
Inventories, due to unrealized gain 48,315 130,416
Property and equipment, due to differences in depreciation - 5,812
Intangibles due to differences in amortization 14,695 -
Dislodged tax credits from prior years 460,000 -
Accrued warranty costs 42,882 96,963
Accrued vacation 98,822 -
Gross deferred tax assets $ 737,585 466,102
Deferred tax liability:
Property and equipment, due to differences in depreciation 78,277 -
Net deferred tax asset $ 659,308 466,102
</TABLE>
The recognition of the net deferred tax asset of $659,308 is supported by
the Company's history of earnings and the expectation that it will have
future taxable income in 1999 and beyond in order to realize the benefit of
these future tax deductions. Research and development tax credit
carryforwards in the amounts of $154,000 and $255,000 relating to 1997 and
1996 expire in 2012 and 2011, respectively. An Alternative Minimum Tax
credit of $51,000 from 1996 has no expiration date.
(10) 401(k) Profit Sharing Plan
The Company has a 401(k) Profit Sharing Plan (the Plan) for all eligible
employees. All employees with a minimum of one year of service who have
attained age 21 are eligible to participate. Participants can contribute up
to 15% of total compensation, subject to the annual IRS dollar limitation.
Participants become fully vested in Company contributions after 7 years of
continuous service. Company contributions to the plan are discretionary.
During 1998, 1997 and 1996, the Company did not make any contributions to
the Plan.
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) Supplemental Cash Flow Information
As discussed in Note 2, the Company purchased certain operating assets and
assumed certain liabilities of Andrew Corporation's Sensor Products Group
in 1997. During 1998 the Company revalued accounts receivable and inventory
to reflect actual fair values. As a consequence of the revaluation,
accounts receivable and inventory were reduced by $163,462 and $437,660,
respectively, while property and equipment and other assets were increased
by $252,503 and $348,619, respectively.
(12) Business and Credit Concentrations
In September 1995 the Company entered into an agreement with AMSC to design
and manufacture mobile satellite telephone systems for use at sea. The
agreement provided for AMSC to purchase 5,000 systems, for a total contract
value of $10.2 million. The Company received an advance from AMSC of $2.5
million to be applied to the purchase price of the last of the systems
covered by the agreement. The Company shipped approximately 70% of the
order in 1996 and the remainder in 1997.
The Company derives a substantial portion of its revenues from the armed
forces of the United States and foreign governments. The Company estimates
that approximately 39%, 52% and 37% of the Company's revenues were derived
from United States and foreign military and defense related sources in
fiscal 1998, 1997 and 1996, respectively. A significant portion of the
Company's revenues are also derived from customers outside the U.S.
Revenues from foreign customers accounted for 30%, 31% and 42% of total
revenues in fiscal 1998, 1997 and 1996, respectively.
Historically, a significant portion of the Company's sales in any
particular period has been attributable to sales to a limited number of
customers. There were no sales in 1998 to AMSC, which accounted for
approximately 12% and 27% of net sales in 1997 and 1996, respectively.
Sales to the United States Army Tank and Automotive Command accounted for
approximately 17% and 28% of net sales in 1998 and 1997, respectively.
Sales to the Government of Sweden did not occur in 1998 and accounted for
approximately 13% of the Company's net sales in 1997. Sales to General
Motors Corporation of Canada accounted for approximately 14% of the
Company's net sales in both 1998 and 1997.
(13) Segment Reporting
During 1998 the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards Number 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information."
Under SFAS 131, the Company's operations are classified into one reportable
segment. The Company designs, manufactures and markets sensor systems for a
wide variety of applications under common management which oversees the
Company's marketing production and technology strategies.
(a) Products and Services
The Company's sensor systems are primarily marketed in the
communication and navigation industries. Revenues attributed to each of
these industries is as follows:
1998 1997 1996
Navigation $13,985,623 20,328,191 15,877,721
Communication 6,645,025 5,242,156 9,809,774
$20,630,648 25,570,347 25,687,495
(b) Geographic Information
The Company's operations are located in the United States and Europe,
and substantially all long-lived assets reside in the United States.
Inter-region sales are not significant to total revenue of any
geographic region. Information about the Company's revenues in
different geographic regions for each of the three-year periods ended
December 31, 1998, 1997 and 1996 is as follows:
<PAGE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
1998 1997 1996
Net revenues:
United States $ 17,461,608 23,258,557 23,809,807
Europe 3,169,040 2,311,790 1,877,688
$ 20,630,648 25,570,347 25,687,495
United States revenues include export sales to unaffiliated customers,
located primarily in Europe and Canada, and totaled $6,112,627,
$7,813,138 and $9,051,291, respectively, in 1998, 1997 and 1996.
(14) Selected Quarterly Financial Results (Unaudited) Financial information for
interim periods was as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998
<S> <C> <C> <C> <C>
Net sales $ 4,128,601 6,470,240 5,307,323 4,724,484
Gross profit 1,130,182 2,390,607 2,164,348 845,113
Net (loss) income (896,719) (247,329) 258,089 (1,380,050)
(Loss) income per share (a):
Basic $ (0.13) (0.03) 0.04 (0.19)
Diluted $ (0.13) (0.03) 0.04 (0.19)
1997
Net sales $ 5,916,329 5,770,505 7,025,976 6,857,537
Gross profit 2,737,300 2,519,762 3,546,897 2,680,925
Net income 603,989 402,167 1,018,799 191,546
Earnings per share (a):
Basic $ 0.09 0.06 0.14 0.03
Diluted 0.08 0.05 0.14 0.03
1996
Net sales $ 4,780,659 5,113,602 7,147,270 8,645,964
Gross profit 2,088,270 2,284,354 2,918,469 3,788,818
Net income 187,568 320,099 920,513 1,027,851
Earnings per share (a):
Basic $ 0.04 0.05 0.13 0.15
Diluted $ 0.03 0.04 0.12 0.14
</TABLE>
(a) Earnings (loss) per share are computed independently for each of the
quarters. Therefore, the earnings (loss) per share for the four quarters
may not equal the annual earnings per share data.
(15) Subsequent Event
On January 11, 1999, the Company entered into a mortgage loan in the amount
of $3,000,000 with a life insurance company. The note term is 10 years,
with a principal amortization of 20 years at a fixed rate of interest of
7%. Due to the difference in the term of the note and the amortization of
principal, a balloon payment is due on February 1, 2009, in the amount of
$2,014,716.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
KVH Industries, Inc. and Subsidiary:
Under the date of February 10, 1999, we reported on the consolidated
balance sheets of KVH Industries, Inc., and subsidiary as of December 31,
1998 and December 31, 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the fiscal
years in the three-year period ended December 31, 1998, as contained in
the annual report on Form 10-K for the year 1998. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule listed in Item 14(a)(2).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Providence, Rhode Island
February 10, 1999
<PAGE>
Schedule II
KVH INDUSTRIES, INC. AND SUBSIDIARY
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning of Cost or Deductions Balance at
Description Year Expense from Reserve End of Year
----------------------------------------------------------------------------------------
(in thousands)
Deducted from accounts
receivable for doubtful
accounts
<S> <C> <C> <C> <C> <C>
1998 74 26 (8) 92
1997 50 24 - 74
1996 95 - (45) 50
Deducted from inventory
for estimated obsolescence
1998 511 50 (484) 77
1997 105 556 (150) 511
1996 60 60 (15) 105
</TABLE>
KVH INDUSTRIES, INC. AND SUBSIDIARY
COMPUTATION OF NET (LOSS) EARNINGS PER SHARE
(in thousands, except per share data)
Year Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
Calculation of (loss) earnings per share - basic:
<S> <C> <C> <C>
Net (loss) income $(2,266) 2,217 2,456
========== =========== ===========
Shares:
Common stock outstanding 7,124 7,049 6,371
========== =========== ===========
Net (loss) earnings per common share - basic $ (0.32) 0.31 0.39
========== =========== ===========
Calculation of (loss) earnings per share - diluted:
Net (loss) income $(2,266) 2,217 2,456
========== =========== ===========
Shares:
Common stock outstanding , beginning of period 7,124 6,993 1,601
Conversion of preferred stock - - 3,260
Weighted average common stock issued during the period - 52 1,509
Assumed exercise of common stock options - 605 852
Less:
Purchase of common stock under the treasury stock method - (152) (167)
========== =========== ===========
Weighted average number of common and potential
common shares outstanding 7,124 7,498 7,055
========== =========== ===========
Net (loss) earnings per common share - diluted $ (0.32) 0.30 0.35
========== =========== ===========
</TABLE>
ACCOUNTANTS' CONSENT
The Board of Directors
KVH Industries, Inc. and Subsidiary:
We consent to incorporation, by reference in the Registration Statement No.
333-01258 on Form S-8, of our reports dated February 10, 1999, relating to the
consolidated balance sheets of KVH Industries, Inc., and subsidiary as of
December 31, 1998 and December 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows and related schedule for each
of the fiscal years in the three-year period ended December 31, 1998, which
reports on the consolidated financial statements and on the related schedule are
included in the Annual Report on Form 10-K of KVH Industries, Inc., for the
fiscal year ended December 31, 1998.
/s/ KPMG LLP
Providence, Rhode Island
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
KVH Industries, Inc., Financial Data Schedule December 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,239,227
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 3,180,323
<INVENTORY> 73,909
<CURRENT-ASSETS> 10,161,582
<PP&E> 10,246,707
<DEPRECIATION> 3,390,787
<TOTAL-ASSETS> 18,745,636
<CURRENT-LIABILITIES> 1,675,771
<BONDS> 0
0
0
<COMMON> 72,059
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,745,636
<SALES> 20,630,648
<TOTAL-REVENUES> 20,630,648
<CGS> 14,100,398
<TOTAL-COSTS> 14,100,398
<OTHER-EXPENSES> 10,686,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,023
<INCOME-PRETAX> (3,874,200)
<INCOME-TAX> (1,608,191)
<INCOME-CONTINUING> (2,266,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,266,009)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
Exhibit 99.1
OPEN END MORTGAGE, AND SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
WITH ASSIGNMENT OF LEASES AND RENTS
(THIS MORTGAGE TO SECURE PRESENT AND FUTURE LOANS
UNDER RHODE ISLAND GENERAL LAWS CHAPTER 25 OF TITLE 34)
Dated as of
January 11, 1999
granted by
KVH Industries, Inc., a Delaware Corporation
to
IDS Life Insurance Company
Prepared
by
and
after
recording,
return
to:
Michael D. Moriarty, Esq. Locke Reynolds Boyd & Weisell
1000 Capital Center South
201 North Illinois Street
Indianapolis, IN 46204
(317) 237-3800
<PAGE>
Open End Mortgage, and Security Agreement
and Fixture Financing Statement
with Assignment of Leases and Rents
(THIS MORTGAGE TO SECURE PRESENT AND FUTURE LOANS
UNDER RHODE ISLAND GENERAL LAWS CHAPTER 25 OF TITLE 34)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
Parties and Recitals
Granting Clause
<S> <C>
ARTICLE I GENERAL REPRESENTATIONS AND WARRANTIES 5
SECTION 1.1 REPRESENTATIONS AND WARRANTIES 5
SECTION 1.2 CONTINUING OBLIGATION 7
ARTICLE 2 COVENANTS AND AGREEMENTS 8
SECTION 2.1 PAYMENT OF INDEBTEDNESS; OBSE~VANCE 8
SECTION 2.2 MAINTENANCE; REPAIRS 8
SECTION 2.3 PAYMENT OF OPERATING COSTS, LIENS AND OTHER INDEBEDNESS 9
SECTION 2.4 PAYMENT OF IMPOSITIONS 9
SECTION 2.5 CONTEST OF LIENS AND IMPOSITIONS 9
SECTION 2 6 PROTECTION OF SECURITY 10
SECTION 2.7 ANNUAL STATEMENTS 10
SECTION 2.8 ADDITIONAL ASSURANCES 11
SECTION 2.9 DUE ON SALE OR MORTGAGING, ETC II
SECTION 2.10 TRANSFER PERMITTED 12
ARTICLE 3 INSURANCE AND ESCROWS 14
SECTION 3.1 INSURANCE 14
SECTION 3.2 ESCROWS 16
ARTICLE 4 UNIFORM COMMERCIAL CODE 18
SECTION 4.1 SECURITY AGREEMENT 18
SECTION 4.2 FIXTURE FILING 18
SECTION 4.3 REPRESENTATIONS AND AGREEMENTS 18
SECTION 4.4 MAINTENANCE OF PROPERTY 19
ARTICLE 5 APPLICATION OF INSURANCE AND AWARDS 20
SECTION 5.1 DAMAGE OR DESTRUCTION OF THE PREMISES 20
SECTION 5.2 CONDEMNATION 20
SECTION 5.3 DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS 21
*SECTION 5.4 MORTGAGEE TO MAKE INSURANCE PROCEEDS AVAILABLE 23
ARTICLE 6 LEASES AND RENTS 23
SECTION 6.1 MORTGAGOR TO COMPLY WITH LEASES 23
SECTION 6.2 MORTGAGEE'S RIGHT TO PERFORM UNDER LEASES 24
SECTION 6.3 ASSIGNMENT OF LEASES AND RENTS 24
SECTION 6.4 BANKRUPTCY 26
<PAGE>
ARTICLE 7 RIGHTS OF MORTGAGEE 27
SECTION 7.1 RIGHT TO CURE EVENT OF DEFAULT 27
SECTION 7.2 NO CLAIM AGAINST MORTGAGEE 27
SECTION 7.3 INSPECTION 27
SECTION 7.4 WAIVERS; RELEASES; RESORT TO OTHER SECURITY, ETC 28
SECTION 7.5 RIGHTS CUMULATIVE 28
SECTION 7.6 SUBSEQUENT AGREEMENTS 28
SECTION 7.7 WAIVER OF APPRAISEMENT, HOMESTEAD, MARSHALING 28
SECTION 7.8 BUSINESS LOAN REPRESENTATION 29
SECTION 7.9 DISHONORED CHECKS 29
ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES 29
SECTION 8.1 EVENTS OF DEFAULT 29
SECTION 8.2 MORTGAGEE'S RIGHT TO ACCELERATE 30
SECTION 8.3 REMEDIES OF MORTGAGEE AND RIGHT TO FORECLOSE 30
SECTION 8.4 RECEIVER 31
SECTION 8.5 RIGHTS UNDER UNIFORM COMMERCIAL CODE 31
SECTION 8.6 RIGHT TO DISCONTINUE PROCEEDINGS 31
SECTION 8.7 WAIVERS 32
ARTICLE 9 HAZARDOUS MATERIALS 32
SECTION 9.I DEFINITIONS 32
SECTION 9:2 REPRESENTATIONS BY MORTGAGOR 32
SECTION 9.3 COVENANTS OF MORTGAGOR 33
SECTION 9.4 EVENTS OF DEFAULT AND REMEDIES 34
SECTION 9.5 INDEMNIFICATION 34
SECTION 9.6 LOSS OF VALUE 35
ARTICLE 10 MISCELLANEOUS 35
SECTION 10.1 RELEASE OF MORTGAGE 35
SECTION 10.2 CHOICE OF LAW 35
SECTION 10.3 SUCCESSORS AND ASSIGNS 35
SECTION 10.4 PARTIAL INVALIDITY 35
SECTION 10.5 CAPTIONS AND HEADINGS 35
SECTION 10.6 NOTICES 36
SECTION 10.7 BUILDING USE 36
SE~ON 10.8 MANAGEMENT OF THE PREMISES 36
SECTION 10.9 AMENDMENT/MODIFICATION 36
SECTION 10.10 REPRESENTATIONS OF MORTGAGOR 36
SECTION 10.11 MORTGAGEE'S EXPENSE 37
SECTION 10.12 MORTGAGEE'S RIGHT TO COUNSEL 37
SECTION 10.13 OTHER REPRESENTATIONS AND WARRANTIES 38
SECTION 10.14 LIMITATION OF INTEREST 38
SECTION 10.15 TIME OF THE ESSENCE 38
SECTION 10.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS 39
SECTION 10.17 WAIVER OF JURY TRIAL 39
SECTION 10.18 MINIMUM REQUIREMENT 39
SECTION 10.19 FUTURE ADVANCE MORTGAGE 39
EXHIBIT 42
LEGAL DESCRIPTION 42
EXHIBIT 43
PERMITTED ENCUMBRANCES 43
</TABLE>
<PAGE>
OPEN END MORTGAGE, AND SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
WITH ASSIGNMENT OF LEASES AND RENTS
(THIS MORTGAGE TO SECURE PRESENT AND FUTURE LOANS
UNDER RHODE ISLAND GENERAL LAWS CHAPTER 25 OF TITLE 34)
THIS Indenture ("Mortgage") is made and delivered as of the 11th day of
January, 1999 by KVH Industries, Inc., a Delaware corporation ("Mortgagor"),
having a mailing address of 50 Enterprise Center, Middletown, Rhode Island
02842, Attention: Mr. Richard Forsythe, for the benefit of IDS Life Insurance
Company, a Minnesota corporation ("Mortgagee"), having a mailing address of do
American Express Financial Corporation, 733 Marquette Avenue, Minneapolis,
Minnesota 55402, Attention: Real Estate Loan Management, Unit #401.
WITNESSETH, that Mortgagor, in consideration of the Indebtedness
hereinafter defined and the sums advanced to Mortgagor in hand paid by
Mortgagee, receipt whereof is hereby acknowledged, does hereby MORTGAGE, WARRANT
WITH WARRANTY COVENANTS AND MORTGAGE COVENANTS, GRANT, BARGAIN, SELL AND CONVEY
AND THIS MORTGAGE IS MADE UPON THE STATUTORY CONDITION AND WITH THE STATUTORY
POWER OF SALE unto Mortgagee, its successors and assigns, forever, AND GRANTS TO
MORTGAGEE A SECURITY INTEREST IN the following properties to secure payment of
the Note and all amounts owing under the Note and any documents securing the
Note (all of the following being hereafter collectively referred to as the
"Premises"):
GRANTING CLAUSE A
REAL PROPERTY
All the tracts or parcels of real property lying and being in
Middletown, County of Newport, State of Rhode Island, all as more fully
described in Exhibit "A" attached hereto and made a part hereof, together with
all the estates and rights in and to the real property, water, mineral or oil
rights and in and to lands lying in streets, alleys and roads or gores of land
adjoining the real property and all buildings, structures, improvements and
annexations, access rights, easements, rights of way or use, servitudes,
licenses, tenements, hereditaments and appurtenances now or hereafter belonging
or pertaining to the real property and all proceeds and products derived
therefrom whether now owned or hereafter acquired.
GRANTING CLAUSE B
IMPROVEMENTS, FIXTURES, EOUIPMENT
PERSONAL PROPERTY
All buildings, equipment, fixtures, improvements, building supplies and
materials and personal property, now or hereafter attached to and necessary for
the management or maintenance of the improvements on the Premises including, but
without being limited to, all machinery, fittings, fixtures, apparatus,
equipment or articles used to supply heating, gas, electricity, air
conditioning, water, light, waste disposal, power, refrigeration, ventilation,
and fire and sprinkler protection, as well as all elevators, escalators,
overhead cranes, hoists and assists, and the like, and all furnishings,
draperies, maintenance and repair equipment, window and structural cleaning rigs
and equipment, floor coverings, appliances, screens, storm windows, blinds,
awnings, shrubbery and plants (including Mortgagor's interest in any lease of
the foregoing) now or hereafter necessary for the management or maintenance of
the Premises, it being understood that the enumeration of specific articles of
property shall in ~o way be held to exclude like items of property not
specifically enumerated, as well as renewals, replacements, proceeds, additions,
accessories, increases, parts, fittings, insurance payments, awards and
substitutes thereof, together with all interest of Mortgagor in any such items
hereafter acquired, and all personal property which by the terms of any lease
for occupancy of the Premises shall become the property of Mortgagor at the
termination of such lease, all of which personal property mentioned herein shall
be deemed fixtures and accessory to the freehold and a part of the realty and
not severable in whole or in part without material injury to the Premises, but
excluding therefrom the removable personal property owned by any tenants and
Mortgagor, in the Premises and also specifically excluding Mortgagor's
inventory, trademarks, tradenames (other than the name "50 Enterprise Center"),
accounts receivable and other items of personal property and Mortgagor's
machinery or fixtures relating to the conduct of Mortgagor's business.
GRANTING CLAUSE C
RENTS, LEASES AND PROFITS
All rents, issues, income, revenue, receipts, fees, and profits now due
or which may hereafter become due under or by virtue of and together with all
right, title and interest of Mortgagor in and to any lease, license, sublease,
contract or other kind of occupancy agreement, whether written or verbal, for
the use or occupancy of the Premises or any part thereof together with all
security therefor and all monies payable thereunder, including, without
limitation, tenant security deposits, and all books and records which contain
information pertaining to payments made thereunder and security therefor,
subject, however, to the conditional permission herein given to Mortgagor to
collect the rents, income and other normal income benefits arising under any
agreements. Mortgagee shall have the right, not as a limitation or condition
hcreof but as a personal covenant available only to Mortgagee, at any time and
from time to time, to notify any lessee of the rights of Mortgagee hereunder.
Together with all right, title and interest of Mortgagor in and to any
and all contracts for sale and purchase of all or any part of the property
described in Granting Clauses A, B and C hereof, and any down payments, earnest
money deposits or other sums paid or deposited in connection therewith.
GRANTING CLAUSE D
JUDGMENTS, CONDEMNATION AWARDS,
INSURANCE PROCEEDS,
AND OTHER RIGHTS
All awards, compensation or settlement proceeds made by any
governmental or other lawful authorities for the threatened or actual taking or
damaging by eminent domain of the whole or any part of the Premises, including
any awards for a temporary taking, change of grade of streets or taking of
access, together with all insurance proceeds resulting from a casualty to any
portion of the Premises; all rights and interests of Mortgagor against others,
including adjoining property owners, arising out of damage to the property
including damage due to environmental injury or release of hazardous substances.
GRANTING CLAUSE E
LICENSES, PERMITS, EOUIPMENT LEASES
AND SERVICE AGREEMENTS
All right, title and interest of Mortgagor in and to any licenses,
permits, regulatory approvals, government authorizations and equipment or
chattel leases, service contracts or agreements and all proceeds therefrom,
arising from, issued in connection with or in any way related to the management,
maintenance or security of the Premises, together with all replacements,
additions, substitutions and renewals thereof, which may be assigned pursuant to
agreement or law.
GRANTING CLAUSE F
ACCOUNTS, GENERAL INTANGIBLES AND TRADENAMES
All escrow accounts, if any, established pursuant to Section 3.2 hereof
as security for the payment of Impositions (as defined in Section 2.4 hereof)
and insurance premiums, and the name "50 Enterprise Center" or any derivation
thereof), now owned or hereafter acquired by the Mortgagor, and all proceeds
therefrom, whether cash or non-cash, all as defined in Article 9 of the Uniform
Commercial Code of the State of Rhode Island, as amended.
GRANTING CLAUSE G
PROCEEDS
All sale proceeds, refinancing proceeds or other proceeds, including
deposits and down payments derived from or relating to the property described in
Granting Clauses A through F above.
AND MORTGAGOR for Mortgagor, Mortgagor's successors and assigns,
covenants with Mortgagee, its successors and assigns, that Mortgagor is lawfully
seized of the Premises and has good right to sell and convey the same; that the
Premises are free from all encumbrances except as may be set forth in Exhibit
"B" attached hereto and made a part hereof (hereinafter referred to as the
"Permitted Encumbrances"); that Mortgagee, its successors and assigns, shall
quietly enjoy and possess the Premises; and that Mortgagor, its successors and
assigns, will WARRANT AND DEFEND the title to the same against all lawful claims
not specifically excepted in this Mortgage.
TO HAVE AND TO HOLD THE SAME, together with the possession and right of
possession of the Premises, unto Mortgagee, its successors and assigns, forever.
PROVIDED NEVERTHELESS, that if Mortgagor, Mortgagor's heirs,
administrators, personal representatives, successors or assigns, shall pay to
Mortgagee, its successors or assigns, the sum of Three Million and 00/100
Dollars and 00/100 Dollars ($3,000,000.00), according to the terms of that
certain Promissory Note in said principal amount (hereinafter referred to as the
"Note") of a contemporaneous date herewith executed by Mortgagor and payable to
Mortgagee, the terms and conditions of which are incorporated herein by
reference (including the maturity date of such Note which is (February 1, 2009)
and made a part hereof, together with any extensions or renewals thereof, due
and payable with interest thereon as provided therein, the balance of said
principal sum together with interest thereon being due and payable, and shall
repay to Mortgagee, its successors or assigns, at the times demanded and with
interest thereon at the same rate specified in the Note, all sums advanced
hereunder in protecting the lien of this Mortgage, in payment of taxes on the
Premises, in payment of insurance premiums covering improvements thereon, in
payment of principal and interest on prior liens, in payment of expenses and
reasonable attorneys' fees herein provided for and all sums advanced for any
other purpose authorized herein (the Note and all such sums, together with
interest thereon, and premium, if any, being hereinafter collectively referred
to as the "Indebtedness"), and shall keep and perform all of the covenants and
agreements herein contained, then this Mortgage (and other recorded loan
documents) shall become null and void, and shall be released and discharged at
Mortgagor's expense.
<PAGE>
AND IT IS FURTHER COVENANTED AND AGREED AS FOLLOWS:
ARTICLE 1
GENERAL REPRESENTATIONS AND WARRANTIES
SECTION 1.1 REPRESENTATIONS AND WARRANTIES. Mortgagor represents and
warrants to Mortgagee, its successors and assigns,
that, as of the date hereof:
(a) Mortgagor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware has been duly
qualified to do business in the State of Rhode Island, and has all
requisite power and authority to own and operate the Premises, to enter
into the Note, this Mortgage, that certain Assignment of Leases,
Assignment of Rents and Hazardous Materials Indemnity Agreement of
contemporaneous date herewith ("Assignment of Leases", "Assignment of
Rents", and "Hazardous Materials Indemnity Agreement", respectively and
any other document securing the Note, to execute all other documents
relating to the loan evidenced by the Note (the "Loan") and make all
representations and covenants contained in such documentation. The
Note, this Mortgage, the Assignment of Leases, the Assignment of Rents,
the Hazardous Materials Indemnity Agreement, all UCC Financing
Statements and all other documents, instruments and agreements relating
to any of them or evidencing or securing the Loan are herein
individually and collectively referred to as the "Loan Documents."
Mortgagor has the power and authority to borrow the monies and
otherwise assume and perform as contemplated hereunder and under all
documents relating to or executed in connection with the Indebtedness,
and is in compliance with all laws, regulations, ordinances and orders
of public authorities applicable to it.
(b) Neither the borrowing of the monies nor the execution and delivery
of the Note, this Mortgage, the Assignment of Leases, the Assignment of
Rents, the Hazardous Materials Indemnity Agreement or any other Loan
Document nor the performance or the provisions of the agreements
therein contained on the part of Mortgagor will contravene, violate or
constitute a default under the Articles of Incorporation or By-Laws of
Mortgagor, or any agreement with the shareholders of Mortgagor, or any
creditors of Mortgagor, or any law, ordinance, governmental regulation,
agreement or indenture to which Mortgagor is a party or by which
Mortgagor or Mortgagor's properties are bound.
(c) There are no (i) bankruptcy proceedings involving Mortgagor and
none is contemplated; (ii) dissolution proceedings involving Mortgagor
and none is contemplated; (iii) unsatisfied judgments of record against
Mortgagor; or (iv) tax liens filed against Mortgagor.
(d) The Note, this Mortgage, the Assignment of Leases, the Assignment
of Rents and the other Loan Documents have been duly executed and
delivered by Mortgagor and constitute the legal, valid and binding
obligations of Mortgagor, enforceable in accordance with their terms.
(e) There are no judgments, suits, actions or proceedings at law or in
equity or by or before any governmental instrumentality or agency now
pending against or, to the best of Mortgagor's knowledge, threatened
against Mortgagor or its properties, or both, nor has any judgment,
decree or order been issued against Mortgagor or its properties, or
both, which would have a material adverse effect on the Premises or the
financial condition of Mortgagor or Mortgagor's properties.
(f) No consent or approval of any regulatory authority having
jurisdiction over Mortgagor is necessary or required by law as a
prerequisite to the execution, delivery and performance of the terms of
the Note, this Mortgage, the Assignment of Leases, the Assignment of
Rents, the Hazardous Materials Indemnity Agreement, or any other Loan
Document.
(g) Mortgagor is not, as of the date hereof, in default in the payment
or performance of any of Mortgagor's material obligations in connection
with borrowed money or any other major obligation.
(h) The Premises is free from any mechanics' or materialmen's liens or
claims. There has been no labor or materials furnished to the Premises
that has not been paid for in full.
(i) Mortgagor has no notice, information or knowledge of any change
contemplated in any applicable law, ordinance, regulation, or
restriction, or any judicial, administrative, governmental or
quasi-governmental action, or any action by adjacent land owners, or
natural or artificial condition existing upon the Premises which would
limit, restrict, or prevent the contemplated or intended use and
purpose of the Premises.
(j) There is no pending condemnation or similar proceeding affecting
the Premises, or any portion thereof, nor to the best knowledge of
Mortgagor, is any such action being presently contemplated.
(k) No part of the Premises is being used for agricultural purposes or
being used for a personal residence by Mortgagor or any shareholder of
Mortgagor.
(l) The Premises is undamaged by fire, windstorm, or other casualty.
(m) Except as otherwise disclosed in writing to Mortgagee, the
Premises complies with all zoning ordinances, energy and environmental
codes, building and use restrictions and codes, and any requirements
with respect to licenses, permits and agreements necessary for the
lawful use and operation of the Premises.
(n) The heating, electrical, sanitary sewer plumbing, storm sewer
plumbing, potable water plumbing and other building equipment, fixtures
and fittings in the existing improvements on the Premises are in good
condition and working order, are adequate in quantity and quality for
normal and usual use, and are fit for the purposes intended and the use
contemplated.
(o) The Premises is covered by a tax parcel(s) which pertain to the
Premises only and not to any property which is not subject to the
Mortgage.
(p) The Premises is improved with a three (3)-story office building
containing approximately seventy five thousand (75,000) net rentable
square feet and related on-site parking for approximately two hundred
ninety five (295) vehicles which is located at 50 Enterprise Center,
Middletown, Rhode Island and commonly known as 50 Enterprise Center and
has frontage on, and direct access for ingress and egress to Enterprise
Center.
(q) Mortgagor has good and clear record and marketable title in fee to
such of the Premises as is real property, subject to no liens,
encumbrances or restrictions other than Permitted Encumbrances.
SECTION 1.2 CONTINUING OBLIGATION. Mortgagor further warrants and
represents that all statements made hereunder are true and correct and that all
financial statements, data and other information provided to Mortgagee by
Mortgagor relating to or provided in connection with this transaction has not
and does not contain any statement which, at the time and in the light of the
circumstances under which it was made, would be false or misleading with respect
to any material fact, or would omit any material fact necessary in order to make
any such statement contained therein not false or misleading in any material
respect, and since such statement, data or information was provided there has
been no material change thereto or to the condition of Mortgagor. Should
Mortgagor subsequently obtain knowledge that any such representation was or is
untrue, Mortgagor shall immediately notify Mortgagee as to the untrue nature of
said representation and agrees, to the extent possible, to take action as may be
necessary to cause such representation to become true.
ARTICLE 2
COVENANTS AND AGREEMENTS
Mortgagor covenants and agrees for the benefit of Mortgagee, its
successors and assigns, as follows:
SECTION 2.1 PAYMENT OF INDEBTEDNESS; OBSERVANCE OF COVENANTS. Mortgagor
will duly and punctually pay each and every installment of principal, premium,
if any, and interest on the Note, all deposits required herein, and all other
Indebtedness secured hereby, as and when the same shall become due, and shall
duly and punctually perform and observe all of the covenants, agreements and
provisions contained herein, in the Note and any other instrument given as
security for the payment of the Note as such instrument may be amended,
modified, restated and in effect from time to time.
SECTION 2.2 MAINTENANCE; REPAIRS. Mortgagor agrees that it will keep and
maintain the Premises in good, first class condition, repair and operating
condition free from any waste or misuse, and will comply with all requirements
of law, municipal ordinances and regulations, restrictions and covenants
affecting the Premises and their use, and will promptly repair or restore any
buildings, improvements or structures now or hereafter on the Premises, which
may become damaged or destroyed, to their condition prior to any such damage or
destruction. Mortgagor further agrees that without the prior written consent of
Mortgagee (which such consent shall not be unreasonably withheld or delayed), it
will not remove or expand any improvements on the Premises, erect any new
improvements or make any material alterations in any improvements which will
alter the basic structure, adversely affect the market value or change the
existing architectural character of the Premises, and agrees that any other
buildings, structures and improvements now or hereafter constructed on or in the
Premises or repairs made to the Premises shall be completed in a good and
workmanlike manner, in accordance with all applicable governmental laws,
regulations, requirements and permits and in accordance with plans and
specifications previously delivered to and approved in advance in writing by
Mortgagee. Mortgagor agrees not to acquiesce in any rezoning classification,
modification or restriction affecting the Premises without the written consent
of Mortgagee. Mortgagor agrees that it will not abandon or vacate the Premises.
Mortgagor agrees that it will provide, improve, grade, surface and thereafter
maintain, clean, repair and adequately light all parking areas within the
Premises, together with any sidewalks, aisles, streets, driveways and curb cuts
and sufficient paved areas for ingress and right-of-way to and from the adjacent
public thoroughfare necessary or desirable for the use thereof and maintain all
landscaping thereon. Mortgagor shall obtain and at all times keep in full force
and effect such governmental approvals as may be necessary to comply with all
governmental requirements relating to Mortgagor and the Premises.
<PAGE>
SECTION 2.3 PAYMENT OF OPERATING COSTS; LIENS AND OTHER INDEBTEDNESS.
Mortgagor agrees that it will pay all operating costs and expenses of the
Premises; keep the Premises free from mechanics' liens, materialmen's liens,
judgment liens and other liens, executions, attachments or levies (hereinafter
collectively referred to as "Liens"); and will pay when due all permitted
indebtedness which may be secured by a mortgage, lien or charge on the Premises,
whether prior to, subordinate to or of equal priority with the lien hereof, and
upon request will exhibit to Mortgagee satisfactory evidence of such payment and
discharge.
SECTION 2.4 PAYMENT OF IMPOSITIONS. Mortgagor will pay when due and
before any penalty or interest attaches because of delinquency in payment, all
taxes, installments of assessments, water charges, sewer charges, and other
fees, taxes, charges and assessments of every kind and nature whatsoever
assessed or charged against or constituting a lien on the Premises or any
interest therein or the Indebtedness (hereinafter collectively referred to as
the "Impositions"); and will upon demand furnish to Mortgagee proof of the
payment of any such Impositions. In the event of a court decree or an enactment
after the date hereof by any legislative authority of any law imposing upon
mortgagees the payment of the whole or any part of the Impositions herein
required to be paid by Mortgagor, or changing in any way the laws relating to
the taxation of mortgages or debts secured by mortgages or a mortgagee's
interest in mortgaged premises, so as to impose such Imposition on Mortgagee or
on the interest of Mortgagee in the Premises, then, in any such event, Mortgagor
shall bear and pay the full amount of such Imposition, provided that if for any
reason payment by Mortgagor of any such Imposition would be unlawful, or if the
payment thereof would constitute usury or render the Indebtedness wholly or
partially usurious, Mortgagee, at its option, may declare the whole sum secured
by this Mortgage with interest thereon to be immediately due and payable,
without prepayment fee, or Mortgagee, at its option, may pay that amount or
portion of such Imposition as renders the Indebtedness unlawful or usurious, in
which event Mortgagor shall concurrently therewith pay the remaining lawful and
non-usurious portion or balance of said Imposition.
SECTION 2.5 CONTEST OF LIENS AND IMPOSITIONS. Mortgagor shall not be
required to pay, discharge or remove any Liens or Impositions so long as
Mortgagor shall in good faith contest the same or the validity thereof, by
appropriate legal proceedings which shall operate to prevent the collection of
the Liens or Impositions so contested and the sale of the Premises, or any part
thereof to satisfy the same, provided that Mortgagor shall, prior to any such
contest, have given such security as may be demanded by Mortgagee to ensure such
payments and prevent any sale or forfeiture of the Premises by reason of such
nonpayment. Any such contest shall be prosecuted in accordance with the laws and
rules pertaining to such contests and in all events with due diligence and
Mortgagor shall promptly after final determination thereof pay the amount of any
such Liens or Impositions so determined, together with all interest and
penalties, which may be payable in connection therewith. Notwithstanding the
provisions of this Section, Mortgagor shall (and if Mortgagor shall fail so to
do, Mortgagee may but shall not be required to) pay any such Liens or
Impositions notwithstanding such contest if, in the reasonable opinion of
Mortgagee, the Premises shall be in jeopardy or in danger of being forfeited or
foreclosed.
SECTION 2.6 PROTECTION OF SECURITY Mortgagor agrees to promptly notify
Mortgagee of and appear in and defend any suit, action or proceeding that
affects the value of the Premises, the Indebtedness or the rights or interest of
Mortgagee hereunder. Mortgagee may elect to appear in or defend any such action
or proceeding and Mortgagor agrees to indemnify and reimburse Mortgagee from any
and all loss, damage, expense or cost arising out of or incurred in connection
with any such suit, action or proceeding, including costs of evidence of title
and reasonable attorneys' fees.
SECTION 2.7 ANNUAL STATEMENTS. Within one hundred twenty (120) days
after the end of each of its fiscal years during the term of this Mortgage,
Mortgagor, and any successor to the interest of Mortgagor in the Premises, will
furnish to Mortgagee annual financial statements of Mortgagor or such successor
and of any guarantor of the Loan and annual certified operating statements of
the Premises, which shall include all relevant financial information showing at
a minimum, but shall not be limited to, gross income (itemized as to source),
operating expenses (itemized), depreciation charges, and net income before and
after federal income taxes and such additional information as Mortgagee may from
time to time reasonably request. The financial statements and the operating
statements shall be certified by the Mortgagor. Both the financial and operating
statements shall be prepared at the expense of Mortgagor. All of the above
required statements shall be prepared in reasonable detail, conform to generally
accepted accounting principles, and be reasonably satisfactory in form and
content to Mortgagee. Mortgagor or any successor Mortgagor, if the Premises are
conveyed pursuant to a transfer permitted by Mortgagee, shall provide (a) as to
a corporate entity, such entity shall submit annual audited financial statements
of the corporation and any supplemental schedules provided corporate
stockholders, (b) as to an individual(s), such individual(s) shall submit annual
statements certified by each individual or by an independent certified public
accountant in good standing and shall include a balance sheet and a profit and
loss statement, and (c) as to a partnership, trust entity or limited liability
company, the partnership, trust or limited liability company shall submit annual
reports certified by an authorized partner, trustee or member. Mortgagor
covenants that it shall keep true and accurate records of the operation of the
Premises. In the event Mortgagor fails after notice to furnish any of the
statements as required herein or upon an Event of Default, as herein defined,
Mortgagee may cause an audit to be made of the respective books and records at
the sole cost and expense of Mortgagor. Mortgagee also shall have the right to
examine at their place of safekeeping all books, accounts and records relating
to the operation of the Premises, to make copies or abstracts therefrom and to
discuss the affairs, finances or accounts with the officers of Mortgagor and
Mortgagor's accountants. Said examination shall be at Mortgagee's expense unless
an Event of Default has occurred or Mortgagor's statements are found to contain
significant discrepancies, in which case the examination shall be at Mortgagor's
expense.
Mortgagor shall also furnish a rent roll in form reasonably acceptable
to Mortgagee of all tenants having leases on the Premises on an annual basis
along with the operating statements provided for above or at such other times as
requested by Mortgagee from time to time. Notwithstanding the foregoing
provisions of this Section 2.7, provided Mortgagor is the obligor under the Note
and the sole occupant of the Premises and there is no Event of Default
hereunder, Mortgagee shall not require submission of annual operating statements
of the Premises or an annual rent roll.
<PAGE>
SECTION 2.8 ADDITIONAL ASSURANCES. Mortgagor agrees upon request by
Mortgagee to execute and deliver further instruments, financing statements
and/or continuation statements under the Uniform Commercial Code and assurances
and will do such further acts as may be reasonably necessary or proper to carry
Out more effectively the purposes of this Mortgage and without limiting the
foregoing, to make subject to the lien hereof any property agreed to be
subjected hereto or covered by the granting clause hereof, or intended so to be.
Mortgagor agrees to pay any recording fees, filing fees, stamp taxes or other
charges arising Out of or incident to the filing, the issuance and delivery of
the Note, the filing or recording of the Mortgage or the delivery filing and
recording of such further assurances and instruments as may be required pursuant
to the terms of this Section.
SECTION 2.9 DUE ON SALE OR MORTGAGING, ETC. In the event that without
the written consent of Mortgagee being first obtained: (a) Mortgagor, or any
successor, sells, conveys, transfers, further mortgages, changes the form of
ownership, or encumbers or disposes of the Premises, or any part thereof, or any
interest therein, or agrees so to do except as otherwise permitted herein; or
(b) any shares of corporate stock or ownership interest in Mortgagor, or any
successor, are sold, conveyed, transferred, pledged or encumbered or there is an
agreement so to do; (c) any partnership, trust, corporate or member ownership
interest in Mortgagor is sold, transferred, conveyed, pledged or encumbered or
there is an agreement to do so; or (d) any partnership, trust, corporate or
member ownership interest in any general partner or member of Mortgagor is sold,
conveyed, transferred, pledged or encumbered or there is an agreement so to do;
whether any such event described in (a), (b), (c), or (d) above is voluntary,
involuntary or by operation of law, then at Mortgagee's sole option, Mortgagee
may declare the Indebtedness immediately due and payable in full and call for
payment of the same at once, together with the prepayment fee then in effect
under the terms of the Note. In the event that Mortgagor or any permitted
subsequent owner of the Premises is a partnership or limited partnership, trust,
a privately held corporation or limited liability company, a transfer of a
general partnership, beneficial interest, stock interest or interest of a
member, as applicable, shall constitute a transfer or conveyance for purposes of
this Section 2.9. The death, incapacity or dissolution of a general partner,
beneficiary, stockholder or member of Mortgagor or of any guarantor of the Loan,
shall constitute a transfer or conveyance of such interest. In the event of such
death, incapacity or dissolution, Mortgagor shall deliver notice thereof to
Mortgagee within thirty (30) days and Mortgagor shall within ninety (90) days
provide a replacement general partner, beneficiary, stockholder, member or
guarantor for acceptance by Mortgagee. In the event of the death, dissolution or
incapacity of any guarantor of the Loan, Mortgagor shall within thirty (30) days
thereof provide notice to Mortgagee and, in the event of dissolution or
incapacity, provide to Mortgagee a substitute guarantor of the Loan acceptable
to Mortgagee, within ninety (90) days of such dissolution or incapacity, and in
the event of death, provide to Mortgagee a substitute guarantor of the Loan
acceptable to Mortgagee within one (1) year of the death of such guarantor or
prior to any distribution of assets to any devisee, heir or other beneficiary,
whichever is sooner. If such replacement is acceptable to Mortgagee, such
transfer shall be permitted without a transfer fee or change in the Loan terms.
In the event Mortgagor shall request the consent of Mortgagee in accordance with
this Section 2.9 Mortgagor shall deliver a written request to Mortgagee together
with (i) a review fee of Five Hundred and No/100 Dollars ($500.00) and (ii)
complete information regarding such conveyance or encumbrance (including
complete information concerning the person or entity to acquire the interest
conveyed). Mortgagee shall be allowed thirty (30) days after receipt of all
requested information for evaluation of such request. In the event that such
request is not approved within such thirty (30) day period, it shall be deemed
not approved. If such a conveyance or encumbrance is approved, Mortgagor shall
pay to Mortgagee a processing fee in the amount of Three Thousand and No/100
Dollars ($3,000.00) to compensate Mortgagee for processing the request. Approval
may be conditioned upon payment of a one percent (1 %) transfer fee and such
modification of the Loan terms, interest rate and maturity date as determined by
Mortgagee in its sole discretion. Consent as to any one transaction shall not be
deemed to be a waiver of the right to require consent to future or successive
transactions. Notwithstanding the foregoing provisions of this Section 2.9,
Mortgagee hereby consents to the transfer of shares of Mortgagor while shares of
Mortgagor are registered under the Securities Exchange Act of 1934 or otherwise
publicly traded.
SECTION 2.10 TRANSFER PERMITTED. Notwithstanding the above
restrictions, and provided no Event of Default has occurred and remains uncured,
Mortgagee will approve one and only one transfer of the Premises at any time and
will not require modification of the interest rate or maturity date stated in
the Note, provided:
(a) The transfer shall be to a reputable and competent transferee who
Mortgagee determines, in its sole discretion,
(i) has experience in the business of owning commercial real estate of
similar type, size and quality to the Premises and has a favorable
reputation, with respect to such business; and
(ii) has experience or has retained management with experience in the
management of similar properties; and
(iii) has the necessary financial strength and will assume by written
instrument reasonably acceptable to Mortgagee all of Mortgagor's
obligations under the Loan Documents including, without limitation, the
Hazardous Materials Indemnity Agreement;
(b) For the twelve (12) month period immediately preceding the date of
the proposed transfer, the annualized net operating income prior to the payment
of debt service is at least one hundred fifteen percent (115%) of the annual
debt service on the Note and on all subordinate financing secured by the
Premises, or any part thereof;
(c) The proposed purchaser must assume and agree to perform all
obligations under the Note, the Mortgage, the Assignment of Leases, the
Assignment of Rents and all other Loan Documents pursuant to an assumption
agreement reasonably acceptable to Mortgagee. Mortgagor and all existing
guarantors shall remain liable for payment of the Note and performance of the
other terms and conditions of the Note, this Mortgage, the Assignment of Leases,
the Assignment of Rents and any other Loan Documents, including any separate
guarantees or indemnity agreements made in favor of Mortgagee;
(d) In addition to the modification and review processing, Mortgagee
shall receive an additional transfer fee equal to one percent (1 %) of the
outstanding principal balance of the Note. If a request for the one-time
transfer is made during the first (1st) Loan Year and such transfer is approved
by Mortgagee, the transfer fee shall be two percent (2%) of the outstanding
principal balance of the Note, and if the request is approved the Five Hundred
Dollar ($500.00) review fee will be credited to the processing fee;
(e) The purchaser must acknowledge that future transfers and
encumbrances will be subject to Mortgagee's approval, which may, at Mortgagee's
sole discretion, be withheld or be conditioned upon payment of a fee and/or
modification of the terms of the Note and/or other Loan Documents;
(f) Notice of such transfer together with such documentation regarding
the transfer and the assuming person or entity as Mortgagee shall request shall
be given to Mortgagee at least thirty (30) days prior to such transfer;
(g) Transfer of the Premises may only be as a whole and not in part;
(h) Mortgagor shall pay all costs and expenses in connection with such
transfer including Mortgagee's attorneys' fees, in reviewing and processing such
consent to assumption and/or transfer and the fees of any broker;
(i) Mortgagor shall execute, deliver and record (when necessary) such
amendments, supplements, corrections and replacements in regard to the Loan
Documents and shall deliver endorsements to the Mortgagee's title insurance
policy as Mortgagee may require including an endorsement to the title policy
insuring the first lien position of the Mortgage, such endorsement to insure
that transferee is the owner of the Premises, subject to no liens or
encumbrances other than those shown in the title policy and current taxes not
yet due and payable;
(j) Mortgagee shall receive an appraisal of the Premises (exclusive of
chattels), satisfactory to it, which shows sufficient value so that the total of
all loans secured by the Premises does not exceed seventy-five percent (75%) of
such appraised value. If the appraisal shows that the total of all liens against
the Premises exceeds seventy-five percent (75%) of the value of the Premises,
Mortgagee may require, at Mortgagee's option, payment on the Note or payment of
other liens on the Premises so that such total will not exceed seventy-five
percent (75%) of value; and
(k) Mortgagor shall recognize that the total debt to be secured by the
Premises may not exceed the maximum permitted by Mortgagee.
Notwithstanding the foregoing provisions of this Section 2.10,
Mortgagee shall not apply the provisions of Section 2. 10(a)(i) and (ii) and
Section 2.10(b) if the approval for a request for transfer is made under this
Section 2.10 50 long as Mortgagor is the sole tenant of the Premises and remains
the sole tenant of the Premises after such transfer.
For the purposes of a permitted transfer, the term "net operating
income" for any period shall mean the aggregate rent, receipts and other
revenues which have accrued to the benefit of/received by the owner of the
Premises during such period from bona fide arms-length tenants in actual
possession of space in the Premises (based upon the then current certified rent
roll), less the sum of all operating expenses, maintenance costs, insurance
premiums, real estate taxes and assessments, and other costs, expenses and
expenditures (including required capital expenditures) attributable to ownership
of the Premises which is paid or accrued during such period, calculated in
accordance with generally accepted accounting principles and management
practices, but not including payments of principal or interest on the
Indebtedness or on any secondary financing on the Premises, depreciation or
other noncash charges and income taxes accrued during such period. Mortgagor
shall have the right to require delivery of evidence it reasonably deems
necessary to establish net/operating income from the Premises.
<PAGE>
ARTICLE 3
INSURANCE AND ESCROWS
SECTION 3.1 INSURANCE. During the term of this Mortgage, Mortgagor
shall obtain and keep in full force and effect at its sole cost and expense the
following insurance:
(a) Insurance against loss by fire, lightning and risk customarily
covered by standard extended coverage endorsement, including the cost of debris
removal, together with a vandalism and malicious mischief endorsement, sprinkler
leakage endorsement, such perils endorsements as determined by Mortgagee, all in
the amount of not less than full replacement cost without deduction for
depreciation of the improvements, (as shown in the appraisal submitted to and
approved by Mortgagee), and an agreed-amount endorsement, a replacement cost
endorsement and a waiver of subrogation endorsement;
(b) Broad Form Boiler and Machinery Insurance on all equipment and
pressure fired vessels or apparatus located on the Premises, and providing for
full repair and replacement cost coverage;
(c) Flood Insurance in the maximum amount available at any time during
the term of this Mortgage that the Premises are designated as lying within a
flood plain as defined by the Federal Insurance Administration;
(d) Loss of Rents and/or Business Interruption Insurance covering risk
of loss due to the occurrence of hazards insured against under the policies
required in Subsections (a), (b) and (c) hereof in an amount equal to: (i)
rental for a twelve (12) month period, plus (ii) real estate taxes, special
assessments, insurance premiums and other expenses required to be paid by the
tenants under each lease of the Premises for such twelve (12) month period.
(e) Comprehensive General Public Liability Insurance covering the legal
liability of Mortgagor against claims for bodily injury, death or property
damage occurring on, in or about the Premises in such minimal amounts and with
such minimal limits as Mortgagee may reasonably require;
(f) Builders Risk Insurance and Worker's Compensation Insurance during
the making of any alterations or improvements to the Premises; and
(g) Such other forms of insurance as Mortgagee may reasonably require
or as may be required by law.
In addition, Mortgagee is to be furnished with such engineering data as
it may reasonably require regarding the risk of earthquake or sinkhole damage to
the Premises. If Mortgagee shall reasonably determine in its sole opinion that
there is a material earthquake or sinkhole risk, or if insurance against
earthquake or sinkhole is required by law, Mortgagor will provide earthquake or
sinkhole insurance. Insurance policies shall be written on forms and with
insurance companies which are reasonably satisfactory to Mortgagee, shall name
as the insured parties Mortgagor and Mortgagee, as their interests may appear,
shall be in amounts sufficient to prevent the Mortgagor from becoming a
co-insurer of any loss thereunder, and shall bear a satisfactory mortgagee
clause in favor of Mortgagee with loss proceeds under any such policies to be
made payable to Mortgagee. All required policies of insurance together with
evidence of the payment of current premiums therefor shall be delivered to
Mortgagee and shall provide that Mortgagee shall receive at least thirty (30)
days' advance written notice prior to cancellation, amendment or termination of
any such policy of insurance. Mortgagor shall, within ten (10) days prior to the
expiration of any such policy, deliver evidence acceptable to Mortgagee, in
Mortgagee's sole judgment, verifying the renewal of such insurance together with
evidence of the payment of current premiums therefor. Mortgagor shall at its
expense furnish on renewal of insurance policies or upon request of Mortgagee
evidence of the replacement value of the improvements on the Premises in form
satisfactory to Mortgagee. Insurance coverage must at all times be maintained in
proper relationship to such replacement value and must always provide for agreed
amount coverage. Notwithstanding anything contained herein to the contrary, if
Mortgagor currently has a blanket policy of insurance that satisfies the
coverages required hereunder for the Premises, Mortgagee will accept a certified
or conformed copy of the blanket policy together with an original Certificate of
Insurance naming Mortgagee as mortgagee of the Premises.
In the event of foreclosure of this Mortgage or acquisition of the
Premises by Mortgagee, all such policies and any proceeds payable therefrom,
whether payable before or after a foreclosure sale, or during the period of
redemption, if any, shall become the absolute property of Mortgagee to be
utilized at its discretion. In the event of foreclosure or the failure to obtain
and keep any required insurance, Mortgagor empowers Mortgagee to effect
insurance upon the Premises at Mortgagor's expense and for the benefit of
Mortgagee in the amounts and types aforesaid for a period of time covering the
time lapse of insurance including lapse during redemption from foreclosure sale,
and if necessary, to cancel any or all existing insurance policies. Mortgagor
agrees to furnish Mortgagee copies of all inspection reports and insurance
recommendations received by Mortgagor from any insurer. Mortgagee makes no
representations that the above insurance requirements are adequate protection
for a prudent mortgagor.
Mortgagor shall comply with all provisions of any insurance policy
covering or applicable to the Premises or any part thereof, all requirements of
the issuer of any such policy, and all orders, rules, regulations and other
requirements of the Rhode Island Board of Fire Underwriters (or any other body
exercising similar functions) applicable to or affecting the Premises or any
part thereof or any use or condition of the Premises of any part thereof.
SECTION 3.2 ESCROWS. Mortgagor shall deposit with Mortgagee, or at
Mortgagee's request, with its servicing agent, on the first day of each and
every month, commencing with the date the first payment of interest and/or
principal and interest shall become due on the Indebtedness, a deposit to pay
the Impositions and insurance premiums (hereinafter collectively referred to as
the "Charges") in an amount equal to:
(a) One-twelfth (1/12) of the annual Impositions next to become due
upon the Premises; provided that, with the first such deposit, there
shall be deposited in addition an amount as estimated by Mortgagee
which, when added to monthly deposits to be made thereafter as provided
for herein, shall assure to Mortgagee's satisfaction that there will be
sufficient funds on deposit to pay the Impositions as they come due;
plus
(b) One-twelfth (1/12) of the annual premiums on each policy of
insurance required to be maintained hereunder; provided that with the
first such deposit there shall be deposited, in addition, an amount
equal to one-twelfth (1/12) of such annual insurance premiums
multiplied by the number of months elapsed between the date premiums on
each policy were last paid to and including the date of deposit;
provided that the amount of such deposits shall be based upon
Mortgagee's estimate as to the amount of Impositions and insurance
premiums next to be payable and may require that the full amount of
such payment will be available to Mortgagee at least one month in
advance of the due date. Mortgagee will, upon timely presentation to
Mortgagee by Mortgagor of the bills therefor, pay the Charges from such
deposits. Mortgagor agrees to cooperate and assist in obtaining of tax
bills when requested by Mortgagee. In the event the deposits on hand
shall not be sufficient to pay all of the estimated Charges when the
same shall become due from time to time, or the prior deposits shall be
less than the currently estimated monthly amounts, then Mortgagor shall
immediately pay to Mortgagee on demand any amount necessary to make up
the deficiency. The excess of any such deposits shall be credited
towards subsequent Charges.
If an Event of Default shall occur under the terms of this Mortgage,
Mortgagee may, at its option, without being required so to do, apply any
deposits on hand to the payment of Charges whether then due or not or to the
Indebtedness, in such order and manner as Mortgagee may elect. When the
Indebtedness has been fully paid any remaining deposits shall be returned to
Mortgagor as its interest may appear. All deposits are hereby pledged as
additional security for the Indebtedness, shall be held for the purposes for
which made as herein provided, may be held by Mortgagee or its servicing agent
and may be commingled with other funds of Mortgagee, or its servicing agent,
shall be held without allowance of interest thereon and without fiduciary
responsibility on the part of Mortgagee or its agents and shall not be subject
to the direction or control of Mortgagor. Neither Mortgagee nor its servicing
agent shall be liable for any act or omission made or taken in good faith. In
making any payments, Mortgagee or its servicing agent may rely on any statement,
bill or estimate procured from or issued by the payee without inquiry into the
validity or accuracy of the same. If the taxes shown in the tax statement shall
be levied on property more extensive than the Premises, Mortgagee shall be under
no duty to seek a tax division or apportionment of the tax bill, and any payment
of taxes based on a larger parcel shall be paid by Mortgagor and Mortgagor shall
expeditiously cause a tax subdivision to be made.
ARTICLE 4
UNIFORM COMMERCIAL CODE
SECTION 4.1 SECURITY AGREEMENT. This Mortgage shall constitute a
security agreement as defined in the Uniform Commercial Code in effect in the
State of Rhode Island, as amended from time to time (hereinafter referred to as
the "Code"), and Mortgagor hereby grants to Mortgagee a security interest within
the meaning of the Code in favor of Mortgagee on the Improvements, Fixtures,
Equipment and Personal Property, the Rents, Leases and Profits, the Judgments,
Condemnation Awards and Insurance Proceeds and other rights, and the Licenses,
Permits, Equipment Leases and Service Agreements and the Accounts Receivable and
General Intangibles described in Granting Clauses B, C, D, E, F and G of this
Mortgage (hereinafter referred to as the "Collateral").
SECTION 4.2 FIXTURE FILING. As to those items of Collateral described
in this Mortgage that are, or are to become fixtures related to the real estate
mortgaged herein, and all products and proceeds thereof, it is intended as to
those items that THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED
AS A FIXTURE FILING from the date of its filing in the real estate records of
the County where the Premises are situated. The name of the record owner of said
real estate is Mortgagor set forth in page 1 to this Mortgage. Information
concerning the security interest created by this instrument may be obtained from
Mortgagee, as secured party, at its address as set forth in page 1 of this
Mortgage. The address of Mortgagor, as debtor, is as set forth in page 1 to this
Mortgage. This document covers goods which are or are to become fixtures.
SECTION 4.3 REPRESENTATIONS AND AGREEMENTS. Mortgagor represents and
agrees: (a) Mortgagor is and will be the true and lawful owner of the
Collateral, subject to no liens, charges, security interest and encumbrances
other than the lien hereof and the Permitted Encumbrances; (b) the Collateral is
to be used by Mortgagor solely for business purposes being installed upon the
Premises for Mortgagor's own use or as the equipment and furnishing leased or
furnished by Mortgagor, as landlord, to tenants of the Premises; (c) the
Collateral will not be removed from the Premises without the consent of
Mortgagee except in accordance with Section 4.4 hereof; (d) unless stated
otherwise in this Mortgage the only persons having any interest in the
Collateral are Mortgagor and Mortgagee and no financing statement covering any
such property and any proceeds thereof is on file in any public office except
pursuant hereto; (e) the remedies of Mortgagee hereunder are cumulative and
separate, and the exercise of any one or more of the remedies provided for
herein or under the Code shall not be construed as a waiver of any of the other
rights of Mortgagee including having such Collateral deemed part of the realty
upon any foreclosure thereof; (f) if notice to any party of the intended
disposition of the Collateral is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given at least ten (10) days
prior to such intended disposition and may be given by advertisement in a
newspaper accepted for legal publications either separately or as part of a
notice given to foreclose the real property or may be given by private notice if
such parties are known to Mortgagee; (g) Mortgagor will from time to time
provide Mortgagee on request with itemizations of all Collateral; (h) the filing
of a financing statement pursuant to the Code shall never impair the stated
intention of this Mortgage that all Improvements, Fixtures, Equipment and
Personal Property described in Granting Clause B hereof are, and at all times
and for all purposes and in all proceedings both legal or equitable shall be
regarded as part of the real property mortgaged hereunder irrespective of
whether such item is physically attached to the real property or any such item
is referred to or reflected in a financing statement; (i) Mortgagor will on
demand deliver all financing statements and/or continuations that may from time
to time be required by Mortgagee to establish and perfect the priority of
Mortgagee's security interest in such Collateral and all costs, including
recording fees, shall be paid by Mortgagor; (j) Mortgagor shall give advance
written notice of any proposed change in Mortgagor's name, address, identity or
structure and will execute and deliver to Mortgagee prior to or concurrently
with such change all additional financing statements that Mortgagee may require
to establish and perfect the priority of Mortgagee's security interest; and (k)
Mortgagor shall renew and pay all expenses of renewing the financing statement
covering the Collateral in the event the security interest in such Collateral
will expire by reason of statutory law prior to the end of the term of this
Mortgage.
Mortgagor does hereby consent to and approve of the filing of Financing
Statements by electronic or computer technology, and further, Mortgagor does
hereby adopt as Mortgagor's signature the electronic or computer generated
typewritten signature of Mortgagor as if the same were the original handwritten
signature of Mortgagor.
SECTION 4.4 MAINTENANCE OF PROPERTY. Subject to the provisions of this
Section, in any instance where Mortgagor in its discretion determines that any
item subject to a security interest under this Mortgage has become inadequate,
obsolete, worn out, unsuitable, undesirable or unnecessary for the operation of
the Premises, Mortgagor may, at its expense, remove and dispose of it and
substitute and install other items not necessarily having the same function,
provided, that such removal and substitution shall be of comparable quality and
shall not impair the operating utility and unity of the Premises. All substitute
items shall become a part of the Premises and subject to the lien of Mortgage.
Any amounts received or allowed Mortgagor upon the sale or other disposition of
the removed items of property shall be applied only against the cost of
acquisition and installation of the substitute items. Nothing herein contained
shall be construed to prevent any tenant or subtenant from removing from the
Premises trade fixtures, furniture and equipment installed by tenant and
removable by such tenant under its terms of the lease, on the condition,
however, that all damages to the Premises resulting from or caused by the
removal thereof be repaired at the sole cost of Mortgagor if such tenant shall
fail to so repair.
ARTICLE 5
APPLICATION OF INSURANCE AND AWARDS
SECTION 5.1 DAMAGE OR DESTRUCTION OF THE PREMISES. Mortgagor will give
Mortgagee prompt notice of damage to or destruction of the Premises, and in case
of loss covered by policies of insurance, Mortgagee (whether before or after
foreclosure sale) is hereby authorized at its option to settle and adjust any
claim arising out of such policies and collect and receipt for the proceeds
payable therefrom, provided, if Mortgagor is not in default hereunder, Mortgagor
may itself adjust and collect for any losses arising out of a single occurrence
aggregating not in excess of Fifty Thousand and No/100 Dollars ($50,000.00). Any
expense incurred by Mortgagee in the adjustment and collection of insurance
proceeds (including the cost of any independent appraisal of the loss or damage
on behalf of Mortgagee) shall be reimbursed to Mortgagee first out of any such
insurance proceeds. The insurance proceeds or any part thereof shall be applied
to reduction of the Indebtedness then most remotely ~ be paid, whether due or
not, or to the restoration or repair of the Premises, the choice of application
to be solely at the discretion of Mortgagee. In the event Mortgagee does not
make insurance proceeds available for restoration and applies the insurance
proceeds to payment of the Indebtedness no prepayment fee shall be due on the
insurance proceeds so applied and the monthly installment payments of principal
and interest set forth in the Note shall be adjusted to an amount sufficient to
reamortize the then unpaid principal balance of the Note together with interest
in equal monthly installment payments over the then remaining portion of the
original amortization period. In the event Mortgagee does not make insurance
proceeds available for reconstruction of the Premises, Mortgagor shall have the
right to prepay the Loan in full without a prepayment fee.
SECTION 5.2 CONDEMNATION. Mortgagor will give Mortgagee prompt notice of any
action, actual or threatened, in condemnation or eminent domain and hereby
assigns, transfers, and sets over to Mortgagee the entire proceeds of any award
or claim for damages for all or any part of the Premises taken or damaged under
the power of eminent domain or condemnation (herein referred to as
Condemnation), Mortgagee being hereby authorized to intervene in any such action
and to collect and receive from the condemning authorities and give proper
receipts and acquittances for such proceeds. Mortgagor will not enter into any
agreements with the condemning authority permitting or consenting to the taking
of the Premises unless prior written consent of Mortgagee is obtained. Any
expenses incurred by Mortgagee in intervening in such action or collecting
Condemnation proceeds (including the cost of any independent appraisal) shall be
reimbursed to Mortgagee out of Condemnation proceeds prior to other payments or
disbursements. Mortgagor shall deliver all Condemnation proceeds to Mortgagee
within five (5) days of receipt thereof and shall at Mortgagee's request direct
the condemning authority to deliver the condemnation proceeds to Mortgagee.
Condemnation proceeds or any part thereof shall be applied upon or in reduction
of the Indebtedness then most remotely to be paid, whether due or not, or to the
restoration or repair of the Premises, the choice of application to be solely at
the discretion of Mortgagee. In the event Mortgagee does not make Condemnation
proceeds available for restoration and applies Condemnation proceeds to payment
of debt, no prepayment fee shall be due on Condemnation proceeds so applied and
the monthly installment payments of principal and interest set forth in the Note
shall be adjusted to an amount sufficient to reamortize the then unpaid
principal balance of the Note together with interest in equal monthly
installment payments over the then remaining portion of the original
amortization period. In the event Mortgagee does not make insurance proceeds
available for reconstruction of the Premises, Mortgagor shall have the right to
prepay the Loan in full without a prepayment fee.
SECTION 5.3 DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS. Should
any insurance or Condemnation proceeds be applied to the restoration or repair
of the Premises in accordance with this Article 5 the restoration or repair
shall be done under the supervision of an architect reasonably acceptable to
Mortgagee (or, at Mortgagee's discretion, an engineer reasonably acceptable to
Mortgagee) and pursuant to site and building plans and specifications reasonably
approved by Mortgagee. The proceeds from insurance or Condemnation, after
payment of costs and expenses of collection ("Net Proceeds"), shall be held by
Mortgagee for such purposes and will from time to time be disbursed by Mortgagee
to defray the costs of such restoration or repair under such safeguards and
controls as Mortgagee may require and in accordance with standard construction
loan procedures. Net Proceeds may at the option of Mortgagee be disbursed
through a Litle insurance company selected by Mortgagee and at the sole cost of
Mortgagor. Prior to making Net Proceeds available for the payment of costs of
repair or restoration of the improvements upon the Premises, Mortgagee shall be
entitled to receive the following:
(a) Evidence that no Event of Default exists under any of the terms,
covenants and conditions of this Mortgage, the Note, or other Loan Documents.
(b) Evidence that all leasing requirements for the Premises as
established by Mortgagee have been met.
(c) Satisfactory proof that all improvements have been fully restored,
or, if Mortgagee approves disbursements in installments, that the undisbursed
proceeds will be sufficient to pay the cost of repair, restoration or rebuilding
the improvements located on the Premises free and clear of all liens, except the
lien of this Mortgage. In the event Net Proceeds shall be insufficient to pay
for such repairs, restoration or rebuilding, Mortgagor shall deposit with
Mortgagee funds equaling such deficiency, which, together with the Net Proceeds,
shall be sufficient to pay for restoration, repair and rebuilding.
(d) A statement of Mortgagor's architect, certifying the extent of the repair
and restoration completed to the date thereof, and that such repairs,
restoration and rebuilding have been performed to date in conformity with the
plans and specifications that have been approved by Mortgagee, together with
appropriate evidence of payment for labor or materials furnished to the
Premises, and total or partial lien waivers substantiating such payments.
(e) A waiver of subrogation from any insurer to the effect that such
insurer has no liability against Mortgagor or the then owner or other insured
under the policy of insurance in question.
(f) Such performance and payment bonds, and such insurance, in such
amounts, issued by such company or companies and in such forms and substance, as
are reasonably required by Mortgagee.
(g) Evidence that zoning, building and other necessary permits and
approvals have been obtained.
(h) An opinion of Mortgagor's counsel in form and content reasonably
acceptable to Mortgagee that such repair and reconstruction will not violate any
authority or agreement to which Mortgagor may be subject.
(i) Reasonably satisfactory evidence is delivered to Mortgagee that the
improvements can be rebuilt substantially to the same as those originally
financed and can with restoration and repair continue to be operated for the
purposes utilized prior to such damage.
(j) Evidence that the then current Loan balance shall not exceed
seventy five percent (75%) of the appraised value of the Premises after such
restoration or repair.
(k) Tenants of the Premises as designated by Mortgagee shall certify to
Mortgagee their intention to continue to occupy the Premises without any
abatement or adjustment of rental payments (other than temporary abatements
during the period of restoration and repair).
(1) Evidence of fulfillment of all other reasonable requirements which
Mortgagee may make in connection with repair of the improvements on the
Premises.
In the event Mortgagor shall fail to restore, repair or rebuild the improvements
upon the Premises within a reasonable time, then such failure shall constitute
an Event of Default hereunder and Mortgagee, at its option and upon not less
than thirty (30) days written notice to Mortgagor, may in addition to its
remedies contained in Article 8 hereof (i) restore, repair or rebuild the said
improvements for or on behalf of Mortgagor and for such purpose, may perform all
necessary or appropriate acts to accomplish such restoration, repair or
rebuilding or (ii) apply all or any part of Net Proceeds on account of the last
maturing installments of the Indebtedness whether then due or not. In the event
insurance proceeds or an eminent domain award shall exceed the amount necessary
to complete the repair, restoration, or the rebuilding of the improvements upon
the Premises, such excess may, at Mortgagee's option, be applied on account of
the last maturing installments of the Indebtedness, irrespective of whether such
installments are then due and payable, without application of a prepayment fee,
or be returned to Mortgagor.
Damage to the Premises shall not excuse or defer payment on the
indebtedness as it comes due. Lender shall not make Net Proceeds available for
restoration or repair during the final Loan Year.
SECTION 5.4 MORTGAGEE TO MAKE INSURANCE PROCEEDS AVAILABLE.
Notwithstanding the provisions of Section 5.1 above, in the event of insured
damage to the improvements on the Premises, Mortgagee agrees to make insurance
proceeds available to the restoration or repair of the improvements on the
Premises in accordance with the provisions of Section 5.3 hereof provided: (a)
satisfactory evidence is delivered to Mortgagee that the total cost of
restoration and repair does not exceed twenty five percent (25%) of the then
outstanding principal balance of the Note; (b) Mortgagor complies with the terms
and conditions of Section 5.3 hereof.
ARTICLE 6
LEASES AND RENTS
SECTION 6.1 MORTGAGOR TO COMPLY WITH LEASES. Mortgagee acknowledges that as of
the date hereof that Mortgagor is the sole occupant (and owner) of the Premises,
and as such, there exists no leases in effect for the Premises, and that the
provisions of this Article 6 (and elsewhere in this Mortgage with respect to
leases and rents) are intended to an shall cover and apply to any future leases
of or on the Premises. Mortgagor will, at its own cost and expense, perform,
comply with and discharge all of the obligations of Mortgagor under leases of
all or any part of the Premises and use its reasonable efforts to enforce or
secure the performance of each obligation and undertaking of the respective
tenants under any such leases and will appear in and defend, at its own cost and
expense, any action or proceeding arising out of or in any manner connected with
Mortgagor's interest in any leases pertaining to the Premises. Mortgagor will
not enter any new leases, nor modify, extend, renew, terminate, accept a
surrender of, or in any way alter the terms of such leases, nor borrow against,
pledge or assign any rentals due under the leases nor consent to a subordination
or assignment of the interest of a tenant thereunder to any party other than
Mortgagee, nor anticipate the rents thereunder for more than one (1) month in
advance or reduce the amount of rents and other payments thereunder, nor waive,
excuse, condone or in any manner release or discharge a tenant of or from any
obligations, covenants, conditions and agreements to be performed nor incur any
indebtedness to a tenant, nor agree to any "free rent period without Mortgagee's
consent which shall not be unreasonably withheld, nor enter into any additional
leases of all or any part of the Premises without the prior written consent of
Mortgagee. Mortgagor shall give Mortgagee a copy of any notice of default given
by Mortgagor to any tenants of the Premises.
SECTION 6.2 MORTGAGEE'S RIGHT TO PERFORM UNDER LEASES. Upon the
occurrence of an Event of Default and should Mortgagor fail to perform, comply
with or discharge any obligations of Mortgagor under any lease of all or any
part of the Premises or should Mortgagee become aware of or be notified by a
tenant under any such lease of a failure on the part of Mortgagor to so perform,
comply with or discharge its obligations under said lease, Mortgagee may, but
shall not be obligated to, and without flirther demand upon Mortgagor, and
without waiving or releasing Mortgagor from any obligation contained in this
Mortgage, remedy such failure, and Mortgagor agrees to repay upon demand all
sums incurred by Mortgagee in remedying any such failure including, without
limitation, Mortgagee's reasonable attorneys' fee together with interest at the
Default Rate as defined under the terms of the Note. All such sums, together
with interest as aforesaid shall become so much additional Indebtedness, but no
such advance shall be deemed to relieve Mortgagor from any default hereunder.
SECTION 6.3 ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby
unconditionally and absolutely sell, assign and transfer unto Mortgagee all of
the leases, rents, issues, income and profits now due and which may hereafter
become due under or by virtue of any lease, whether written or verbal, or any
agreement or license for the use or occupancy of the Premises, whether now
existing or entered into at any time during the term of this Mortgage, all
guaranties of any lessee's obligations under any such lease and all security
deposits, it being the intention of this Mortgage to establish an absolute
transfer and assignment of all such leases and agreements and all of the rents
and profits from the Premises and/or Mortgagor's operation or ownership thereof
unto Mortgagee and Mortgagor does hereby appoint irrevocably Mortgagee as
Mortgagor's true and lawfiil attorney in Mortgagor's name and stead, which
appointment is coupled with an interest, to collect all of said rents and
profits; provided, Mortgagor shall have the right to collect and retain such
rents and profits unless and until an Event of Default exists under this
Mortgage. Mortgagor assigns to Mortgagee all guarantees of lessee's obligation
under leases and all proceeds from settlements relating to terminations of
leases and all claims for damages arising from rejection of any lease under the
bankruptcy laws. Upon the occurrence of an Event of Default and whether before
or after the institution of legal proceedings to foreclose the lien hereof or
before or after sale thereunder or during any period of redemption existing by
law, forthwith, upon demand of Mortgagee, Mortgagor shall surrender to Mortgagee
and Mortgagee shall be entitled to enter upon and take and maintain possession
of the Premises and any leases thereunder and collect and retain any rents and
profits from the Premises and hold, operate, manage and control the Premises and
any such leases and to do such things in its discretion as may be deemed proper
or necessary to enforce the payment or security of the rents and profits of the
Premises and the performance of the tenants' obligations under any leases of the
Premises, with hill power to cancel or terminate any lease for any cause or on
any grounds which would entitle Mortgagor to cancel the same and to elect to
disaffirm any lease made subsequent to this Mortgage or subordinated to the lien
hereof. All rents and payments received by Mortgagor after Mortgagee has
exercised any of its rights under this assignment shall be held by Mortgagor in
trust for Mortgagee and shall be delivered to Mortgagee immediately without
demand.
Mortgagee shall not be obligated to perform or discharge any obligation
or liability of the landlord under any of said leases and Mortgagor shall and
does hereby agree to indemnify and hold Mortgagee harmless of and from any and
all expenses, liability, loss or damage which it might incur under said leases
or under or by reason of this Mortgage. Any amounts incurred by Mortgagee in
connection with its rights hereunder, including costs, expenses and reasonable
attorneys' fees, shall bear interest thereon at the Default Rate stated in the
Note, shall be additional Indebtedness and Mortgagor shall reimburse Mortgagee
therefor immediately upon demand. Mortgagee may apply any of said rents and
profits received to the costs and expenses of collection, including reasonable
attorneys' fees, to the payment of taxes, assessments and insurance premiums and
expenditures for the upkeep of the Premises, to the performance of the
landlord's obligations under the lease, to the performance of any of Mortgagor's
covenants hereunder, and to any Indebtedness in such order as Mortgagee may
determine. The entering upon and taking possession of the Premises, the
collection of such rents and profits and the application thereof as aforesaid
shall not cure or waive any Event of Default under this Mortgage nor in any way
operate to prevent Mortgagee from pursuing any other remedy which it may now or
hereafter have under the terms of this Mortgage nor shall it in any way be
deemed to constitute Mortgagee a mortgagee-in-possession. The rights hereunder
shall in no way be dependent upon and shall apply without regard to whether the
Premises are in danger of being lost, materially injured or damaged or whether
the Premises are adequate to discharge the Indebtedness. Mortgagor represents
and agrees that no rent has been or will be paid by any person in possession of
any portion of the Premises for more than one installment in advance and that
the payment of none of the rents to accrue for any portion of the Premises has
been or will be waived, released, reduced, discounted, or otherwise discharged
or compromised by Mortgagor. Mortgagor waives any right of set off against any
person in possession of any portion of the Premises. Mortgagor further agrees
that Mortgagor will not execute or agree to any subsequent assignment of any of
the rents or profits from the Premises without the prior written consent of
Mortgagee. The rights contained herein are in addition to and shall be
cumulative with the rights given in the Assignment of Leases and Assignment of
Rents. To the extent inconsistent with the terms of this Article 6, the terms of
the Assignment of Leases and Assignment of Rents shall control.
It is understood and agreed by the Mortgagor that upon the occurrence of an
Event of Default hereunder or under the Note or any of the Loan Documents, the
rents and profits of the Premises shall not be available to pay the costs of the
defense of any action, proceeding or claim brought by the Mortgagee against the
Mortgagor or the Premises (including the reasonable fees, and expenses of the
Mortgagor's attorney or attorneys or the attorneys for the Guarantors (or any of
them) in defending against such action, proceeding or claim) and upon the
occurrence of a voluntary or involuntary bankruptcy of the Mortgagor under the
Bankruptcy Code (as defined in Section 6.4 hereof below), rents and profits from
the Premises shall not be available to pay administrative expenses of the
bankruptcy estate where such administrative expenses constitute fees and
expenses of the Mortgagor's attorneys, representatives or agents. After the
occurrence of an Event of Default, all rents and profits of the Premises
collected by the Mortgagor or his agents or representatives shall be held in
trust for the Mortgagee.
SECTION 6.4 BANKRUPTCY. (a) Mortgagor hereby unconditionally assigns,
transfers and sets over to Mortgagee all of Mortgagor's claims and rights to the
payment of damages arising from any rejection by any lessee of any lease of the
Premises under the Bankruptcy Code, 11 U.S.C. ~ 101, et seq., as amended (the
"Bankruptcy Code"). Mortgagee shall have the right to proceed in its own name or
in the name of the Mortgagor in respect of any claim, suit, action of proceeding
relating to the rejection of such lease, including, without limitation, the
right to file and prosecute, to the exclusion of the Mortgagor any proofs of
claim, complaints, motions, applications, notices and other documents, in any
case in respect of such lessee under the Bankruptcy Code. This assignment
constitutes a present, irrevocable and unconditional assignment of the foregoing
claims, rights and remedies, and shall continue in effect until all of the
indebtedness secured by this Mortgage shall have been satisfied and discharged
in full. Mortgagor agrees to execute and deliver any separate assignments of
claim or proofs of claim requested by the Mortgagee for filing in any bankruptcy
proceedings relating to a tenant leasing all or a portion of the Premises. Any
amounts received by Mortgagee as damages arising out of rejection for a lease as
aforesaid shall be applied first to all costs and expenses of Mortgagee
(including, without limitation, reasonable attorneys' fees) incurred in
connection with the exercise of any of its rights or remedies under this Section
6.4, second to any interest, late payment charges or other amounts due and
payable to the Mortgagee under the Note or this Mortgage and third to principal
due on the Note. To the extent proceeds collected by the Mortgagee under any
lease pursuant to this Section 6.4 is applied to principal payable on the Note,
no prepayment premium shall be due on such proceeds and to the extent such
proceeds are applied to the principal indebtedness on the Note, and provided no
Event of Default has occurred under this Mortgage or under any other Loan
Document, the monthly payments of principal and interest set forth in the Note
shall be adjusted to an amount sufficient to reamortize the then unpaid
principal balance of the Note, together with interest, in equal monthly
installment payments over the then remaining portion of the original twenty (20)
year amortization period.
(b) If there shall be filed by or against the Mortgagor a petition under the
Bankruptcy Code, and the Mortgagor, as lessor under the leases of the Premises,
shall decide to reject the leases (or any of them) of the Premises pursuant to
Section 365 (a) of the Bankruptcy Code, the Mortgagor shall give the Mortgagee
not less than ten (10) days prior notice of the date on which the Mortgagor
shall apply to the bankruptcy court for authority to reject the lease. The
Mortgagee shall have the right to the fullest extent permitted by applicable
law, but not the obligation, to serve upon the Mortgagor within such ten (10)
day period a notice stating that (a) the Mortgagee demands that the Mortgagor
assume and assign the leases to the Mortgagee pursuant to Section 365 of the
Bankruptcy Code and (b) the Mortgagee covenants to cure or provide adequate
assurance of future performance under the lease to the fullest extent permitted
by applicable law. If the Mortgagee serves upon the Mortgagor the notice
described in the preceding sentence, the Mortgagor shall not seek to reject the
leases (or any of them) and shall comply with the demand provided for in clause
(a) of the preceding sentence within thirty (30) days after the notice shall
have been given, subject to the performance by the Mortgagee of the covenant
provided for in clause (b) of the preceding sentence.
ARTICLE 7
RIGHTS OF MORTGAGEE
SECTION 7.1 RIGHT TO CURE EVENT OF DEFAULT. If Mortgagor shall fail to
comply with any of the covenants or obligations of this Mortgage, Mortgagee may
upon an Event of Default, but shall not be obligated to, without demand upon
Mortgagor, and without waiving or releasing Mortgagor from any obligation in
this Mortgage contained, remedy such failure, and Mortgagor agrees to repay upon
demand all sums incurred by Mortgagee in remedying any such failure together
with expenses and reasonable attorneys' fees and with interest at the Default
Rate as defined under the terms of the Note. All such sums, together with
interest as aforesaid shall become Indebtedness. No such advance shall be deemed
to relieve Mortgagor from any failure hereunder.
SECTION 7.2 NO CLAIM AGAINST MORTGAGEE. Nothing contained in this
Mortgage shall constitute any consent or request by Mortgagee, express or
implied, for the performance of any labor or services or for the furnishing of
any materials or other property in respect of the Premises or any part thereof,
nor as giving Mortgagor or any party in interest with Mortgagor any right, power
or authority to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property in such fashion as would
create any personal liability against Mortgagee in respect thereof or would
permit the making of any claim that any lien based on the performance of such
labor or services or the furnishing of any such materials or other property in
such fashion as would create any personal liability against Mortgagee in respect
thereof or would permit the making of any claim that any lien based on the
performance of such labor or services or the furnishing of any such materials or
other property is prior to the lien of this Mortgage.
SECTION 7.3 INSPECTION. Mortgagor will permit Mortgagee or its authorized
representatives upon reasonable prior notice (except in the event of an
emergency, in which case no notice shall be required) to enter the Premises at
all times during normal business hours for the purpose of inspecting the same;
provided Mortgagee shall have no duty to make such inspections and shall not
incur any liability or obligation for making or not making any such inspections.
SECTION 7.4 WAIVERS, RELEASES, RESORT TO OTHER SECURITY ETC. Without
affecting the liability of any party liable for payment of any Indebtedness or
performance of any obligation contained herein, and without affecting the rights
of Mortgagee with respect to any security not expressly released in writing,
Mortgagee may, at any time, and without notice to or the consent of Mortgagor or
any party in interest with the Premises or the Note: (a) release any person
liable for payment of all or any part of the Indebtedness or for performance of
any obligation herein; (b) make any agreement extending the time or otherwise
altering the terms of payment of all or any part of the Indebtedness or
modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (c) accept any additional security; (d)
release or otherwise deal with any property, real or personal, including any or
all of the Premises, including making partial releases of the Premises; or (e)
resort to any security agreements, pledges, contracts of guarantee, assignments
of rents and leases or other securities, and exhaust any one or more of said
securities and the security hereunder, either concurrently or independently and
in such order as it may determine.
SECTION 7.5 RIGHTS CUMULATIVE. Each right, power or remedy herein
conferred upon Mortgagee is cumulative and in addition to every other right,
power or remedy, express or implied, now or hereafter arising, available to
Mortgagee, at law or in equity, or under the Code, or under any other agreement,
and each and every right, power and remedy of Mortgagee herein set forth or
otherwise so existing shall be cumulative to the maximum extent permitted by law
and may be exercised from time to time as often and in such order as may be
deemed expedient by Mortgagee and any such exercise shall not be a waiver of the
right to exercise at any time thereafter any other right, power or remedy. No
delay or omission by Mortgagee in the exercise of any right, power or remedy
arising hereunder or arising otherwise shall impair any such right, power or
remedy or the right of Mortgagee to resort thereto at a later date or be
construed to be a waiver of any Event of Default under this Mortgage or the
Note.
SECTION 7.6 SUBSEOUENT AGREEMENTS. Any agreement hereafter made by
Mortgagor and Mortgagee pursuant to this Mortgage shall be superior to the
rights of the holder of any intervening lien or encumbrance.
SECTION 7.7 WAIVER OF APPRAISEMENT, HOMESTEAD, MARSHALING. Mortgagor hereby
waives to the full extent lawfully allowed the benefit of any homestead,
appraisement, valuation, stay and extension laws now or hereinafter in force.
Mortgagor hereby waives any rights available with respect to marshaling of
assets so as to require the separate sales of any portion of the Premises, or as
to require Mortgagee to exhaust its remedies against a specific portion of the
Premises before proceeding against the other and does hereby expressly consent
to and authorize the sale of the Premises or any part thereof as a single unit
or parcel. Mortgagor also hereby waives any and all rights of reinstatement and
redemption from sale under any order or decree of foreclosure pursuant to rights
herein granted, on behalf of the Mortgagor, and each and every person acquiring
any interest in, or title to the Premises described herein subsequent to the
date of this Mortgage, and on behalf of all other persons to the extent
permitted by applicable law.
SECTION 7.8 BUSINESS LOAN REPRESENTATION. Mortgagor represents and
warrants to Mortgagee that the Loan evidenced by the Note is a business loan
transacted solely for the purpose of carrying on the business of Mortgagor and
not a consumer transaction and that the Premises does not constitute the
homestead of Mortgagor.
SECTION 7.9 DISHONORED CHECKS. In the event Mortgagor shall send to
Mortgagee two (2) or more checks in any twelve (12) month period which are not
honored by the bank, for any reason, Mortgagee shall have the right to require
that all future payments be made by certified check, or other good funds, at
Mortgagee's option.
ARTICLE 8
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall be deemed an event of default under this Mortgage (hereinafter referred to
as an "Event of Default"):
(a) Mortgagor or any co-maker, guarantor or surety shall fail to pay
any principal, premium, if any, or interest on the Note when and as the same
becomes due (whether at the stated maturity or at a date fixed for any
installment payment or any accelerated payment date or otherwise); or
(b) Mortgagor shall fail to deposit the Charges with Mortgagee or to
pay when due any other Indebtedness; or
(c) Mortgagor shall fail to comply with or perform any other term,
condition or covenant of the Note, this Mortgage, the Assignment of Leases, the
Assignment of Rents, the Hazardous Materials Indemnity Agreement or any other
document securing the Note after the expiration of thirty (30) days of the
giving of notice by Mortgagee to Mortgagor of such failure to comply or perform,
provided, however, if such failure is incapable of being cured within such
thirty (30) days, Mortgagor shall have an additional cure period of thirty (30)
days to cure (such total cure period not to exceed sixty (60) days) so long as
Mortgagor is diligently and continuously pursuing such cure; or
(d) Mortgagor or any maker, guarantor or surety of the Note shall make
an assignment for the benefit of its creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a petition in
bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a
petition seeking any reorganization, dissolution, liquidation, arrangement,
composition, readjustment or similar relief under any present or future
bankruptcy or insolvency statute, law or regulation or shall file an answer
admitting to or not contesting the material allegations of a petition filed
against it in such proceedings, or shall not within ninety (90) days after the
filing of such a petition have the same dismissed or vacated, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of a material part of its properties, or shall not within ninety (90)
days after the appointment of a trustee, receiver or liquidator of any material
part of its properties without Mortgagor's consent have such appointment
vacated; or
(e) Any certification, representation or warranty made by Mortgagor
herein, in the Note or in any other instrument or certificate given as security
for the Note or made in connection with the application for the Loan evidenced
by the Note or given as an inducement to Mortgagee to make the Joan shall be
false, breached or dishonored; or
(f) The Premises shall be transferred in any manner other than that
allowed herein;
or
(g) Subject to the provisions of Sections 2.9 and 2.10 hereof,
Mortgagor or any of the guarantors of the Indebtedness shall die, be dissolved,
liquidated or go out of existence; or
(h) The occurrence of an Event of Default under Sections 9~4 or ~0.8
hereof.
SECTION 8.2 MORTGAGEE'S RIGHT TO ACCELERATE. If an Event of Default
shall occur Mortgagee may immediately and without notice to Mortgagor declare
the entire unpaid principal balance of the Note together with all other
Indebtedness to be immediately due and payable and thereupon all such unpaid
principal balance of the Note together with all accrued interest thereon, any
prepayment premium under the term~ of the Note and all other Indebtedness shall
be and become immediately due and payable.
SECTION 8.3 REMEDIES OF MORTGAGEE AND RIGHT TO FORECLOSE. Upon the occurrence of
an Event of Default, Mortgagor hereby authorizes and fully empowers Mortgagee to
foreclose this Mortgage by judicial proceedings, by advertisement, or by such
other statutory procedures including, without limitation, the statutory power of
sale available in the state in which the Premises are located, at the option of
Mortgagee, with full authority to sell the Premises at public auction or such
other means permitted by law and convey the same to the purchaser in fee simple,
all in accordance with and in the manner prescribed by law, and out of the
proceeds arising from sale and foreclosure to retain the principal, prepayment
fee, if any, and interest due on the Note and all other Indebtedness together
with all sums of money as Mortgagee shall have expended or advanced pursuant to
this Mortgage or pursuant to statute together with interest thereon as herein
provided and all costs and expenses of such foreclosure, including lawful
attorneys' fees, with the balance, if any, to be paid to the persons entitled
thereto by law.
SECTION 8.4 RECEIVER. Upon the occurrence of an Event of Default,
Mortgagee shall be entitled as a matter of right without notice and without
regard to the solvency or insolvency of Mortgagor, or the existence of waste of
the Premises or the value of the Premises, and without giving bond apply for the
appointment of a receiver in accordance with the statutes and law made and
provided for who shall collect the rents, and all other income of any kind;
manage the Premises so to prevent waste; execute leases within or beyond the
period of receivership, pay all expenses for normal maintenance of the Premises
and perform the terms of this Mortgage and apply the rents, issues, income and
profits to the costs and expenses of the receivership, including attorneys'
fees, to the repayment of the Indebtedness and to the operation, maintenance and
upkeep and repair of the Premises, including payment of taxes on the Premises
and payments of premiums of insurance on the Premises and any other rights
permitted by law. Mortgagor does hereby irrevocably consent to such appointment.
The receiver may, to the extent permitted under applicable law, without notice,
enter upon and take possession of the Premises, or any part thereof, by force,
summary proceedings, ejectment or otherwise, and remove Mortgagor or any other
person or entity and any personal property therefrom, and may hold, operate and
manage the same, receive all rents, earnings, incomes, issues and proceeds and
do the things the receiver finds necessary to preserve and protect the Premises,
whether during pendency of foreclosure, during a redemption period, if any, or
otherwise.
SECTION 8.5 RIGHTS UNDER UNIFORM COMMERCIAL CODE. In addition to the
rights available to a mortgagee of real property, Mortgagee shall also have all
the righ~, remedies and recourse available to a secured party under the Code
including the right to proceed under the provisions of the Code governing
default as to any Collateral as defined in this Mortgage which may be included
on the Premises or which may be deemed nonrealty in a foreclosure of this
Mortgage or to proceed as to such Collateral in accordance with the procedures
and remedies available pursuant to a foreclosure of real estate.
SECTION 8.6 RIGHT TO DISCONTINUE PROCEEDINGS. In the event Mortgagee
shall have proceeded to invoke any right, remedy or recourse permitted under
this Mortgage and shall thereafter elect to discontinue or abandon the same for
any reason, Mortgagee shall have the unqualified right to do so and in such
event Mortgagor and Mortgagee shall be restored to their former positions with
respect to the Indebtedness in which case this Mortgage and all rights, remedies
and recourse of Mortgagee shall continue as if such action or exercise of a
right had not been invoked.
SECTION 8.7 WAIVERS. Mortgagor also waives the benefit of all laws now
existing or that may hereinafter be enacted providing for (i) any appraisal
before sale of any portion of the Premises, and (ii) in any way extending the
time for the enforcement and collection of the Note or the Mortgage or creating
or extending a period of redemption from any sale made in collecting said debt.
To the full extent Mortgagor may do so, Mortgagor agrees that Mortgagor will not
at any time insist upon, plead, claim or take the benefit or advantage of any
law now or hereafter enforced providing for any appraisal, valuation, stay,
extension or redemption and Mortgagor, to the extent permitted by law, waives
and releases all rights of redemption, valuation, appraisal, stay of execution,
notice of election to mature or declare due the whole of the Mortgage and
marshaling in the event of foreclosure of the liens hereby created.
ARTICLE 9
HAZARDOUS MATERIALS
SECTION 9.1 DEFINITIONS. The term "Hazardous Materials or Wastes" shall
mean any hazardous or toxic materials, pollutants, chemicals, or contaminants,
including without limitation asbestos, polychlorinated biphenyls (PCBs) and
petroleum products as defined, determined or identified as such in any Laws, as
hereinafter defined. The term "Laws" means any federal, state or local laws,
rules or regulations (whether now existing or hereinafter enacted or
promulgated) including, without limitation, the Clean Water Act, 33 U.S.C.
ss.ss. 1251 et seq. (1972), the Clean Air Act, 42 U.S.C. ~ss. 7401 et seq.
(1970), the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Subsection 1802, and The Resource
Conservation and Recovery Act, 42 U.S.C. Subsection 6901 et.seq., and any
similar state laws, as well as any judicial or administrative interpretation
thereof, including any judicial or administrative orders or judgments.
SECTION 9.2 REPRESENTATIONS BY MORTGAGOR. Mortgagor hereby represents to
Mortgagee that: (a) to the best of Mortgagor's knowledge after due inquiry, the
Premises has never been used either by previous owners or occupants or by
Mortgagor or current occupants to generate, manufacture, refine, transport,
treat, store, handle or dispose of asbestos or any Hazardous Materials or Wastes
and no such Hazardous Materials or Wastes exist on the Premises or in its soil
or groundwater; (b) to the best of Mortgagor's knowledge after due inquiry, no
portion of the improvements on the Premises has been constructed with asbestos,
asbestos-containing materials, urea formaldehyde insulation or any other
chemical or substance which has been determined to be a hazard to health and/or
the environment; (c) to the best of Mortgagor's knowledge after due inquiry,
there are not now nor have there been electrical transformers or other equipment
which have dielectric fluid-containing polychlorinated biphenyls (PCBs) located
in, on or under the Premises; (d) to the best of Mortgagor's knowledge after due
inquiry, the Premises has never contained any underground storage tanks; and (e)
Mortgagor has not received nor does it have any knowledge of any summons,
citation, directive, letter or other communication, written or oral, from any
local, state or federal governmental agency concerning (i) the existence of
Hazardous Materials or Wastes on the Premises or in the immediate vicinity or
(ii) the releasing, spilling, leaking, pumping, pouring, emitting, emptying, or
dumping of Hazardous Materials or Wastes onto the Premises or into waters or
other lands.
The above representations shall not be deemed to include Hazardous
Materials or Wastes which are used in the ordinary course of the operation of
businesses on the Premises and which are stored, used and disposed of in
accordance with all applicable Laws and ordinances and for which any necessary
permits have been obtained.
SECTION 9.3 COVENANTS OF MORTGAGOR. Mortgagor hereby covenants to
Mortgagee that: (a) Mortgagor shall (i) comply and shall cause all occupants of
the Premises to comply with all federal, state and local laws, rules,
regulations and orders with respect to the discharge, generation, removal,
transportation, storage and handling of Hazardous Materials or Wastes, (ii)
remove any Hazardous Materials or Wastes immediately upon discovery of same, in
accordance with applicable laws, ordinances and orders of governmental
authorities having jurisdiction thereof, (iii) pay or cause to be paid all costs
associated with such removal; and (iv) indemnify Mortgagee from and against all
losses, claims and costs arising out of the migration of Hazardous Materials or
Wastes from or through the Premises onto or under other properties; (b)
Mortgagor shall keep the Premises free of any lien imposed pursuant to any state
or federal law, rule, regulation or order in connection with the existence of
Hazardous Materials or Wastes on the Premises; (c) Mortgagor shall not install
or permit to be installed or to exist in or on the Premises any asbestos,
asbestos-containing materials, urea formaldehyde insulation or any other
chemical or substance which has been determined to be a hazard to health and
environment; and (d) Mortgagor shall not cause or permit to exist, as a result
of an intentional or unintentional act or omission on the part of Mortgagor or
any occupant of the Premises, a releasing, spilling, leaking, pumping, emitting,
pouring, emptying or dumping of any Hazardous Materials or Wastes onto the
Premises or into waters or other lands; and (e) Mortgagor shall give all
notifications and prepare all reports required by Laws or any other law with
respect to Hazardous Materials or Wastes existing on, released from or emitted
from the Premises.
The above covenants shall not be deemed to prohibit Hazardous Materials
or Wastes which are used in the ordinary course of the operation of businesses
on the Premises and which are stored, used and disposed of in accordance with
all applicable Laws and ordinances and for which any necessary permits have been
obtained.
SECTION 9.4 EVENTS OF DEFAULT AND REMEDIES. It shall constitute an
Event of Default hereunder and Mortgagee shall be entitled to exercise all
remedies available to it hereunder if: (a) any of Mortgagor's representations
contained in Section 9.2 hereof prove to be false, inaccurate or misleading; (b)
Mortgagor shall fail to comply with the covenants contained in Section 9.3
hereof; (c) any Hazardous Materials or Wastes are hereafter found to exist on
the Premises or in its soil or groundwater; or (d) any summons, citation,
directive, letter or other communication, written or oral, shall be issued by
any local, state or federal governmental agency concerning the matters described
in Section 9.2(e)(i) and (ii) above, provided, in any such case, the Mortgagor
shall have failed to cure such default within thirty (30) days after giving
written notice thereof to the Mortgagor (or, if the default is of a nature that
it cannot reasonably be cured within such thirty (30) day period, such
additional period of time not to exceed sixty (60) additional days as may be
reasonably required so long as Mortgagor has immediately commenced its cure and
thereafter diligently prosecutes such cure to completion). The existence of
Hazardous Materials or Wastes which are used in the ordinary course of the
operation of businesses on the Premises and which are stored, used and disposed
of in accordance with all applicable Laws and ordinances and for which any
necessary permits have been obtained shall not constitute an Event of Default
under this Section 9.4. Mortgagor hereby grants Mortgagee and its employees and
agents an irrevocable and non-exclusive license to enter the Premises, subject
to rights of tenants and upon reasonable prior notice, in order to inspect, and
to conduct testing and remove Hazardous Materials or Wastes. All costs of such
inspection, testing and removal shall immediately become due and payable to
Mortgagee, shall be secured by this Mortgage and shall constitute additional
Indebtedness.
SECTION 9.5 INDEMNIFICATION. Mortgagor hereby agrees to defend,
indemnify and hold harmless Mortgagee, its directors, officers, employees,
agents, contractors, subcontractors, licensees, invitees, successors and assigns
("Indemnified Parties") from and against any and all claims, losses, damages,
liabilities, judgments, costs and expenses (including, without limitation,
reasonable attorneys' fees, and costs incurred in the investigation, defense and
settlement of claims or remediation of contamination) incurred by the
Indemnified Parties as a result of or in connection with the presence or removal
of Hazardous Materials or Wastes or as a result of or in connection with
activities prohibited under this Article. Mortgagor shall bear, pay and
discharge, as and when the same become due and payable, any and all such
judgments or claims for damages, penalties or otherwise, against the Indenmified
Parties, shall hold the Indemnified Parties harmless against all claims, losses,
damages, liabilities, costs and expenses, and shall assume the burden and
expense of defending all suits, administrative proceedings, and negotiations of
any description with any and all persons, political subdivisions or government
agencies arising out of any of the occurrences set forth in this Article. This
indemnification shall remain in full force and effect and shall survive the
repayment of the Indebtedness and the satisfaction of the documents securing the
same, as well as the exercise of any remedy by Mortgagee hereunder or under the
other documents securing this Mortgage, including a foreclosure of this Mortgage
or the acceptance of a deed in lieu of foreclosure.
The indemnities contained herein shall not apply to actions taken by
any party or to Hazardous Materials or Wastes first existing on the Premises
after the date on which the Mortgagor is no longer fee owner of the Premises.
SECTION 9.6 LOSS OF VALUE. Mortgagor hereby assures Mortgagee that
Mortgagee will not suffer loss due to diminution of value of the Premises,
whether during the term hereof or thereafter, due to Hazardous Material or
Wastes upon the Premises, except for those Mortgagor proves were introduced onto
the Premises after title has passed to Mortgagee by foreclosure or otherwise and
will, upon demand, reimburse Mortgagee for any such loss of value.
<PAGE>
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 RELEASE OF MORTGAGE. When all Indebtedness has been paid,
this Mortgage and all assignments herein contained shall, except as otherwise
provided herein, terminate and shall be released by Mortgagee at Mortgagor's
expense.
SECTION 10.2 CHOICE OF LAW. This Mortgage is made and executed under
the laws of the State of Rhode Island and is intended to be governed by the laws
of said State without resort to its conflicts of laws rules.
SECTION 10.3 SUCCESSORS AND ASSIGNS. This Mortgage and each and every
covenant agreement and other provision hereof shall be binding upon Mortgagor
and its successors and assigns, including, without limitation each and every
person or entity that may, from time to time, be record owner of the Premises
and any person, or entity, other than Mortgagee, having an interest therein,
shall run with the land and shall inure to the benefit of Mortgagee and its
successors and assigns. As used herein the words "successors and assigns" shall
also be deemed to include the heirs, representatives, administrators and
executors of any natural person who is a party to this Mortgage. Nothing in this
Section shall be construed to constitute consent by Mortgagee to assignment by
Mortgagor.
SECTION 10.4 PARTIAL INVALIDITY. All rights, powers and remedies
provided herein are intended to be limited to the extent necessary so that they
will not render this Mortgage invalid, unenforceable or not entitled to be
recorded, registered or filed under any applicable law. If any term of this
Mortgage shall be held to be invalid, illegal or unenforceable, the validity and
enforceability of the other terms of this Mortgage shall in no way be affected
thereby.
SECTION 10.5 CAPTIONS AND HEADINGS. The captions and headings of the various
sections of this Mortgage are for convenience only and are not to be construed
as confining or limiting in any way the scope or intent of the provisions
hereof. Whenever the context requires or permits the singular shall include the
plural, the plural shall include the singular and the masculine, feminine and
neuter shall be freely interchangeable.
SECTION 10.6 NOTICES. Any notice which any party hereto may desire or
may be required to give to any other party shall be in writing and either (a)
mailed by certified mail, return receipt requested, or (b) sent by an overnight
carrier which provides for a return receipt, or (c) sent by facsimile followed
up by mailing of such notice by either of the methods set forth in 10.6(a) or
(b) above on the day of sending such facsimile or the next succeeding business
day. Any such notice shall be sent to the respective party's address as set
forth on Page 1 of this Mortgage or to such other address as such party may, by
notice in writing, designate as its address. Any such notice shall constitute
service of notice hereunder three (3) days after the mailing thereof by
certified mail, one (1) day after the sending thereof by overnight carrier, and
on the same day as the sending of a facsimile pursuant to the terms hereof.
SECTION 10.7 BUILDING USE. During the entire term of the Note and this
Mortgage, Mortgagor agrees not to convert the Premises to a condominium or
cooperative of any kind or to any use other than an office, research and
development, manufacturing or warehouse building. Further, Mortgagor
acknowledges that the second and third floor of the Premises shall only be used
for office purposes and not converted for any other approved use of the
Premises. In that connection, Mortgagor covenants that the sale of units and/or
recording of condominium or cooperative documents on the Premises or any part
thereof shall constitute an Event of Default hereunder.
SECTION 10.8 MANAGEMENT OF THE PREMISES. Mortgagor acknowledges that
the successful management of the Premises is of critical importance to Mortgagee
and a primary inducement in the making of the loan evidenced by the Note and
secured by this Mortgage. In the event management becomes unsatisfactory,
Mortgagee shall notify Mortgagor of the same and Mortgagor shall, within thirty
(30) days of such notice, correct any management deficiencies. Failure to so
correct shall constitute an Event of Default hereunder. Present management of
the Premises by Mortgagor is acceptable to Mortgagor at this time.
SECTION 10.9 AMENDMENT/MODIFICATION. Amendment to, waiver of or
modification of any provision of this Mortgage must be made in writing. No oral
waiver, amendment, or modification may be implied.
SECTION 10.10 REPRESENTATIONS OF MORTGAGOR. Mortgagor affirmatively represents
and warrants that the written terms of the Note, this Mortgage, the Assignment
of Leases, the Assignment of Rents, the financing statements, any other Loan
Documents and any other documents executed in connection with the Loan, and each
of them, accurately reflect the understanding of Mortgagor, as to all matters
addressed therein, and Mortgagor further represents and warrants that there are
no other agreements or understandings, written or oral, which exist between
Mortgagor and Mortgagee relating to the matters addressed in said documents.
SECTION 10.11 MORTGAGEE'S EXPENSE. Should Mortgagee make any payments
hereunder or under the Note or under any of the other documents securing the
Note or incur any liability, loss or damage under or by reason of this Mortgage,
the Note or any of the other documents securing the Note, or in the defense of
any claims or demands, the amount thereof, and afl costs and expenses, including
all filing, recording, and title fees and any other expenses relating to the
Loan, including without limitation filing fees for UCC continuation statements
and any expense involving modification thereto, reasonable attorneys' fees, and
any and all costs and expenses incurred in connection with making, performing,
or collecting the Indebtedness or exercising any of Mortgagee's rights under the
Note, the Mortgage or any other Loan Documents, including reasonable attorneys'
fees, the cost of appraisals and the cost of any environmental inspections (as
provided in Section 9.4) in connection therewith, and all claims for brokerage
and finder's fees which may be made in connection with the making of the Loan,
together with interest thereon, at the Default Rate as defined in the Note,
shall become part of the Indebtedness and shall be secured by this Mortgage and
the other Loan Documents and Mortgagor hereby agrees to reimburse Mortgagee
therefor immediately upon demand. Such sums, costs and expenses shall be, until
so paid, part of the Indebtedness and Mortgagee shall be entitled, to the extent
permitted by law, to receive and retain the f~ll amount of the Indebtedness in
any action for redemption by Mortgagor, for an accounting for the proceeds of a
foreclosure sale or of insurance proceeds or for apportionment of an eminent
domain damage award.
SECTION 10.12 MORTGAGEE'S RIGHT TO COUNSEL. If Mortgagee retains
attorneys to enforce any of the terms hereof or the Note or of any of the other
Loan Documents or because of the breach by Mortgagor of any of the terms hereof
or of any of the Loan Documents, or for the recovery of any Indebtedness secured
hereby or by any of the other Loan Documents, Mortgagor shall pay to Mortgagee
reasonable attorneys' fees, and all costs and expenses, whether or not an action
is actually commenced and the right to such reasonable attorneys' fees, and all
costs and expenses shall be deemed to have accrued on the date such attorneys
are retained, shall include fees and costs in connection with litigation,
arbitration, mediation and/or administrative proceedings, and shall be
enforceable whether or not such action is prosecuted to judgment and shall
include all appeals. Attorneys' fees and expenses shall for purposes of this
Mortgage include all paralegal, electronic research, legal specialists and all
other costs in connection with that performance of Mortgagee's attorneys.
If Mortgagee is, by reason of being the holder of this Mortgage, made a party
defendant of any litigation concerning this Mortgage or the Premises or any part
thereof or therein, or the construction, maintenance, operation or the occupancy
or use thereof by Mortgagor, then Mortgagor shall indemnify, defend and hold
Mortgagee harmless from and against all liability by reason of said litigation,
including reasonable attorneys' fees, and all costs and expenses incurred by
Mortgagee in any such litigation or other proceedings, whether or not any such
litigation or other proceedings is prosecuted to judgment or other
determination.
SECTION 10.13 OTHER REPRESENTATIONS AND WARRANTIES. All statements
contained in any loan application, certificate or other instrument delivered by
or on behalf of Mortgagor to Mortgagee or Mortgagee's representatives in
connection with the Loan shall constitute representations and warranties made by
Mortgagor hereunder. Such representations and warranties made hereunder and
thereunder shall survive the delivery of this Mortgage, and any
misrepresentations thereunder shall be deemed as misrepresentations hereunder.
SECTION 10.14 LIMITATION OF INTEREST. It is the intent of Mortgagor and
Mortgagee in the execution of this Mortgage and the Note and all other
instruments securing the Note to contract in strict compliance with the usury
laws of the State of Rhode Island governing the Note. In furtherance thereof,
Mortgagee and Mortgagor stipulate and agree that none of the terms and
provisions contained herein or in the Note or in any Loan Document shall ever be
construed to create a contract for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of the maximum interest rate
permitted to be charged by the laws of the State of Rhode Island. Mortgagor, or
any guarantors, endorser or other party now or hereafter becoming liable for the
payment of the Note shall never be required to pay interest on the Note at a
rate in excess of the maximum interest that may be lawfully charged under the
laws of the State of Rhode Island and the provisions of this Section shall
control over all other provisions of the Note and any other instrument executed
in connection herewith which may be in apparent conflict herewith. If, from any
circumstances whatsoever fulfillment of any provision of the Note, this Mortgage
or any Loan Document, at the time performance of such provision shall be due,
shall involve transcending the limit on interest presently prescribed by any
applicable usury statute or any other applicable law, with regard to obligations
of like character and amount, then Mortgagee may, at its option (i) reduce the
obligations to be fulfilled to such limit on interest, or (ii) apply the amount
that would exceed such limit on interest to the reduction of the outstanding
principal balance of the Note, and not to the payment of interest, with the same
force and effect as though the Mortgagor had specifically designated such sums
to be so applied to principal and Mortgagee had agreed to accept such extra
payment(s) as a prepayment without a fee, so that in no event shall any exaction
be possible under the Note that is in excess of the applicable limit on
interest.
SECTION 10.15 TIME OF TIlE ESSENCE. Mortgagor agrees that time is of
the essence with respect to all of the covenants, agreements and representations
under this Mortgage.
SECTION 10.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations covenants and warranties contained herein or in any other
Loan Document, executed by Mortgagor in connection herewith shall survive the
delivery of the Note, this Mortgage and all other Loan Documents, executed in
connection herewith and the provisions hereof shall continue to inure to the
benefit of Mortgagee, its successors and assigns.
SECTION 10.17 WAIVER OF JURY TRIAL. No party to this Mortgage or any
assignee, successor, heir or personal representative of a party shall seek a
jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
proceedings based upon or arising out of this Mortgage, any related agreement or
instrument, any other collateral for the Indebtedness or the dealings or the
relationship between or among the parties, or any of them. No party will seek to
consolidate any such action. in which a jury trial has been waived, with any
other action in which a jury trial cannot or has not been waived. The provisions
of this paragraph have been fully discussed by the parties hereto, and these
provisions shall be subject to no exceptions. No party has in any way agreed
with or represented to any other party that the provisions of this paragraph
will not be fully enforced in all instances.
SECTiON 10.18 MINIMUM REOUIREMENT. Mortgagor recognizes that the
requirements imposed upon Mortgagor hereunder, including, without limitation,
insurance requirements, are minimum requirements as determined by Mortgagee and
do not constitute a representation that the requirements are complete or
adequate. Mortgagor understands that it is Mortgagor's duty and responsibility
to act prudently and responsibly at all times for Mortgagor's protection and for
the protection of the Premises.
SECTION 10.19 OPEN END ADVANCE MORTGAGE. This Mortgage permits and
secures any and all current and future advances to the Mortgagor evidenced by
(or pursuant to) any one or more of the following: the Note, the Assignment of
Leases, the Assignment of Rents or any other Loan Documents, such other note or
notes as may be signed by the Mortgagor payable to Mortgagee and such other
agreements) as may be entered into by Mortgagor with Mortgagee and signed by
Mortgagor. The unpaid principal balance of indebtedness outstanding under this
Mortgage shall at no time exceed $3,000,000.00. Mortgagee will accept notices
pursuant to Sections 34-25-10(b) and 34-25-11 of the General Laws of the State
of Rhode Island at the address and in the manner set forth in this Mortgage.
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be executed
and delivered by its this 11th day of January, 1999
"MORTGAGOR"
KVH Industries, Inc., a Delaware
corporation
By: ______________________________
(Printed), Title
STATE OF Rhode Island )
) SS:
COUNTY OF Newport )
In __Newport________, on the __11th_ day of January, 1999, before me
personally appeared Richard C. Forsyth to me known and known by me to be the of
KVH Industries, Inc., a Delaware corporation and the person executing the
foregoing document on behalf of said corporation, and he acknowledged said
document executed by him to be his free act and deed, his free act and deed in
said capacity and the free act and deed of said corporation.
Print Name: Eneida M. DeJesus
Notary Public
My Commission Expires: 7/6/2002
This document prepared by and after recording should be returned to
Michael D. Moriarty, Attorney at Law, LOCKE REYNOLDS BOYD & WEISELL, 1000
Capital Center South, 201 North Illinois Street, Indianapolis, IN 46204, (317)
237-3800.
<PAGE>
EXHIBIT "A"
To
OPEN END MORTGAGE, AND SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
WITH ASSIGNMENT OF LEASES AND RENTS
Legal Description:
That certain parcel of land with all buildings and improvements
situated thereon, located on the northerly side of East Main Road in the Town of
Middletown, County of Newport, State of Rhode Island being bounded and described
as follows:
Beginning at a point on the northerly line of East Main Road, said point
being the most southwesterly corner of the parcel herein described, and the most
southeasterly corner of land now or formerly of Israel M. Resnikoff and David T.
Chase;
Thence running North 84(Degree) 49' 31" East, along the northerly line
of East Main Road, a distance of forty-nine and ninety-three one hundredths
(49~93) feet to a bound;
Thence running northeasterly along a curve bounded southeasterly having
an interior central angle of 89(Degree) 58' 23", a radius of forty and zero one
hundredths (40.00) feet, and an arc length of sixty-two and eighty-one
hundredths (62.81) feet to a bound;
Thence running northeasterly bounded southeasterly along a curve having
an exterior central angle of 18(Degree) 35' 51", a radius of one thousand five
and zero one hundredths (1005.00) feet and an arc length of three hundred
twenty-six and twenty-one one hundredths (326.21) feet to a bound;
Thence running northeasterly, bounded southeasterly along a curve
having an exterior central angle of 75(Degree) 49' 32", a radius of three
hundred fifty and zero one-hundredths (350.00) feet, an arc length of four
hundred sixty-three and nineteen one hundredths (463.19) feet to a point, the
last three course bounding Enterprise Road;
Thence running on a line having a bearing of North 06(Degree) 51' 02"
West, bounded easterly by Lot 2 of land now or formerly of Gilbane Properties,
Inc., a distance of two hundred sixty and fifty-nine one hundredths (260.59)
feet to a point;
Thence turning and running on a line having a bearing of South
83(Degree) O8' 58" West, bounded northerly by land now or formerly of Saint
Lucy's Church a distance of twenty-four and eighty-two one hundredths (24.82)
feet to a point;
Thence running on a line having a bearing of South 82(Degree) 33' 11"
West, bounded northerly by a parcel of land now or formerly of James A. and
Zenaila Taylor, Frank and Ruth Norlin, Mark S. Silva, and Lucelle and Roger
Choumaid, a distance of two hundred thirty-five and ninety-six one hundredths
(235.96) feet to a point;
Thence running along a line having a bearing of South 83(Degree) 53' 42"
West bounded northerly by land now or formerly of Lucelle and Roger Choumaid,
Donald M. and Maureen Guerrera, Donna A. and Carol J. Wells, and Daniel S. and
Donna M. Kinricks, a distance of two hundred fifty-six and eighty-two one
hundredths (256.82) feet to a point;
Thence running along a line having a bearing of South 86(Degree) 13'
46" West, bounded northerly by land now or formerly of Mary Elizabeth Ward, and
Joseph E. and Alice V. Neves a distance of one hundred seventy-four and
eighty-four one hundredths (174.84) feet to a point;
Thence running on a line having a bearing of South 84(Degree) 31' 11"
West, bounded northerly by land now or formerly of Alfred M. Freitas a distance
of two hundred fifty-seven and eight one hundredths (257.08) feet to point;
Thence running on a line having a bearing of South 01(Degree) 06' 48"
West, bounded westerly a distance of one hundred seventeen and seven one
hundredths (117.07) feet to a point;
Thence running on a line having a bearing of South 02(Degree) 17' 22" East,
bounded westerly a distance of one hundred forty-seven and ninety-one one
hundredths (147.91) feet to a point, the last two courses bounding on land now
or formerly of Manuel M. and Mary E. Reis;
Thence running on a line having a bearing of North 84(Degree) 09' 56"
East, bounded southerly a distance of three hundred ninety-nine and eighty-two
one hundredths (399.82) feet to a point;
Thence running southeasterly bounded southwesterly, along a curve
having an exterior central angle of 103(Degree) 51' 26", a radius of two hundred
and zero one hundredths (200.00) feet, and an arc length of three hundred
sixty-two and fifty-three one hundredths (362.53) feet to a point;
Thence running along a line having a bearing of South 08(Degree) 01'
22" West, bounded westerly a distance of one hundred forty-seven and forty
one-hundredths (147.40) feet to a point;
Thence running on a line having a bearing South 20(Degree) 32' 06"
West, bounded westerly a distance of two hundred and eighty-three one hundredths
(200.83) feet to a point;
Thence running on a line having a bearing of South 04(Degree) 08' 50" East,
bounded westerly a distance of seventeen and eighteen one hundredths (17.18)
feet to a point, said point being the point and place of beginning, the last
five courses bounding on land now or formerly of Israel M. Resnikoff and David
T. Chase;
Being the same premises conveyed to Rhode Island Industrial Facilities
Corporation dated by deed from Middletown Technology Associates, III, L.P.,
recorded with the Records of Land Evidence in the Town of Middletown in Book 174
at page 25.
Being the same premises shown on the plan entitled "Plan of Land in
Middletown, Rhode Island, Prepared By Vanasse/Hangen Engineering, Inc., dated
July 28, 1986, and recorded with said Records of Land Evidence in Planning Book
13, Page 303".
Said premises have the benefits of all appurtenant rights and
easements.
<PAGE>
EXHIBIT "B"
To
MORTGAGE AND SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
WITH ASSIGNMENT OF LEASES AND RENTS
Permitted Encumbrances:
1. Real estate taxes and municipal charges which are not yet due and payable.
2. Restrictions recorded in Book 160 at Page 234.
3. Easement as set forth in Book 156 at Page 841.
4. Easement as set forth in Book 149 at Page 28.
<PAGE>
IDS Life Insurance Company
Loan #694-001790
PROMISSORY NOTE
$3,000,000.00
January 11, 1999
Middletown, Rhode Island
1. Agreement to Pay. For value received, the undersigned KVH
Industries, Inc., a Delaware corporation (hereinafter referred to as "Borrower")
(whose mailing address is 50 Enterprise Center, Middletown, Rhode Island 02842),
hereby agrees and promises to pay to order of IDS Life Insurance Company, a
Minnesota corporation, its endorsees, successors and assigns (hereinafter
referred to as "Lender"), at its principal office and mailing address at do
American Express Financial Corporation, 733 Marquette Avenue, Minneapolis,
Minnesota 55440, Attention: Real Estate Loan Management, Unit #401, or such
other address as Lender may from time to time designate, the principal sum of
Three Million and 00/100 Dollars and 00/100 Dollars ($3,000,000.00) or so much
as may from time to time be disbursed hereon, together with interest on the
unpaid principal balance hereof from the date hereof until said amounts shall
have been paid in full at the rate provided for herein and all other sums due as
provided herein, payable in lawful money of the United States of America, which
shall be legal tender for public and private debt at the time of payment (the
"Loan").
2. Interest Rate. The outstanding principal balance hereof shall bear
interest at the rate of seven percent (7.0%) per annum (the "Regular Rate")
computed on the basis of the actual days elapsed on the assumption that each
month contains thirty (30) days and each year contains three hundred sixty (360)
days.
3. Monthly Payment; Maturity Date. Principal and interest upon this
Note shall be paid as follows:
(a) On the date hereof, interest only at the Regular Rate shall be due
and payable on the unpaid principal balance hereof equal to accrued
interest from the date of disbursement hereunder through the last day
of January, 1999.
(b) On the first day of March, 1999, and continuing on the first day of
each month thereafter through and including January 1, 2009, interest
at the Regular Rate and principal payments shall be made in two hundred
thirty-nine (239) equal installments of Twenty-three Thousand Two
Hundred Fifty-eight and 97/100 Dollars ($23,258.97) each (based on a
twenty (20) year amortization of the principal amount of this Note
commencing on February 1, 1999).
(c) On the first day of February, 2009 (the "Maturity Date"), a final
payment shall he due and payable in the amount of the entire unpaid
principal and interest on this Note.
(d) This is a balloon note, and on the Maturity Date a substantial
portion of the principal amount of this Note will remain unpaid by the
monthly payments above required.
(e) All payments shall be applied first to late charges due hereunder,
second to any prepayment fee due hereunder, third to accrued interest
at the rate then in effect under the terms hereof, and fourth to
principal. However, upon the occurrence of an Event of Default (as
hereinafter defined), any monies received shall be applied, at the
option and discretion of Lender, to any sums due under the Note or
instrument securing this Note, including, without limitation,
reasonable attorneys' fees, and other costs of collection as provided
herein.
(f) All payments hereunder which are due on a Saturday, Sunday or
holiday shall he deemed to be payable on the next business day.
4. Default Interest Rate. Upon the earlier to occur of (a) the date on
which the indebtedness evidenced hereby is accelerated by Lender, or (b) the
date on which an Event of Default (as hereinafter defined) occurs which is not
cured within thirty (30) days, or (c) upon nonpayment at the Maturity Date, the
interest rate payable hereunder shall thereafter increase and shall be payable
on the whole of the unpaid principal balance at a rate equal to the lesser of
(i) four percent (4%) per annum in excess of the rate of interest then in effect
under the terms of this Note or (ii) the highest rate of interest permitted
under the laws of the State of Rhode Island (hereinafter referred to as the
"Default Rate"). Interest on this Note at the Default Rate shall be immediately
due and payable without notice or demand. The Default Rate shall be applicable
whether or not Lender has exercised its option to accelerate the maturity of
this Note and declare the entire unpaid principal indebtedness to be due and
payable. The Default Rate shall continue until Borrower has cured all defaults
as permitted herein, Borrower has paid all indebtedness evidenced by this Note
in full, or all foreclosure proceedings have been completed and all redemption
periods have expired, whichever shall occur first. This provision shall not be
deemed to excuse a default and shall not be deemed a waiver of any other rights
Lender may have, including the right to declare the entire unpaid principal
balance and accrued interest immediately due and payable.
<PAGE>
5. Late Charge. Any monthly installment payment, including monthly
payments of escrows for real estate taxes, special assessments and/or insurance
premiums required by the "Mortgage" (as hereinafter defined) not made by
Borrower within ten (10) days of the due date shall be subject to a late payment
charge equal to five percent (5%) of the amount of such monthly payment. The
late charge shall apply individually to all payments past due with no daily
adjustment and shall be used to defray the cost of Lender incident to collecting
such late payment.
This provision shall not be deemed to excuse a late payment or be deemed a
waiver of any other rights Lender may have, including the right to declare the
entire unpaid principal balance and accrued interest immediately due and
payable.
6. Security. This Note is given to evidence an actual loan in the above
amount and is the Note referred to in and secured by:
(a) An Open End Mortgage, And Security Agreement And Fixture Financing
Statement With Assignment Of Leases And Rents (the "Mortgage") given by
Borrower, as mortgagor, to Lender, as mortgagee, of a contemporaneous
date herewith, encumbering certain real property and the improvements
thereon located in the Town of Middletown, County of Newport, State of
Rhode Island (the "Premises"); and
(b) An Assignment of Leases (the "Assignment of Leases") and Assignment
of Rents (the "Assignment of Rents") given by Borrower, as assignor, to
Lender, as assignee, of a contemporaneous date herewith, assigning to
assignee all of the rents, issues, profits and leases of the Premises;
and
(c) Other collateral security agreements (the "Security Documents")
given Borrower or guarantors of the Loan to Lender, all of a
contemporaneous date herewith.
(d) A Hazardous Materials Indemnity Agreement (the "Hazardous Materials
Agreement") given by Borrower to Lender of a contemporaneous date
herewith providing indemnification to Lender for claims, losses,
liabilities, etc. for matters arising out of Hazardous Materials or
violation of Laws (as those two terms are more particularly defined in
the Hazardous Materials Agreement).
Reference is hereby made to the Mortgage, the Assignment of Leases, the
Assignment of Rents, the Security Documents and the Hazardous Materials
Agreement (which are incorporated herein by reference as fully and with the same
effect as if set forth herein at length) for a description of Premises, a
statement of the covenants and agreements, a statement of the rights and
remedies and securities afforded thereby and all other matters contained
therein. The Note, Mortgage, Assignment of Leases, Assignment of Rents,
Hazardous Materials Agreement and Security Documents shall be referred to
collectively as the Loan Documents.
7. Default and Acceleration. If a default be made in any payment of
principal, interest or any other sum or charge when due in accordance with the
terms and conditions of this Note or the Mortgage, or if an Event of Default (as
that term is defined in the Mortgage) occurs in the Mortgage, or if there is a
nonmonetary default in or nonperformance of any term or obligation of any of the
Loan Documents after the expiration of thirty (30) days of the giving of notice
by Lender to Borrower of such nonmonetary default or nonperformance (or if such
nonmonetary default cannot be cured within thirty (30) days, then such cure
period shall be extended for an additional thirty (30) days for a total cure
period not to exceed sixty (60) days so long as Borrower is continuously and
diligently pursuing such cure), such event shall constitute an Event of Default
hereunder (an "Event of Default"), and the entire unpaid principal balance,
together with accrued interest thereon and the prepayment fee, if appropriate,
shall become, without notice, immediately due and payable at the option of
Lender.
8. Loan Year. "Loan Year" shall mean a period consisting of twelve (12)
consecutive months commencing on the First day of the first calendar month
subsequent to the date hereof, or on any anniversary thereof, the First Loan
Year being a Loan Year commencing the First day of February, 1999. If the date
hereof is the first day of a month, the first Loan Year shall commence on the
date hereof.
9. Prepayment Privilege. For and in consideration of the prepayment fee
described in this Section, to which Borrower and Lender have agreed, the
indebtedness evidenced hereby may be prepaid in accordance with the provisions
of this Section and not otherwise.
(a) Borrower shall have the right to repay this Note in full, but not
in part during the entire term hereof provided that any such payment of
the principal balance of this Note, for whatever reason, whether
voluntary or involuntary, shall be subject to a prepayment fee which
shall be calculated as provided in this Section 9(a). In no event shall
the above calculation result in a reduction of the principal balance or
accrued interest at prepayment. The prepayment fee shall be calculated
as follows:
(i) The annualized yield to maturity, on the date a prepayment
is made of a certain U.S. Government Note maturing on the
Maturity Date (the "Calculation Date"), is hereby defined as
the "Reinvestment Yield". Quotations supplied by the Federal
Reserve Bank of New York shall be the source of this
determination. Any government note that is designated with the
footnote "f" or with similar feature in the future shall not
be considered in connection with the computation to be made.
If there is no quotation for a U. S. Government Note maturing
on the Calculation Date at such time as such prepayment is
made, the Lender shall select a U.S. Government Note having a
maturity date most closely approximate to the Calculation Date
as quoted by the Federal Reserve Bank of New York for purposes
of determining the Reinvestment Yield pursuant to this
subsection. In the event that there is more than one U.S.
Government Note maturing on the Calculation Date at the time
such prepayment is made, Lender shall have the right to select
the applicable U.S. Government Note. In the event that such
quotes are no longer available, then Lender shall have the
sole right to select a reasonably alternative basis on which
to determine the Reinvestment Yield.
Footnote "f" relates to Government Notes which are redeemable
at par and accrued interest to the date of payment, at any
time, upon the death of the owner at the option of the duly
constituted representative of the owner's estate.
(ii) Calculate the monthly interest payment that would be
received by reinvesting the proceeds of the prepayment at an
interest rate equivalent to the Reinvestment Yield. The result
is hereby defined as the "Reinvestment Payment".
(iii) Subtract the Reinvestment Payment from an amount equal
to the monthly interest payment that would be received by
reinvesting the proceeds of the prepayment at an interest rate
equal to the then applicable rate of the Note. The result is
hereby defined as the "Prepayment Differential". In the event
that the Reinvestment Yield is greater than the applicable
rate, the Prepayment Differential shall equal zero.
(iv) Calculate the present value of the Prepayment
Differential using a discount factor equal to the Reinvestment
Yield (monthly compounding) to the number of months remaining
from the date of such prepayment until the Calculation Date.
Such amount shall equal the prepayment due hereunder.
(b) No prepayment fee shall be due if the indebtedness evidenced hereby is
paid in full during the last ninety (90) days prior to the Maturity Date.
(c) At the option of Lender, this Note is also subject to mandatory
prepayment, without prepayment fee of any kind, upon certain events set
forth in the Mortgage; further, if Lender, at its option, does not make
proceeds of insurance or condemnation awards available for repair or
restoration of the Premises, Borrower may prepay this Loan in full
within ninety (90) days of notice of nonavailability without a
prepayment fee.
(d) Prepayments (other than prepayments pursuant to subsection (c)
above) shall be made only upon advance written notice of at least
thirty (30) days to Lender and shall be made on a regularly scheduled
installment payment date. Notice of prepayment shall not suspend nor
reduce required installment payments.
(e) In the event an Event of Default shall occur under the terms of the
Loan Documents and Lender shall accelerate the Loan as part of a
foreclosure proceeding or otherwise and Borrower shall then tender
payment of the Loan in full, or Lender shall obtain judgment for any
portion of the Loan, such tender or judgment shall constitute
prepayment and the fee provided for in this Section shall be due.
Borrower hereby expressly agrees that such prepayment fee constitutes additional
bargained-for consideration given by Borrower to Lender in order to induce
Lender to make the Loan to Borrower.
10. Payment Upon an Event of Default. Upon the occurrence of an Event
of Default and following acceleration of maturity hereof by Lender, a tender of
payment of or entry of judgment for the amount necessary to satisfy the entire
unpaid principal balance due and payable shall be deemed to constitute an
attempted evasion of the aforesaid restrictions on the right of prepayment and
shall be deemed a prepayment hereunder, and such a payment or judgment must,
therefore, include the prepayment fee then in effect under the terms hereof.
Lender shall have the right to include and bid in such prepayment fee as an
amount due to Lender in connection with any foreclosure sale.
11. Effect of Application of Insurance or Condemnation Proceeds.
Not-withstanding anything herein to the contrary, in the event that Lender is
unwilling to make the proceeds of a condemnation award or insurance settlement
on the Premises available for repair or restoration and elects to apply such
award or settlement towards the reduction of the principal balance of this Note
pursuant to the terms of the Mortgage, and the proceeds thereof do not pay in
full the balance outstanding on this Note, provided the Borrower does not elect
to pay the Loan in full without any prepayment fee as provided in Section 10(c)
hereof, then the unpaid principal balance shall be reamortized over the
remaining portion of the amortization period and the debt service payments set
forth in Section 3(1)) hereof shall be reduced accordingly.
12. Costs of Collection. Borrower agrees that if, and as often as, this
Note is placed in the hands of an attorney for collection or to defend or
enforce any of Lender's rights hereunder, or under the Mortgage, the Assignment
of Leases, Assignment of Rents or any other Security Document or Loan Document
securing payment of this Note, Borrower will pay to Lender its reasonable
attorneys' and paralegals' fees, and costs, including, without limitation, all
fees and costs incurred in litigation, mediation, arbitration, bankruptcy and
administrative proceedings, and appeals therefrom, and all court costs and other
expenses, including, without limitation, appraisal fees and costs of
environmental review, incurred in connection therewith.
13. Time. Time is of the essence of this Note and each of the
provisions hereof.
14. Governing Law. This Note shall be governed by the laws of the State
of Rhode Island without resort to Rhode Island's conflict of laws rules
15. Interest Limitation. All agreements between Borrower and Lender are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Lender for the use,
forbearance, loaning or detention of the indebtedness evidenced hereby exceed
the maximum permissible under applicable law. If from any circumstance
whatsoever, fulfillment of any provision hereof or of the Mortgage, Assignment
of Leases or any other Security Document or Loan Document at any time given the
amount paid or agreed to be paid shall exceed the maximum permissible under
applicable law, then, the obligation to be fulfilled shall automatically be
reduced to the limit permitted by applicable law, and if from any circumstance
Lender should ever receive as interest an amount which would exceed the highest
lawful rate of interest, such amount which would be in excess of such highest
lawful rate of interest shall be applied to the reduction of the principal
balance evidenced hereby and not to the payment of interest. This provision
shall control every other provision of all agreements between Borrower and
Lender and shall be binding upon and available to any subsequent holder of this
Note.
16. Waivers by Borrower.
(a) Borrower and all other persons or entities liable for all or part
of the principal balance evidenced by this Note severally hereby waive
presentment for payment, protest and notice of non-payment.
(b) Borrower and all persons and entities liable for all or part of the
principal balance evidenced by this Note hereby consent, without
affecting their liability, to the granting, with or without notice, of
any extension or alteration of time for payment of any sum or sums due
hereunder or under the Loan Documents, or for the performance of any
covenant, condition or agreement contained herein or therein on the
ground of any other indulgence, or the taking or releasing or
subordinating of any security for the indebtedness hereunder, or the
acceptance of additional security of any kind, or any other
modification or amendment of this Note or of any of the Loan Documents,
any release of, or resort to any party liable for payment hereof, and
agree that such action will in no way release or discharge the
liability of such parties, whether or not granted or done with the
knowledge or consent of such parties.
(c) Borrower and all persons and entities liable for all or a part of
the principal balance evidenced by this Note hereby waive and renounce,
to the extent permitted by applicable law, all rights to the benefits
of any statute of limitations and any moratorium, reinstatement,
marshalling, forbearance, valuation, stay, extension, redemption,
appraisement, exemption and homestead now provided, or which may
hereafter be provided, by the Constitution or laws of the United States
of America or the State of Rhode Island, both as to itself and in and
to all of its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note and the Loan
Documents.
(d) Borrower and all the persons liable for all or a part of the
principal balance evidenced by this Note waive any right to set off
and/or recoupment against Lender in connection with claims against
Lender relating to any other claim it now or hereafter may have against
Lender, and agrees it will not urge or assert any claim including but
not limited to a set off and/or recoupment, it may have now or
hereafter, against Lender as a defense against payment of this Note.
17. No Waiver by Lender.
(a) Lender shall not be deemed to have waived any of its rights or
remedies under this Note unless such waiver is expressed in writing by
Lender, and no delay or omission by Lender in exercising, or failure by
Lender on any one or more occasions to exercise, any of Lender's rights
hereunder or under the Loan Documents, or at law or in equity,
including, without limitation, Lender's right, after the occurrence of
any Event of Default by Borrower, to declare the entire indebtedness
evidenced hereby immediately due and payable, shall be construed as a
novation of this Note or shall operate as a waiver or prevent the
subsequent exercise of any or all such rights.
(b) Acceptance by Lender of any portion or all of any sum payable
hereunder, whether before, on or after the due date of such payment
shall not be a waiver of Lender's right either to require prompt
payment when due of all other sums payable hereunder or to exercise any
of Lender's rights, powers and remedies hereunder or under the Loan
Documents. A waiver of any right in writing on one occasion shall not
be construed as a waiver of Lender's rights to insist thereafter upon
strict compliance with the terms hereof without previous notice of such
intention being given to Borrower, and no exercise of any right by
Lender shall constitute or be deemed to constitute an election of
remedies by Lender precluding the subsequent exercise by Lender of any
or all of the rights, powers and remedies available to it hereunder or
under the Loan Documents, or at law or in equity. Borrower expressly
waives the benefit of any statute or rule of law or of equity now
provided, or which may hereafter be provided, which would produce a
result contrary to, or in conflict with, the foregoing.
18. Disbursements. Funds representing the proceeds of the indebtedness
evidenced hereby which are disbursed by Lender by mail, wire transfer or other
delivery to Borrower, to escrows or otherwise for the benefit of Borrower shall,
for all purposes, be deemed outstanding hereunder and to have been received by
Borrower as of the date of such mailing, wire transfer, or other delivery and
until repaid, notwithstanding the fact that such funds may not at any time have
been remitted by such escrows to Borrower or for its benefit.
19. Exempted Transaction. Borrower agrees that (a) the payment
obligations evidenced by this Note and the other instruments securing this Note
are exempted transactions under the Truth in Lending Act 15 USC ss. 1601, et
seq.; (b) the proceeds of the indebtedness evidenced by this Note will not be
used for the purchase of the registered equity securities within the purview of
Regulation "U" issued by the Board of Governors of the Federal Reserve System;
and (c) on the Maturity Date, Lender shall not have any obligation to refinance
the indebtedness evidenced by this Note or to extend further credit to Borrower.
20. Captions. The captions to the Sections of this Note are for
convenience only and shall not be deemed part of the text of the respective
Sections and shall not vary, by implication or otherwise, any of the provisions
of this Note.
21. Due-on-Sale-and-Encumbrance Call Provisions. The Mortgage provides
for certain rights on the part of the Lender to call all outstanding principal
and accrued interest on this Note due and payable in full together with the
prepayment premium then in effect under the terms of this Note in the event that
(a) Borrower should sell, convey, contract to sell or convey, assign or encumber
any property, real or personal, encumbered by the Mortgage in violation of
Section 2.9 of the Mortgage, or (b) certain corporate stock interests in the
Borrower should be sold, conveyed, assigned or encumbered in violation of
Section 2.9 of the Mortgage, without, in each instance, the prior written
consent of the Lender. Reference to the Mortgage must be made for the terms of
these provisions. Such provisions are incorporated herein by this reference.
22. Notices. All notices required or committed to be given hereunder to
Borrower or Lender shall be given in the manner and to the place as provided in
the Mortgage for notices to the "Mortgagor" or the "Mortgagee".
23. Limitations on Sale or Financing. The Mortgage includes certain
limitations on the right of Borrower to sell, convey, contract to sell, convey,
assign or encumber any property, real or personal, encumbered by the Mortgage or
to sell, convey, assign or encumber certain interests in Borrower. Reference to
the Mortgage must be made for the terms of these provisions. Such provisions are
incorporated herein by this reference.
24. Joint and Several Liability. The promises and agreements herein
shall be construed to be and are hereby declared to be the joint and several
promises and agreements of all Borrowers and shall constitute the joint and
several obligations of each Borrower and shall be fully binding upon and
enforceable against each Borrower. Neither the death nor release of any person
or party to this Note shall affect or release the joint and several liability of
any other person or party. Lender may at its option enforce this Note against
one or all of Borrowers, and Lender shall not be required to resort to
enforcement against each Borrower and the failure to proceed against or join any
Borrower shall not affect the joint and several liability of any other Borrower.
25. Miscellaneous. The provisions of this Note may not be waived,
changed or discharged orally, but only by an agreement in writing signed by
Borrower and Lender; and any oral waiver, change or discharge of any term or
provision of this Note shall be without authority and of no force or effect. The
invalidity or unenforceability of any provision of this Note shall not affect
the validity or enforceability of any other term or provision hereof.
26. Jury Trial. NEITHER BORROWER, LENDER, ANY GUARANTOR OR ANY OTHER
PERSON OR ENTITY LIABLE FOR THE INDEBTEDNESS EVIDENCED HEREBY, OR ANY ASSIGNEE,
SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF LENDER, BORROWER, ANY GUARANTOR OR
ANY OTHER PERSON OR ENTITY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS
NOTE, THE MORTGAGE, OR ANY INSTRUMENT SECURING THIS NOTE, ANY COLLATERAL FOR THE
PAYMENT HEREOF OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS
OR ENTITIES, OR ANY OF THEM. NEITHER LENDER, BORROWER NOR ANY GUARANTOR OR ANY
SUCH OTHER PERSON OR ENTITY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A
JURY TIUAL HAS BEEN WAIVED, WITH ANY OTHER ACTION WHICH A JURY TIIJAL CANNOT BE
OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED
BY THE PARTIES HERETO, AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO
EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER
PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES BORROWER ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY LENDER THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH LENDER
HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOAN. BORROWER ACKNOWLEDGES
THAT IT HAS CONSULTED WITH AN ATTORNEY AND FULLY UNDERSTANDS THE LEGAL EFFECT OF
THE PROVISIONS OF THIS SECTION.
Borrower has executed this Promissory Note as of the date and year first above
written.
"BORROWER"
KVH Industries, Inc., a Delaware corporation
By:
(Signature), Title
(Printed), Title
Exhibit 99.2
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made as of the 30th day of January 1 998, between COLE TAYLOR
BANK, not personally but as Trustee under Trust Agreement dated September 30,
1997, and known as TRUST No.97-7559 as Lessor, and KVH INDUSTRIES, INC as
Lessee.
Lessor hereby leases to Lessee, and Lessee hereby accepts, the following
described Premises, hereinafter referred to as the "Premises", in the Village of
Tinley Park, County of Will, State of Illinois.
To wit: approximately 22,979 rentable square feet (RSF) of space subject to a
final space plan, as described on Exhibit A attached hereto within 101,052 total
rentable square feet of Building space, located at 8400 W. 1 85th Street, Tinley
Park, IL (the "Building") together with the loading bays adjacent to the
Premises and the appurtenant right, in common with other tenants, to use the
common walkways, driveways and other common elements of the Building, for a Term
of seven (7) years and zero (0) months, beginning on the 1st day of April. 1998,
and ending on the 31st day of March 2005 for which Lessee agrees to pay the
Lessor base rent ("Base Rent1'), in monthly installments (refer to base rent
schedule below) each due and payable on the first day of each and every month of
the Term hereof, without set-off or deduction, in advance at 18020 S. Oak Park
Avenue, Tinley Park, IL or at such other place as Lessor may designate from time
to time, in writing. All charges, costs and sums required to be paid by Lessee
to Lessor under this Lease in addition to Base Rent shall be deemed "Additional
Rent" and Base Rent and Additional Rent shall hereinafter collectively be
referred to as "Rent". Lessee's covenant to pay Rent shall be independent of
every other covenant in this Lease.
BASE RENT SCHEDULE
Months 1 - 12 $12,676.75/mo
Months 13 - 24 $13,057.05/mo
Months 25 - 36 $13,448.76/mo
Months 37 - 48 $13,852.23/mo
Months 49 - 60 $14,267.79/mo
Months 61 - 72 $14,695.83/mo
Months 73 - 84 $15,136.70/mo
1. USE OF PREMISES: Lessee agrees to use and occupy the Premises only for
the following use: Office/Warehouse/Assembly/Manufacturing and for no other
purpose without Lessor's consent.
2. POSSESSION AT BEGINNING OF TERM: Improvements to the Premises ("Initial
Tenant Improvements") are to be made by Lessor, as described on an addendum to
this Lease in the form of a space plan and written specifications mutually
agreed to by Lessor and Lessee (the "Plans and Specifications"). If such
improvements to be made by Lessor shall require further definition or approval
by Lessee, Lessee shall give review and approval or disapproval promptly and on
a reasonable basis upon request therefore by Lessor. Lessee shall be responsible
for all costs, including lost rent, resulting from any delays in review,
approvals or otherwise caused by Lessee. Lessor shall use due diligence to
complete the Initial Tenant Improvements and give possession of the Premises as
nearly as possible at the beginning of the Term of this lease, and Rent shall
abate prorata, and the expiration date shall be extended, for the period of any
delay in so doing (subject to force majeur and Lessee's responsibility for
delays caused by Lessee). Lessee shall make no other claim against Lessor for
any such delay.
With respect to the Initial Tenant Improvements to the Premises as specified in
the final Plans and Specifications, Lessor shall indicate, prior to finalizing
the Plans and Specifications, which improvements, if any, that Lessee may be
required to remove from the Premises at the expiration of the Term (as the same
may be extended) of this Lease (the "Removal Initial Improvements"), and which
such improvements, if any, that Lessee may be required to leave at the Premises
at the expiration of the Term (as the same may be extended) of this Lease (the
"Forfeited Initial Improvements"). Lessee shall remove the Removal Initial
Improvements prior to the expiration of the Term unless notified by Lessor in
writing thirty (30) days prior to such expiration (as the same may be extended),
repairing any damage to the Premises caused by such removal. Lessee shall have
no obligation to remove any of the Initial Tenant Improvements made to the
Premises specified in the final Plans and Specifications. Except for the
Forfeited Initial Improvements, Lessee shall have the right, but not the
obligation, to remove from the Premises Lessee's improvements to the Premises,
provided that Lessee repair any damage to the Premises caused by such removal.
3. INSURANCE: Lessee shall not do or permit anything to be done or keep or
permit anything to be kept in the Premises which would increase the fire or
other casualty insurance rate on the Building or the property therein or which
would result in insurance companies of good standing to refuse to insure the
Building or any such property on a standard risk basis. If use of the Premises
by Lessee so increases such cost of insurance, Lessee shall pay such increased
cost to Landlord on demand as Additional Rent, but such demand, or acceptance of
such payment, shall not be construed as consent by Lessor to Lessee's such use
or limit Lessor's further remedies under this Lease.
4. TAXES, INSURANCE. EXPENSES:
A. In addition to all other amounts set forth in this Lease, Lessee
shall pay to Lessor, as Additional Rent, Lessee's prorata share of the
total real estate taxes levied on the Building and becoming due and
payable in each year of the Term. Such Additional Rent shall be
prorated to reflect the actual Term of the Lease during the first and
last Lease years. Should the State of Illinois or any political
subdivision thereof, or other governmental authority having
jurisdiction over the Building, impose a tax, assessment, charge or fee
or increase any existing tax, assessment charge or fee which Lessor
shall be required to pay, either by way of substitution for such real
estate taxes or otherwise or impose an income or franchise tax or tax
on rents in addition to or as a substitution for a general tax levied
against the Building, such taxes, assessments, charges or fees shall be
deemed to constitute a real estate tax hereunder. In the case of
special taxes or assessments which may be payable in installments, only
the amount of each Installment and interest thereon paid during a
calendar year shall be included in taxes for that year. In addition,
Lessee shall pay to Lessor, as additional rent, Lessee's prorata share
of Lessor's reasonable costs and expenses (including reasonable
attorneys' fees) in contesting or attempting to reduce any taxes.
Notwithstanding the foregoing, real estate taxes shall exclude
include (a) federal, state or local income, franchise or estate taxes,
and (b) interest and penalties assessed by reason of Lessor's failure
to pay such real estate taxes when due. Lessor agrees that if any
special taxes or assessment shall be levied against the Building, to
elect to pay such assessment over the longest period of time permitted
by law.
B. Lessee shall also pay to Lessor as Additional Rent, in each year of
the Term, Lessee's prorata share of the expenses Incurred by Lessor for
fire, flood, extended coverage, rent loss, umbrella, public liability
and property damage insurance on the Building in each year of the Term.
Such insurance expenses shall exclude premiums to the extent
any unusual Lessee activity (other than that caused by Lessee) causes
Lessor's existing insurance premiums to increase or requires Lessor to
purchase additional insurance, but only to the extent such additional
cost can be identified by the insurer.
C. Lessee will pay to Lessor as further Additional Rent in each year of
the Term, Lessee's prorata share of ~e costs of operating, maintaining,
managing, protecting and repairing the Building, in addition to the
items set forth in Subparagraphs A and B above. Expenses to be
reimbursed by Lessee shall be in accordance with GAAP Accounting and
will include without limitation, gardening and landscaping, repairs and
replacement of building components, paving, curbs, sidewalks,
landscaping, drainage and lighting facilities, as may from time to
time, be necessary, painting, caulking, lighting, sanitary control,
removal of snow, trash, rubbish, garbage and other refuse (related to
common areas), and ten percent (1 0%) of all the foregoing costs to
cover Lessor's administrative and overhead expenses on the Building in
each year of the Term.
Such expenses shall exclude:
(1) Expenses incurred by Lessor in connection with services or other
benefits of a type which are not building standard services or benefits provided
to Lessees generally, but which are provided only to specific Lessees;
(2) Any items to the extent such items are reimbursable to Lessor by Lessee
(other than through Additional Rent), by other Lessees or occupants of the
Building, or by any third parties;
(3) Salaries of officers and executives of Lessor not connected with the
operation of the Building;
(4) All costs related to the preparation of any portion of the Building for
occupancy by a Lessee or other occupant;
(5) All costs incurred by the negligent acts or omissions of Lessor, its
agents and employees;
(6) Advertising and promotional expenses associated with the marketing of
vacant space in the Building;
(7) Costs properly chargeable to the capital account, except for capital
expenditures to the extent they reduce other operating expenses or such capital
expenditures that are required by changes in any governmental law or regulation,
in which case such expenditures, plus interest on the unamortized principal
investment at ten and one-half percent (10.5%) per annum, shall be amortized
over the life of the improvements and shall be included in Common Area Expenses;
(8) The cost of correcting defects in the initial construction of the
Building;
(9) Depreciation and amortization, except to the extent provided above;
(10) Interest, mortgage charges and real estate taxes;
(11) Costs and expenses incurred by Lessor in connection with the repair of
damage to the Building or Property caused by fire or other casualty, insured or
required to be insured against hereunder;
(12) The cost of any item for which Lessor is reimbursed through
condemnation awards;
(13) Payments for rented equipment, the cost of which equipment would
constitute a capital expenditure if the equipment were purchased; and
(14) Costs incurred due to violation by Lessor or any other tenant of the
Building of any lease or any laws, rules, regulations or ordinances applicable
to the Building.
D. It is intended that the Additional Rent described in Subparagraphs
A, B and C above shall commence as of the commencement of the Lease
Term and shall be paid as nearly as possible in equal monthly
installments during the Term of the Lease. Accordingly, Lessor may
notify Lessee of Lessor's reasonable estimate of the amount for which
Lessee will be obligated hereunder and on the first day of the month
after Lessor so notifies Lessee that Additional Rent is due hereunder,
Lessee shall pay Lessor a sum equal to 1/1 2 of such Additional Rent
multiplied by the number of months which has passed during the year.
Thereafter, Lessee shall pay 1/12th of such Additional Rent on the
first day of each ensuing month including months in the succeeding year
until a new determination has been made. Lessor will submit invoices
and such backup data to Lessee from time to time but not more than once
each year of the term to substantiate the computation and allocation of
Additional Rent, and actual Additional Rent shall be reconciled with
estimated payments after each year of the Lease Term.
For all purposes of this Lease, Lessee's prorata share shall be 22.74%.
F. Audit. Within sixty (60) days of receipt of notice for Additional
Rent each year of the term, Lessee shall have the right to cause
Lessor's determination of Additional Rent to be audited by a certified
public accountant reasonably acceptable to Lessor. The determination by
such accountant shall be final. If such audit shall indicate that
Lessor's determination of any of the foregoing is (i) overstated, or
(ii) understated, then in the case of (i) Lessor shall credit the
difference against monthly installments of Rent next thereafter coming
due (or refund the difference if the Lease Term has ended and Lessee
has no4urther obligation to Lessor), or in the case of (ii) Lessee
shall pay to Lessor, as Additional Rent, the amount of such excess. The
cost of such audit shall be paid for by Lessee. Lessor's obligation
under this Paragraph 4F shall survive the expiration of the Lease Term
or earlier termination of this Lease.
5. INDEMNITY AND PUBLIC LIABILITY: Lessee covenants at all times to save Lessor
harmless from all loss, liability, cost, expense or damages that may incur or
which may be claimed with respect to any person or persons, corporation, or
property on or about the Premises or resulting from any act done or omission by
or through the Lessee, its agents, employees, invitees, or any person on the
Premises by reason of Lessee's use (except to the extent caused by the negligent
or willful acts and or omissions of Lessor, or those acting through Lessor).
Lessor covenants at all times to save Lessee harmless from all loss, liability,
costs, expense or damages that may incur or which may be claimed with respect to
any person or persons, corporation or property as a result of any act done and
or omission by Lessor its agents, employees or invitees. Lessee further
covenants and agrees to maintain at all times, during the Term of this Lease,
comprehensive public liability insurance reasonably satisfactory to Lessor,
protecting and indemnifying Lessor in an amount of not less than ONE MILLION
DOLLARS ($1, 000,000.00}, combined single limit for bodily injury or property
damage. Lessee shall furnish Lessor with copies of such policies or a current
certificate or certificates of insurance, evidencing such insurance so
maintained by Lessee. These copies or certificates shall include an endorsement
which states that insurance shall not be canceled except upon not less than
thirty days (30) prior written notice to Lessor, and will include Lessor and
Lessor's management agent as additional insured on the liability insurance
policy. As additionally insured on the liability insurance policy maintained by
Lessee, the following will be listed:
(i) TCB Development Corporation, its affiliates and subsidiaries, managing
agent for Cole Taylor Trust No.97-7559 as its interests may appear.
A. Lessor's Insurance. Lessor agrees throughout the Term of this Lease,
including any extension periods, to maintain property insurance on the
Building insuring against loss or damage to the Building on a
comprehensive all risk basis, including, but not limited to, fire,
windstorm and other hazards, casualties and contingencies, vandalism
and malicious mischief as are usually covered by extended coverage
policies, and flood in an amount not less than the full repair and
replacement value of the Building and Lessor's fixtures therein.
6. ASSIGNMENT. SUBLETTING AND TERMINATION: Lessee shall not assign, transfer or
encumber this Lease and shall not sublease the Premises or any part thereof or
allow any other person to be in possession thereof without the prior written
consent of Lessor in each and every case, which will not be unreasonably
withheld conditioned or delayed. If Lessee makes a permitted assignment of this
Lease, Lessee shall have no further obligations or liability under this Lease
after such assignment.
Notwithstanding the foregoing, Lessor's consent shall not be required for any
assignment or sublet to an entity controlling, controlled by, in common control
with Lessee, nor to any entity that succeeds to Lessee's interest in this Lease
by reason of merger, acquisition, consolidation or reorganization; provided,
however, such successor entity shall have a net worth comparable to Lessee as of
the date of initial Lease commencement.
7. SIGNS AND ADVERTISEMENTS: Lessee shall not put upon nor permit to be put
upon any part of the Premises or the Building, any signs, billboards or
advertisements without the prior written consent of Lessor, which will not be
unreasonably withheld, conditioned or delayed. Lessor acknowledges and agrees
that Lessee should be permitted to install monument signage, subject to
municipal requirements and park covenants.
8. ACCEPTANCE. MAINTENANCE. AND REPAIR: Lessee has inspected and knows the
condition of the Premises and accepts the same in their present condition
(subject to completion by Lessor of any improvements to be completed by Lessor
as expressly provided herein. Lessee shall take good care of the Premises and
the equipment and fixtures therein (including, but not limited to, replacement
of parts and components of heating and air conditioning equipment) and shall
keep the same in good working order and condition, including particularly, but
not limited to, protecting water pipes, heating and air conditioning equipment,
plumbing, windows, doors, frames, glass, and dock bumpers, fixtures, appliances,
and sprinkler system from becoming frozen or being damaged. At the expiration of
the term, Lessee shall surrender the Premises broom clean, in as good condition
as the reasonable use thereof will permit. All damage or injury to the Premises
not caused by fire or other casualty, all violations of any codes, laws or
ordinances, respecting the Premises arising out of Lessee's acts or omissions,
and all damage to glass, windows, walls, ceilings, flooring and doors shall be
promptly repaired and corrected by Lessee. Lessee shall maintain a service and
repair contract as approved by Lessor on the heating and air conditioning system
at the Premises.
9. LESSOR'S RIGHT OF ENTRY: Lessor or Lessor's agent may enter the Premises at
reasonable hours upon reasonable prior notice (except in case of emergency) to
examine the same and to do anything Lessor may be required to do hereunder or
which Lessor may deem necessary for the good of the Premises or the Building;
and, during the last 1 20 days of this lease, Lessor may display a "For Rent"
sign on, and show the Premises.
10. PARKING LOT MAINTENANCE: Lessee shall insure that the parking lot is not
damaged by placement or movement by Lessee or those acting through Lessee, of
trash containers, trucks or otherwise and Lessee shall be responsible for the
repair of same during the Term of the lease and upon termination thereof. Lessee
understands and agrees that no personal property shall be stored in the parking
area or outside the Building without prior written consent of Lessor.
11. MAINTENANCE AND REPAIR BY LESSOR: Lessor shall keep in repair, the
structural portions of the roof, floor, foundation and exterior walls (exclusive
of inside surfaces), gutters and downspouts of the Building (with the costs
therefore to be included in the costs recovered under Paragraph 4C above and
subject to the exclusions listed in Paragraph 4C), except as to damage arising
from the negligence of the Lessee, but nothing herein shall be construed as
requiring Lessor to repair any front or other part installed by the Lessee.
Lessor reserves the right to the exclusive use of the roof and exterior walls.
If by reason of inability to obtain and utilize labor, materials or
supplies; circumstances directly or indirectly the result of a state of war or
national or local emergency; any laws, rules, orders, regulations or
requirements of any governmental authority now or hereafter in force; strikes or
riots; accident in, damage to or the making or repairs, replacements, or
improvements to the Premises or any of the equipment thereof; or by reason of
any other cause beyond the reasonable control of Lessor, Lessor shall be unable
to perform or shall be delayed in the performance of any covenant to supply any
service, such nonperformance or delay in performance shall not render Lessor
liable in any respect for damages to either person or property, constitute a
total or partial eviction, constructive or otherwise, work an abatement of rent
or relieve Tenant from the fulfillment of any covenant or agreement contained in
this Lease. Notwithstanding the foregoing if any of the foregoing shall render
the Premises unusable by Lessee for more than fourteen (14) consecutive days,
Lessee shall be entitled to an equitable abatement of the rent due hereunder to
the extent and for such period of unuseability to the extent Lessor is covered
by applicable insurance.
<PAGE>
12. DAMAGE BY CASUALTY: Throughout the term of this Lease, Lessor shall
maintain commercial property insurance policy with a special broad causes of
loss from (formerly known as "all risk" insurance) covering the Building
(including the Premises), with an agreed amount endorsement, in an amount not
less than the full replacement cost of the Building, subject to a customary
deductible limit not greater than $10,000.00. The proceeds of such insurance
shall be received in trust and applied to the repair and reconstruction of the
Building (including repairs to the Premises). In case the Premises or the
Building shall be destroyed or shall be so damaged by fire or other casualty as
to become untenantable, then in such event, all rent otherwise accruing under
this Lease shall abate until the damage is repaired or restored and, if this
Lease shall be terminated in the manner provided below, from the date of such
damage or destruction and Lessee shall immediately surrender the Premises and
all interest therein to Lessor, and Lessee shall pay Rent only to the time of
such fire or casualty. Notwithstanding the above, Lessor shall be obligated to
rebuild the Building (including the Premises) to the extent that insurance
proceeds (together with the so-called "deductible") will cover the cost of the
rebuilding and restoration. In the event Lessor has not started rebuilding
within three (3) months of damage or completed construction within seven (7)
months of damage, Lessee, at Lessee's option, may cancel this Lease provided
such damage was not caused by Lessee. In case this Lease is not so terminated,
this Lease shall continue in full force and effect and the Lessor shall repair
the Building and the Premises with all reasonable promptness, placing the same
in as good a condition as they were at the time of the damage or destruction,
and for that purpose may enter said Premises. In such event, rent shall abate in
proportion to the extent and duration of untenantability. In either event,
Lessee shall remove all rubbish, debris, merchandise, furniture, equipment and
other of its personal property, within ten (10) days or less after the request
of the Lessor. If the Premises shall be but slightly injured by fire or other
casualty, so as not to render the same untenantable and unfit for occupancy,
then the Lessor shall repair the same with all reasonable promptness, and in
that case the rent shall not abate. No compensation or claim shall be made by or
allowed to the Lessee by reason of any inconvenience or annoyance arising from
the necessity of repairing any portion of the Building or the Premises, however
this necessity may occur. Notwithstanding anything to the contrary herein set
forth, but provided that Lessor maintains the insurance required under this
Paragraph 1 2, Lessor shall not be obligated to repair or restore the Premises
or the Building if the damage or destruction is due to an uninsured casualty or
to the extent that any Mortgagee applies proceeds of insurance to reduce its
loan balance and the remaining proceeds available to Lessor plus the
"deductible" amount and any self insured amounts are not sufficient to pay for
such repair or restoration.
13. PERSONAL PROPERTY: Lessor shall not be liable for any loss or damage to any
merchandise, fixtures, equipment or personal property of Lessee or any other
party in or about the Premises, regardless of the cause of such loss or damage
and shall not be required to repair or replace such personal property in the
event of a casualty loss. Lessee will maintain insurance on all property of
Lessee and any other party which at any time is at or in the Premises, such
insurance to be for the full value of such property and to include a waiver of
all rights, including subrogation, against Lessor and its agents and employees
for damage to such property
14. ALTERATIONS: Lessee shall not make any alterations or additions in or to
the Premises, without the prior written consent of Lessor not to be unreasonably
withheld, delayed or conditioned. At the time Lessor grants its consent, Lessor
shall indicate which such alterations, additions or improvements, if any that
Lessee may be required to remove from the Premises at the expiation of the Term
(as the same may be extended) of this Lease (the "Removal Alterations"), and
which such alterations, additions or improvements, if any that Lessee may be
required to leave at the Premises at the expiration of the Term (as the same may
be extended) of this Lease (the "Forfeited Alterations"). Lessee shall remove
the Removal Alterations prior to the expiration of the Term unless notified by
Lessor in writing 30 days prior to such expiration (as the same may be
extended), repairing any damage to the Premises caused by such removal. Lessee
shall surrender the Forfeited Alterations to Lessor at the expiration of the
Term or earlier termination of this Lease. Except for the Removal Alterations,
Lessee shall have no obligation to remove any alterations, additions or
improvements made during the Term (as the same may be extended) of this Lease,
to which Lessor has given its consent. Except for the Forfeited Alterations,
Lessee shall have the right, but not the obligation, to remove from the Premises
alterations, additions and improvements made during the Term (as the same may be
extended) of this Lease, provided that Lessee repair any damage to the Premises
caused by such removal. Lessor agrees that Lessee shall have the right to
install a security system in the Premises and a concrete pad and security
fencing on the exterior of the Building to house gas (non-fuel) tanks for use in
Lessee's business subject to Landlord reasonable approval.
15. UTILITIES AND SERVICES: Lessee shall obtain and pay for all electricity,
gas, water, fuel and any services or utilities used in or assessed against the
Premises including, but not limited to, any charges for the burglar and fire
monitoring systems which shall include line and installation charge if
necessary, unless otherwise herein expressly provided.
16. PUBLIC REQUIREMENTS: Lessee shall, at its own cost and expense, promptly
and properly observe, comply with and execute, all present and future orders,
regulations, directions, rules, laws, ordinances and requirements of all
Governmental authorities, (included but not limited to, State, Municipal, County
and Federal Governments and their departments, bureaus, boards, and officials),
and shall comply with Loss Control Requirements issued by Lessor's insurance
company(ies), affecting the Premises and Lessee's use thereof, and save Lessor
harmless from expense or damage resulting from failure to do so. Notwithstanding
the foregoing, Lessee shall have no obligation to make alterations or
improvements to the Premises as a result of the foregoing unless required as a
result of Lessee's unique use of the Premises.
17. CONDUCT OF OPERATIONS: Lessee agrees to conduct its business in a manner
that will not be objectionable to other tenants in the Building including noise,
vibration, odor, or fumes. In the event Lessor determines that Lessee is
conducting its operations in a manner so as to be objectionable to other
tenants, Lessee agrees, upon notice from Lessor, to promptly modify the conduct
of its operations to eliminate such objectionable operations.
1 8. FIXTURES: Subject to the rights and obligations contained in paragraphs 2
and 14, all buildings, repairs, alterations, additions, improvements,
installations, and any other fixtures used in the operation of the Premises or
Building (as distinguished from operations incident to the business of Lessee)
shall belong to Lessor and remain and be surrendered with the Premises as a part
thereof at the expiration of this Lease or any extension thereof. All of
Lessee's trade fixtures and all personal property, fixtures, apparatus,
machinery and equipment, now or hereafter located upon the Premises, other than
Building fixtures as defined above, shall be and remain the personal property of
Lessee and the same are herein referred to as "Lessee's Equipment". Lessee's
Equipment may be removed from time to time by Lessee; provided, that if such
removal shall injure or damage the Premises, Lessee shall repair the damage and
place the Premises in the same condition as it would have been if such equipment
had not been installed.
1 9. EMINENT DOMAIN: If the Premises or any substantial part thereof shall be
taken by any competent authority under the power of eminent domain or be
acquired for any public or quasi-public use or purpose, the Term of this Lease
shall cease upon the date when the possession of Premises or the part thereof so
taken shall be required for such use, and Lessee shall have no claim against
Lessor for the value of any unexpired term of this lease, nor shall Lessee
participate in any award. If any condemnation proceeding shall be instituted in
which it is sought to take any part of Lessor's Building or the land under it or
if the grade of any street or alley adjacent to the Building is changed by any
competent authority and such change of grade makes it necessary or desirable to
remodel the Building to conform to the changed grade, Lessor shall have the
right to cancel this lease after having given written notice of cancellation to
Lessee not less than ninety (90) days prior to the date of cancellation
designated in the notice. In either of said events, rent at the then current
rate shall be apportioned as of the date Lessee shall cease to have use of the
Premises. No money or other consideration shall be payable by the Lessor to the
Lessee for the right of cancellation and the Lessee shall have no right to share
in the condemnation award or in any judgment for damages caused by the taking or
the change of the grade. Nothing in this paragraph shall preclude an award being
made to Lessee for loss of business or depreciation to and cost of removal of
equipment or fixtures or Lessee's cost of moving, provided that such award to
Lessee would not reduce the award that would otherwise be payable to Lessor.
20. WAIVER OF SUBROGATION: Lessor and Lessee agree to have all fire and
extended coverage insurance 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 thereunder to recover therefrom and providing further that
the insurer waives all rights of subrogation which such insured might have
against the other party. Without limiting any release or waiver of liability or
recovery contained in any other section of this Lease, but rather in
confirmation and furtherance thereof, Lessor waives all claims for recovery from
Lessee and Lessee waives all claims for recovery from Lessor, and their
respective agents, partners, officers and employees for any loss or damage to
any of their respective property insured under valid and collectible insurance
policies or which would have been so insured if insurance required by this Lease
had been properly maintained.
21. DEFAULT AND REMEDIES: In the event: (a) Lessee fails to pay any Rent
(whether Base Rent or Additional Rent or any other sum due hereunder), within
five (5) days after written notice from Lessor provided however after second
such notice within a twelve (1 2) month period during the term, no such notice
will be required from Lessor; (b) Lessee fails to comply with any other term,
provision, condition or covenant of this lease for fifteen (1 5) days after
notice thereof specifying the items in default or additional time as may be
reasonably necessary provided Lessee shall have commenced cure within such
fifteen (1 5) day period and is diligently completing the same; (c) Lessee
abandons or vacates the Premises; (d) any petition is filed by or against Lessee
under any section or chapter of the Federal Bankruptcy Code as amended, or under
any similar law or statute of the United States or any state thereof (and in the
case of a petition filed against Lessee, the same shall not be dismissed within
forty-five (45) days after written notice from Lessor); (e) Lessee becomes
insolvent or makes a transfer in fraud of creditors; (f) Lessee makes any
assignment for benefit of creditors; or (g) a receiver is appointed for Lessee
or any of the assets of Lessee, and the same shall not be dismissed within
forty-five (45) days after written notice from Lessor, then in any of such
events Lessee shall be in default and, Lessor shall have the option to do any
one or more of the following in addition to and not in limitation of any other
remedy permitted by law; to enter upon the Premises or any part thereof either
with or without the process of law, and to expel, remove and put out Lessee or
any other persons who might be thereon, together with all personal property
found therein; and, Lessor may terminate this Lease or it may, without
terminating this Lease, terminate Lessee's right to possession and relet the
Premises or any part thereof for such term or terms (which may be for a term
extending beyond the Term of this lease) and at such rental or rentals and upon
such other terms and conditions as Lessor in its sole discretion may deem
advisable, with the right to repair, renovate, remodel, redecorate, alter and
change the Premises. At the option of Lessor, rents received by Lessor from such
reletting shall be applied first to the payment of any indebtedness from Lessee
to Lessor other than Rent due hereunder; second, to payment of any costs and
expenses of such reletting including, but not limited to, attorney's fees,
advertising fees and brokerage fees, alterations and changes in the Premises;
third, to the payment of Rent due and payable hereunder and interest thereon,
and if after applying said rentals there is any deficiency in the Rent and
interest to be paid by Lessee under this lease, Lessee shall pay any such
deficiency to Lessor and such deficiency shall be calculated and collected by
Lessor monthly. No such re-entry or taking possession of said Premises shall be
construed as an election of Lessor's part to terminate this Lease unless a
written notice of such intention is given to Lessee. Notwithstanding any such
reletting without termination, Lessor may at any time thereafter elect to
terminate this Lease for such previous breach and default.
Should Lessor at any time terminate this Lease as a result of any
default of Lessee hereunder, in addition to any other remedy Lessor may have,
Lessor may recover from Lessee a sum, which at the time of such termination of
this Lease, represents the then present value of the excess of the aggregate
amount of Base Rent and all Additional Rent under Article 4 which would have
been payable by Lessee (conclusively presuming the average monthly Additional
Rent under Article 4 to be the same as if it where payable for the year, or if
less than 365 days have lapsed since the commencement of this Lease, the partial
year, immediately preceding such termination) for the period commencing with
such termination of this Lease and ending with the date contemplated as the
expiration date hereof, as if this Lease had not so terminated, over the fair
market rental value (as reasonably determined by Lessor) of the Premises for
such period. Lessor shall have the right to seek redress in the courts at any
time to correct or remedy any default of Lessee by injunction or otherwise,
without such action constituting or being deemed a termination of this Lease,
and Lessor, whether this Lease has been or is terminated or not, shall have the
absolute right by court action or otherwise to collect any and all amounts of
unpaid Rent or any other sums due from Lessee to Lessor under this lease which
were or are unpaid at the date of termination. In case it should be necessary
for Lessor to bring any action under this Lease, to consult with an attorney
concerning or for the enforcement of any Lessor's rights hereunder, the Lessee
agrees in each and every such case to pay to Lessor reasonable attorney's fees.
22. SECURITY DEPOSIT:
A. Concurrently with its execution of this Lease, Lessee shall deliver
to Lessor $11,375.00 as security for the performance by Lessee of every
covenant and condition of this Lease by Lessee to be performed. Said
deposit may be commingled with other funds of Lessor, and shall bear no
interest. If Lessee shall default with respect to any covenant or
condition of this Lease, including, but not limited to, the payment of
any sum due hereunder, then Lessor may use such portion of the security
deposit as is necessary to cure such default. In the event, Lessor so
uses the security deposit in part or in whole, Lessee will restore the
security deposit to the required amount upon notice of said default
plus a processing fee of $50.00 for each incident. Should Lessee comply
with all of the covenants and conditions of this Lease, the security
deposit or any balance thereof shall be returned to Lessee at the
expiration of the Term thereof. The security deposit shall not be
deemed an advanced payment of Rent or measure of Lessor's damages for
any default hereunder by Lessee.
B. Notwithstanding anything to the contrary herein, the base Rent
payable for the first month of the term shall be due and paid to Lessor
upon Lessee's execution hereof.
23. WAIVER: The rights and remedies of the Lessor under this Lease, as well as
those provided or accorded by law, shall be cumulative, and none shall be
exclusive of any other rights or remedies hereunder allowed by law. A waiver by
Lessor of any breach or breaches, default or defaults of Lessee hereunder shall
not be deemed or construed to be a continuing waiver of such breach or default
nor a waiver of or permission, for any subsequent breach or default, and it is
agreed that the acceptance by Lessor of any installment of Rent subsequent to
the date the same should have been paid hereunder, shall in no manner alter or
affect the covenant and obligation of Lessee to pay subsequent installments of
Rent promptly upon the due date thereof. No receipt of money by Lessor after the
termination in any way of this Lease shall reinstate, continue or extend the
Term. Lessee hereby expressly waives, so far as permitted by law, the service of
any notice of intention to re-enter provided for in any statute, except as is
herein otherwise provided.
24. NOTICES: Any notice hereunder shall be sufficient if personally delivered,
sent by recognized courier or sent by certified mail, addressed to Lessee at the
Premises,
Attn: Sid Bennett with copies to: KVH Industries, Inc., 50 Enterprise
Center, Middletown, R.l. 02842,
Attn: Chief Financial Officer and Foley, Hoag & Eliot LLP, One Post Office
Square, Boston, MA 02109, Attn: Paul R. Murphy, Esq. and to Lessor where Rent is
payable. The effective date of such notice shall be upon delivery if personally
served, one (1) day after delivery to a courier if served by courier and three
(3) days after delivery of same to the United States Post Office if served by
mail.
25. SUBORDINATI9N: In the event Lessor holds title to the Premises by virtue of
a lease, then this shall be deemed a sublease and shall remain subject to all of
the terms and conditions of such underlying lease, so far as shall be applicable
to the Premises herein leased. This Lease shall also be subject and subordinate
to any existing or future mortgage or deed of trust placed upon the Premises or
the Building. Lessee hereby agrees to execute from time to time any and all
instruments in writing provided that Lessee shall receive a commercially
reasonable non-disturbance agreement from a future ground Lessor or mortgagee,
which may be requested by Lessor to subordinate Lessee's rights under this lease
to the lien of any such mortgage or deed of trust. Lessee agrees to attorn to
any ground Lessor, mortgagee or other lien holder which succeeds to Lessor's
interest under this Lease.
26. SUCCESSORS: The provisions, covenants and conditions of this Lease shall
bind and inure to the benefit of the legal representatives, heirs, successors
and assigns of each of the parties hereto, except that no assignment or
subletting by Lessee without the written consent of Lessor shall vest any right
in the assignee or sublessee of the Lessee. When used herein Lessor shall mean
the party which is from time to time the Lessor under this Lease, and upon
transfer of the interest hereunder of a Lessor, such transferor shall have no
further liabilities hereunder. Lessor shall have no personal liability for any
agreements or obligations under this Lease, all such personal liability being
waived by Lessee on behalf of Lessee and every party claiming by, through or
under it. All liability of Lessor, if any, shall be satisfied only out of and
against Lessor's interest in the Premises and Building.
27. QUIET POSSESSION: Lessor agrees that so long as Lessee fully complies with
all of the terms, covenants and conditions herein contained on Lessee's part to
be kept and performed, Lessee shall and may peaceably and quietly have, hold and
enjoy the Premises during the term hereof without such possession being
disturbed or interfered with by Lessor or by any person claiming by, through or
under Lessor.
28. BANKRUPTCY: Neither this Lease nor any interest therein nor any estate
hereby created shall pass to any trustee or receiver in bankruptcy or to any
other receiver or assignee for the benefit of creditors by operation of law or
otherwise during the Term of this Lease or any renewal thereof.
29. ENTIRE AGREEMENT: This Lease contains the entire agreement between the
parties, and no modification of this Lease shall be binding upon the parties
unless evidenced by an agreement in writing signed by the Lessor and the Lessee
after the date hereof. If there be more than one Lessee named herein, the
provisions of this lease shall be applicable to and binding upon such Lessees,
jointly and severally.
30. ESTOPPEL CERTIFICATE BY LESSEE: Lessee agrees at any time and from time to
time, upon not less than ten (10) days prior written request by Lessor, to
execute, acknowledge and deliver to Lessor 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 same is in full force and effect as modified, and
stating the modifications), (ii) the date to which the rental and other charges
have been paid in advance, if any, (iii) that Lessor is not in default under any
term of this Lease (or if any default exists, Lessee will specify), and (iv)
that Lessee is in possession of the Premises and containing such other
information or agreements as may be requested, it being intended that any such
statement delivered pursuant to this paragraph, may be relied upon by any
prospective purchaser of the fee, or mortgagee or assignee of any mortgage upon
the fee, of the Premises.
31. FINANCIAL INFORMATION: Lessee shall provide reasonable financial
information concerning Lessee and ~s operations, upon request of Lessor from
time to time, in connection with any proposed financing or sale by Lessor.
32. ENCUMBRANCES: Lessee shall not perform any act which shall in any way
encumber the title of Lessor in and to the Premises or the Building, nor shall
the interest or estate of Lessor in the Premises or the Building be in any way
subject to any claim by way of lien or encumbrance, whether by operation of law
or by virtue of any express or implied contract by Lessee. Any claim to, or lien
upon, the Premises or the Building arising from any act or omission of Lessee
shall accrue only against the leasehold estate of Lessee and shall be subject
and subordinate to the paramount title and rights of Lessor in and to the
Premises or the Building. Should the Premises or the Building become subject to
any mechanics, laborers' or materialmen's lien on account of labor or material
furnished to Lessee or claimed to have been furnished to Lessee, Lessee will
promptly pay same or cause the same to be released.
33. HOLDING OVER: In the event of a holding over by Lessee after expiration of
termination of this Lease without the consent in writing of the Lessor, Lessee
shall be deemed a Lessee at sufferance and shall pay as liquidated damages, 1 50
% of Rent for the entire holdover period and any consequential damages incurred
by Lessor as a result of such holdover.
34. COMMON AREAS: Lessee agrees to conform with any uniformly applied rules and
regulations Lessor may establish from time to time in connection with common
areas, including those concerning the parking area and driveways.
35. JANITORIAL SERVICE AND GARBAGE REMOVAL: Lessee at its own expense shall
provide its own janitorial service and garbage removal. Lessee shall not permit
the undue accumulation of debris in the Premises or in any area immediately
adjoining the Premises.
Dumpsters will be stored within the Premises prior to and immediately following
trash removal.
36. LATE CHARGE: Lessee will pay to Lessor a late charge of ten percent (10%)
as Additional Rent on any amount owing to Lessor hereunder which is not paid
when due. The late charge will represent a fair and reasonable estimate of the
additional cost and expenses Lessor will incur because of Lessee's late payment.
37. SURRENDER OF POSSESSION: Upon the expiration of the term or earlier
termination of this Lease, whether by forfeiture, lapse of time or otherwise, or
upon termination of Lessee's right to possession of the Premises, Lessee will at
once surrender and deliver the Premises, together with all improvements thereon
not removed by Lessee to Lessor broom clean in the same order, condition and
repair, as on the commencement date (or put in during the term), reasonable wear
and tear and loss due
to fire or other casualty for which Lessee is not responsible hereunder
excepted. "Broom Clean" means free from all debris, dirt, rubbish, personal
property of Lessee, oil, grease, tire tracks or other substances, inside and
outside the Building and on the grounds comprising the Premises and with all
lighting fixtures in working order.
Upon termination, Lessee may remove Lessee's Equipment, provided any
damage caused by removal of Lessee from the Premises, including any damage
caused by removal of Lessee's Equipment shall be repaired and paid for by
Lessee. In the event Lessee does not remove Lessee's Equipment and all Lessee's
personal property from the Premises within a reasonable time, then, at Lessor's
option, Lessee shall be conclusively presumed to have conveyed the same to
Lessor under this Lease as a bill of sale without further payment or credit by
Lessor to Lessee and Lessor may remove the same and Lessee shall pay the cost of
such removal to Lessor upon demand; [avoid, however, Lessee shall have no
obligation to remove alterations, additions or improvements to the Premises
other than those that are required to be removed by Lessee pursuant to paragraph
2 and paragraph 1 4 herein, or to restore the Premise at the end of the term
except as provided herein.
38. ENVIRONMENTAL MATTERS: Lessee agrees that it will use, handle, treat,
transport, store and dispose of any Hazardous Materials (as hereinafter defined)
in accordance with the requirements of all applicable laws and regulations,
(collectively "Environmental Laws"), including, without limitation, the
Occupational Safety & Health Act, as amended, 29 U.S.C. 651 et seq. ("OSHAt'),
the Comprehensive Environmental Response & Liability Act, as amended, 42 U.S.C.
#9601 et seq. ("CERCLA"), the Resources Conservation & Recovery Act, as amended,
42 U.S.C. #9601 et seq. ("RCRA") and the Superfund Amendments and
Reauthorization Act, as amended, 42 U.S.C. #9671 et seq. ("SARA") and will
transport such Materials in accordance with Department of Transportation
Hazardous Materials Table, as amended 49 C.F.R. 172.101 et seq. The term
"Hazardous Materials", when used herein, shall include, but shall not be limited
to, any substances, materials or wastes that are regulated by any local
governmental authority, the state where the demised Premises is located, or the
United States of America because of toxic, flammable, explosive, corrosive,
reactive, radioactive or other properties that may be hazardous to human health
or the environment, Including asbestos and including any materials or substances
that are listed in the United States Department of Transportation Hazardous
Materials Table, CERCLA, RCRA, OSHA and SARA or any other applicable
governmental regulation imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous substances, waste or material, now or
hereafter in effect.
39. BROKERS: Lessee represents that Lessee has dealt with only CB Commercial
and Colliers, Bennett & Kahnweiler in connection with this Lease transaction.
Lessee covenants to pay, hold harmless and indemnify Lessor from and against any
and all costs, expense or liability for any compensation, commissions or charges
claimed by any other broker or agent with respect to this Lease arising out of
any acts of Lessee.
40. TENANT IMPROVEMENT ALLOWANCE: Lessor will provide Lessee with a Tenant
improvement allowance of $206,811 .00/RSF (the "Tenant Improvement Allowance")
as a contribution toward the cost (the "Construction Costs") of completing the
Initial Tenant Improvements to the Premises. The Construction Costs shall equal
the sum of all actual costs (all of which shall be documented and verifiable)
incurred by Lessor in connection with the construction of the Initial Tenant
Improvements. All Construction Costs shall be at prices that are consistent with
arms' length market rates, and Lessor shall complete the Initial Tenant
Improvements using qualified subcontractors, all of whom shall be competitively
bid, with the contracts being awarded to the lowest qualified bidder unless
otherwise agreed by Lessee. Prior to beginning construction on the Initial
Tenant improvements, Lessor agrees to provide Lessee with projections of the
Construction Costs, and to periodically update the same. The Construction Costs,
in excess of the Tenant Improvement Allowance, plus a fee equal to ten percent
(10%) of the Construction Costs (exclusive of engineering, design and other
"soft" costs) and Lessor's general condition costs (as set forth in the addendum
attached hereto which shall not be in excess of general conditions costs
reasonable and customary for the work being performed) shall be paid by Lessee
to Lessor within fifteen (1 5) days after receipt of an invoice from Lessor
together with reasonable substantiating documentation reasonably acceptable to
Lessee.
41. LESSEE'S ACCESS. Lessee shall have access to the Premises seven (7)
days per week, twenty-four (24) hours per day.
42. OPTION TO EXTEND. So long as Lessee is not in default under this Lease
beyond applicable cure periods. Lessee shall have two (2) consecutive options to
extend the Term of this Lease for a period of five (5) years each, exercisable
by written notice to Lessor delivered not less than twelve (12) months prior to
the expiration of the then current Term of this Lease. The Base Rent during
either such extension period shall be the then prevailing market rate for
comparable space in the market place, inclusive of all inducements and tenant
improvements then available. If Lessor and Lessee shall not be able to agree
upon a Base Rent for such extension period within 60 days after Lessee shall
have delivered to Lessor its extension notice, then Lessee shall have the right
to withdraw such extension notice, and the Term of the Lease shall expire on the
date originally set forth in the Lease.
43. OPTION TO CANCEL. So long as Lessee is not in default under this lease
beyond applicable cure periods. Lessee shall have the option to terminate this
Lease effective anytime after the sixtieth (60th) month of the Term of this
Lease, exercisable by written notice to Lessor delivered not less than twelve
(12) months prior to the effective date of such notice. Upon the date of the
delivery of written notice of the termination of this Lease, Lessee shall pay to
Lessor a termination fee equal to the unamortized portion of any brokerage
commission and the tenant improvement allowance provided pursuant to paragraph
40 herein plus four (4) months of the then existing Base Rent, whereupon
obligations of Lessee and Lessor hereunder shall cease, this lease shall
terminate and be of no further force and effect.
44. RIGHT OF NOTICE. In the event Lessor receives an inquiry from a third party
for the lease of any space in the Building which is contiguous to the Premises
which Lessor considers to be an inquiry that could lead to a lease and provided
Lessee is no currently in default under this Lease beyond applicable cure
periods, Lessor will notify Lessee that such inquiry has been made and allow
Lessee a period (as is determined to be reasonable by Lessor under the
circumstances, but which will not delay negotiations with such third party) to
discuss the leasing of contiguous space by Lessee. The terms of any lease of
contiguous space to Lessee shall be such terms, if any, as Lessor and Lessee may
agree to at such time, and neither party shall be obligated to agree to any
particular terms, to any prescribed negotiation, or to enter into a lease for
contiguous space. Among the factors to be considered in any such discussion
between Lessor and Lessee concerning contiguous space shall be the length of the
proposed lease, the fair market rental rates for contiguous space at such time,
creditworthiness issues and the level of Lessee improvements then existing and
to be provided in contiguous space. Upon Lessee's request from time to time,
Lessor will advise Lessee as to the expiration date for any lease in contiguous
space.
45. PARKING. Lessee shall have the right, at no additional cost, to parking
spaces in the parking area adjacent to Lessee's Premises in the amount of one
and one-half (1.5) space per 1,000 rentable square feet of the Premises (i.e.
currently thirty-five (35) parking spaces). Lessee shall further have the right
to request Lessor to construct additional parking spaces in such parking area as
may be available at an additional cost at fair market value at time of such
request.
46. ADJACENT USES. Given the unique nature of Lessee's business operations in
the Premises, Lessor and Lessee shall agree upon reasonable types of operations
for spaces adjacent to the Premises.
47. ROOF APPURTENANCES. Lessor reserves the right to the exclusive use of the
roof and exterior walls; provided that Lessee shall have the right to erect and
maintain satellite communications equipment and such other devices, at Lessee's
cost subject to all legal requirements. At the expiration or termination of the
Lease Lessee shall remove the equipment and any associated wiring and repair all
damage caused by the location or removal of the equipment.
48. SELF HELP. In the event Lessor fails to perform its obligations hereunder
and such failure continues for thirty (30) days after receipt of written notice
from Lessee to Lessor (or such lesser period of time as shall be reasonable in
the event of an emergency), Lessee may perform such obligations and charge
Lessor for all reasonable cost and expenses incurred in connection therewith
such amounts incurred by Lessee shall be reimbursed by Lessor within thirty (30)
days after demand by Lessee accompanied by copies of appropriate invoices and
other evidence of payment
49. BASE BUILDING SPECIFICATIONS. Lessor will provide the base building to
Lessee in accordance with Exhibit B. In addition, Lessor will provide 480
volt/800 amp/3 phase electrical power in the warehouse area of the premises.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day
and year first above written.
LESSOR
COLE TAYLOR BANK, not personally but as Trustee under Trust Agreement dated
September 30, 1 997, and known as TR ST No.97-7559 as Lessor
By.
Title: Trust officer
LESSEE
KVH INDUSTRIES, INC.
By:
Title:
<PAGE>
EXHIBIT B
Outline Speculative Warehouse Specifications
TINLEY CROSSING I
Tinley Park, Illinois
May 1, 1997
Prepared by:
McShane Construction Corporation
6400 Shafer Court, Suite 400
Rosemont, IL 60018
(847) 2924300
<PAGE>
Tinley Crossing I Speculative Warehouse Specifications
McShane Construction Corporation
PROJECT DATA
- --------------------------------------------------------------------------------
Area Gross Square Footage Clear Exterior Wall Material
Height
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Building 101,052 28' - 0" Precast and Glass
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Car Parking 100
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Truck Docks Exterior: 12 D.I.D.: 2
- --------------------------------------------------------------------------------
*Includes building common area room of 645 square feet located on the East wall
of Tenant No.1.
GENERAL ITEMS INCLUDED
A. Site and building design per BOCA 1993 and Village Amendments, Handicap
Code and ASHRAE design guidelines.
B. Quality control, testing and safety program: soil, concrete cylinder and
asphalt tests, weld inspection.
C. Construction liability, workmen's compensation and builder's risk
insurance.
D. Field supervision and project management.
E. One (1) year guarantee.
SITE DATA
A. Grading work based on balanced cut and fill and 3,000 psf soil bearing
capacity. Temporary off-site detention shall be utilized with drainage swale.
B. Grading and granular fill at foundation and two inch (2") granular for
concrete slab-on-grade.
C. Stone/asphalt thickness: 8"12.5" car; 10"/3" truck and drive aisle.
Shared truck maneuvering on adjacent lot included.
D. Concrete curbs around car and truck paving areas.
E. Concrete sidewalks at main entrance and electrical transformer pad.
F. Sanitary sewer and 1,000 linear feet of fire water piping with three (3)
fire hydrants shall be brought from the property line to the building. Storm
sewer to outfall to off-site detention on Lot 30.
G. Three (3) light poles and ten (10) wall packs.
H. Landscaping, lawn sprinkler and associated work at an allowance of Forty
Thousand and No/l00 Dollars ($40,000.00).
BUILDING SHELL
A. 3,000 psi concrete, 28 day mix design.
B. Concrete foundations and column pads.
C. Slab-on-grade shall be six (6) inches thick with fibermesh cured and
sealed with Sonneborn Sonosil. Floor flatness 25.
D. Load bearing, architectural precast office similar to Diehl Center One with
punched windows and a stained finish. Glass shall be one inch (1") insulated,
tinted pane in aluminum thermobroken frames. "Curved" element to be segmented
reflective blue glass.
E. Load bearing precast on warehouse to extend beyond roof line to act as
parapet with reveals and stained flat finish. The R-value of precast is 10.
Precast wall between loading docks to be depressed and provide knock-out panels
for future docks.
F. Building steel bay size shall be approximately 40' x 40', with end bay
adjusted as per plan. Ship's ladder to the roof.
G. Single-ply, 45 mil EPDM ballasted roof with ship's ladder and roof hatch.
The R-value of the roof system is 14.2. Melt-out smoke vents at a ratio of 1:75
(48 - 4' x 8').
H. Interior roof drains.
I. Overhead doors shaft be 8' x 9' at exterior doors and 12' x 14' at the
drive-in door. Bollard 6" concrete filled and painted at overhead doors.
J. Twelve (12) 20,000 lb. mechanical dock levelers.
K. ESFR fire sprinkler system in the warehouse area with fire pump.
L. Included from the Commonwealth Edison transformer are 200 amp metering
sockets and panel for each tenant and one (1) 150 amp house panel and two (2) 4"
empty conduit from transformers to each of four tenants.
M. Addressable fire alarm system main panel at the Electrical Room.
N. Coordination of electrical, telephone and gas services to the building.
DEMISING AND OFFICE/WAREHOUSE WALL
A. Three (3) demising walls at 200 linear feet each, for a total of 600
linear feet full height, twenty (20) gauge, six inch (6") metal studs and 5/8"
sheet rock fire taped.
B. Office/warehouse walls (total 400 LF) full height, twenty (20) gauge, six
inch (6") metal studs, insulation to ten feet (10') and sheet rock full height
and taped warehouse side only.
EXCLUSIONS
A. Office furniture, demountable partitions, racks, signage and fencing.
B. In-rack fire sprinklers, lockers, mechanical and electrical distribution or
hook-up of tenants' equipment. Warehouse destratification fans and summer
ventilation.
C. Security, CRT, PA or telephone cables and systems.
D. Truck dock shelters, seals or canopy.
E. Land, survey, environmental items, interim financing and bonds.
F. Unsuitable soils, off-site work. Others to bring sanitary sewer to site.
G. Precast truck screening (to be landscaped).
H. Governmental fees and excess utility charges.
<PAGE>
EXHIBIT C
ATTACHED TO AND MADE PART OF
LEASE DATED JANUARY 30, 1998
BETWEEN COLE TAYLOR TRUST No.97-7559, AS LESSOR AND
KVH INDUSTRIES, INC., AS LESSEE
1. All exterior signs shall be in accordance with Lessor's sign specifications.
2. Lessee shall not place unsightly objects against glass partitions or doors,
nor cover any glass window or door with interior sign or signs.
3. Blinds, shades, awnings (except awning frames), window ventilators and other
similar equipment visible from outside of the Building shall be installed by
Lessee only in accordance with the prior written approval of Lessor.
4. Lessee shall not use any space in the Building for living quarters, whether
temporary or permanent.
5. Lessee shall not keep inflammables, such as gasoline, kerosene, naphtha and
benzine, or explosives, or any other articles of an intrinsically dangerous
nature on the Premises. Lessee may, however, keep on the Premises such chemicals
and other materials as are usual and customary for the type of business to be
operated by Lessee, provided that all such chemicals and other materials shall
be kept in such containers and in such manner as may be required by Lessor's
policies of insurance, and further provided that the keeping of such chemicals
or materials shall not increase the rate of insurance of any such policies of
the Lessor.
6. Lessee shall place all trash and garbage in containers. If excess trash
accumulates, Lessee shall arrange for special pickup.
7. All loading and unloading of goods shall be done only at such times in the
areas and through the entrances designated for such purpose by Lessor. All
vehicles shall use driveways in accordance with designated traffic pattern.
8. Lessee shall have full responsibility for protecting the premises and the
property located therein from theft and robbery, and shall keep all doors,
windows and transoms securely fastened when not in use.
9. Lessee shall keep the Premises free and clear from rodents, bugs and vermin,
and will at Lessee's sole cost and expense use exterminating services when so
requested by Lessor.
10. Lessee shall keep the Premises at a temperature sufficiently high to prevent
freezing of water in pipes and fixtures.
11. The outside areas of the Premises within the Building and any exterior entry
door and loading bays which serve Lessee exclusively shall be kept clean by the
Lessee, and the Lessee shall not place or permit any obstructions, merchandise
or machines of any kind in such areas.
<PAGE>
LESSOR EXONERATION RIDER
This LEASE is executed as lessor by COLE TAYLOR BANK, not personally, but solely
as Trustee as aforesaid and it is expressly understood and agreed by and between
the parties hereto, anything in this Lease to the contrary notwithstanding, that
each and all of the covenants, undertakings and agreements in this Lease
contained are made and intended not as personal covenants, undertakings and
agreements of COLE TAYLOR BANK, or any of its officers, agents or employees, but
this Lease is executed and delivered by the undersigned Lessor solely as Trustee
as aforesaid and no personal liability or personal responsibility is assumed by,
or shall at any time be asserted or enforced against COLE TAYLOR BANK, its
officers, agents or employees, on account of any covenants, representations,
undertakings or agreements in this Lease contained, or otherwise, either express
or implied, all such personal liability, if any, being hereby expressly waived
and released, it being understood that the Lessee or anyone claiming by, through
or under the Lease shall look solely to the trust property for the enforcement
or collection of any such liability. By way of illustration only and without
limitation of the foregoing, it is further understood and agreed that neither
the Lessor nor the said COLE TAYLOR BANK individually shall have any duty
whatsoever with reference to the upkeep, maintenance or repair of said premises
and makes no representations with reference to the condition of, or the title
to, said premises. The Lessee hereunder is hereby charged with knowledge that
the Lessor does not, in fact, have possession of nor exercise any dominion over
the trust property or the income or avails therefrom. It is further expressly
understood and agreed that this lease is signed by the undersigned Lessor solely
for the purpose of subjecting the title to the trust property to the terms of
this Lease and for no other purpose whatsoever. Any conveyance of the demised
premises by the undersigned Lessor shall operate to release the Lessor and COLE
TAYLOR BANK in every capacity from any and all obligations, if any, under this
Lease. It is further expressly understood and agreed that no duty shall rest
upon the Lessor or COLE TAYLOR BANK to sequester the trust property or the
rents, issues and profits arising therefrom, or the profits arising from any
sale or other disposition thereof.
<PAGE>
TENANT ESTOPPEL CERTIFICATE
January 18, 1999
KeyBank National Association
10 West Market, 9th Floor
Indianapolis, Indiana 46204
Attn. Jane Butler
Re: 400 W. 185th Street, Tinley Park, IL
Ladies and Gentlemen:
The undersigned (the "Lessee) is the lessee of approximately 22,979 rental
square feet of space (the "Leased Premises") in premises located at the
above-captioned address (the "Property"), under the terms of a lease (the
"Lease") with Cole Taylor Bank, as Trustee ("Lessor").
At your request, and knowing that you and your successors and assigns will rely
upon the accuracy of the information and the representations contained herein in
making a loan to the Lessor on the security of; among other things a mortgage on
the Property (the "Mortgage"), the Lessee certifies to you7 and to your
successors and assigns, as follows;
1. A true, correct and complete description of the Lease, including all
amendments and modifications thereto is attached hereto as Exhibit A.
2. The Lease is a valid lease, is in full force and effect, represents the
entire agreement between the parties and is binding and enforceable against
Lessee in accordance with its terms.
3. The commencement date of the term of the Lease is April 1, 1998.
4. The Lease has not been modified, supplemented, amended, renewed or otherwise
changed in any way, except as indicated therein or by the agreements referred to
in Schedule A hereto.
5. No payments are required to be made to the Lessee by the Lessor and all work
required by the Lease to have been performed by the Lessor has been completed in
accordance with the provisions of the Lease.
6. (a) The fixed or minimum monthly rental presently payable under the terms of
the Lease is as set forth in the Lease has been paid through January 31, 1999.
(b) If applicable, the percentage rent payable under the terms of the Lease
is as set forth in the Lease and has been paid through N/A.
(c) All escalation rent (e.g. charges for taxes, maintenance and common
& areas, cost of living increases, etc.) payable under the terms of the Lease
has been paid through January 31, 1999, and the Lessee is not presently
contesting its pro rata share thereof.
(d) If applicable, all other additional rent, if any, payable under the
terms of the Lease has been paid through N/A.
7. The Lessee claims no offsets, set-offs, rebates, concessions, abatements or
"free" rent or defenses against or with respect to any fixed or minimum rent,
escalation rent, additional rent, percentage rent or other amount payable under
the terms of the Lease. No advance rental or other payment under the Lease has
been paid more than 30 days in advance of its due date. Lessor has not provided
financing for or made loans or advances to, or invested in, the business of
Lessee.
8. Neither the Lessor nor the Lessee is in default in the performance or
observance of any of its obligations under the Lease and no event has occurred
an no condition exists that, with the giving of notice of the passage of time,
or both, would constitute a default under the terms of the Lease, except as
follows: N/A
9. The amount of the security deposited under the Lease is $11,375.00.
10. The Lessee has no option to renew the Lease, cancel the Lease, or options or
rights to lease any other space in, or to purchase all or any part of; the
Property, except as provided in the Lease.
11. No action or proceeding instituted by the Lessee against the Lessor is
pending in any court. There are no actions, voluntary or involuntary, pending
against the Lessee under the United States Bankruptcy Code or any bankruptcy law
or any state.
12. The Lessee is in actual possession of the Leased Premises.
[EXECUTION PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned Lessee has executed and delivered this
Estoppel Certificate as of the _____ day of January 1999.
LESSEE:
KVH INDUSTRIES, INC.
By:
Name: Richard C. Forsyth
Title: CFO
<PAGE>
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGRREMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement")
is made and entered into as of this 18 day of January, 1999, by and among KVH
Industries, Inc., a Delaware corporation ("Tenant"), with a mailing address of
50 Enterprise Center, Middletown, Rhode Island 02842, and Cole Taylor Bank, as
Trustee wider Trust Agreement dated September 30, 1997 and known as Trust No.
97-7559 ("Landlord"), with a mailing address of 18020 S. Oak Park Avenue, Tinley
Park, Illinois, and KeyBank National Association ("Mortgagee"), with a mailing
address of 10 West Market, 9th Floor, Indianapolis, Indiana 46204.
RECITALS:
A. Tenant is the Lessee under that certain lease executed between Tenant and
Landlord, dated January 30, 1998 (as the same have been or may be modified or
amended from time to time, the ("Lease"), which demises certain premises
described in the Lease consisting of approximately 22,979 rental square feet in
the building located at 8400 W. 185th Street, Tinley Park, Illinois (the
"Premises") which constitute a portion of the real estate legally described in
Schedule I attached hereto and made a part hereof (the "Real Estate").
B. Mortgagee is making a loan (the "Loan") to Landlord which is secured, in
part, by the lien of a Mortgage and Security Agreement executed and delivered by
Landlord to Mortgagee encumbering the Real Estate (as the same may be modified
from time to time, the "Mortgage").
C. As a condition to making the Loan, Mortgagee requires the execution of
this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Tenant has delivered or identified in writing to Mortgagee
concurrently herewith a true, correct and complete copy of the Lease.
Landlord and Tenant each agree not to amend or modify the Lease or,
except as specifically permitted in the Lease, accept a termination of
the Lease without the prior written consent of the Mortgagee, which
consent shall not be unreasonably withheld, and that no such amendment,
modification or termination (except as specifically permitted in the
Lease) will be effective as against Mortgagee or its successors or
assigns without such consent.
2. The Lease is and shall be subject and subordinate to the lien of the
Mortgage and to all renewals, modifications, consolidations,
replacements, and extensions thereof, to the full extent of the
principal sum secured by the Mortgage, all interest accrued and from
time to time unpaid thereon and any other amounts required to be paid
by the terms of the Mortgage and the instruments secured thereby,
unless Mortgagee elects to subordinate the Mortgage to the Lease.
Tenant will in no event subordinate or agree to subordinate the Lease
to any lien or encumbrance affecting the Real Estate or the Premises
other than the Mortgage without the express written consent of
Mortgagee, and any such attempted subordination or agreement to
subordinate without such consent of Mortgagee shall be void and of no
force and effect.
3. Tenant agrees that from and after the date hereof in the event of
any act or omission by Landlord under the Lease which would give Tenant
the right, either immediately or after the lapse of a period of time,
to terminate the Lease, or to claim a partial or total eviction, Tenant
will not exercise any such right (a) until it has given written notice
of such act or omission to Mortgagee in accordance with the provisions
of Section 8 hereof, and, until and unless Mortgagee fails to remedy
such act or omission within thirty (30) days after receipt of Tenant's
notice for any act or omission involving the payment of money or which
can reasonably be remedied within said thirty (30) day period, or in
the case of any other act or omission which cannot reasonably be
remedied within said thirty (30) days period, then Mortgagee shall have
as long as necessary to remedy such act or omission (but not more than
60 days) provided (i) Mortgagee commences such remedy and notifies
Tenant within said thirty (30) day period of Mortgagee's desire to
remedy, and (ii) Mortgagee pursues completion of such remedy with due
diligence following such giving of notice and following the time when
Mortgagee shall have become entitled under the Mortgage to remedy the
same. It is specifically agreed that Tenant shall not, as to Mortgagee,
be entitled to require cure of any such default which is personal to
Landlord, and therefore not susceptible of cure by Mortgagee, and that
no such uncured default shall entitle Tenant to exercise any rights
under the Lease with respect to Mortgagee, including without limitation
any rights of set-off, off-set, rent abatement or termination, but that
the Lease shall remain in full force and effect as between Mortgagee
and Tenant except with respect to the provisions which are personal as
to Landlord.
4. Tenant agrees that neither the occurrence of any default in the
Mortgage, the institution of proceedings to foreclose the lien thereof,
the taking of possession by Mortgagee or by any receiver appointed in
any foreclosure proceedings, the entry of a foreclosure decree, the
sale of the Real Estate pursuant to such decree, the issuance of a deed
to the purchaser at any such sale nor the issuance of a deed of the
Real Estate in lieu of foreclosure or in settlement of amount due under
the Mortgage will affect any obligation of Tenant under the Lease.
5. Tenant understands that Landlord has executed and delivered to
Mortgagee an assignment of the Landlord's interests in the leases of
the Real Estate, including the Lease. Under the terms of such
assignment, Landlord has agreed that Tenant is entitled to rely on any
notices or demands from Mortgagee to make payments to Mortgagee,
without any liability or any duty of inquiry on the part of the Tenant
regarding whether Landlord is in default under the Mortgage.
Accordingly, Tenant further agrees that upon receipt of written notice
from Mortgagee of any uncured default by Landlord under the Mortgage or
the Note secured by the Mortgage, all checks and payments for all or
any part of the rentals and other sums payable by Tenant under the
Lease shall be delivered to and drawn to the exclusive order of
Mortgagee until Mortgagee or a court of competent jurisdiction shall
otherwise direct.
6. In the event Mortgagee should foreclose the Mortgage, Mortgagee will
not join Tenant as a party defendant in any foreclosure proceedings,
unless Tenant (and only to the extent Tenant) is deemed to be a
necessary part, for so long as Tenant is not in default under the Lease
beyond any applicable time period with respect to grace or cure. In the
event Tenant defaults under the Lease, and such default continues
beyond any applicable time period with respect to grace or cure, the
obligations of Mortgagee under this Section 6 shall, at Mortgagee's
election, become null and void, and Mortgagee may proceed to extinguish
the Lease and all of Tenant's rights and interests in and to the
Premises through foreclosure of the Mortgage.
<PAGE>
7. So long as Tenant shall not be in default under the Lease beyond any
applicable grace or cure period, (a) Mortgagee shall not disturb
Tenant's possession of the Premises, and, in the event Mortgagee or any
designee, successor, or purchaser of the Real Estate (or any portion
thereof which shall include the Premises) through foreclosure, deed in
lieu of foreclosure, power of sale, any sale or plan of reorganization
in bankruptcy, or other enforcement process (herein called a
"Transferee"), shall succeed to the interests of the Landlord under the
Lease, (i) such occurrence shall be deemed to create direct privity of
estate and contract between Tenant and such Mortgagee or Transferee (as
the case may be), with the same force and effect as if the Lease had
been made directly between Tenant and the Mortgagee or Transferee (as
the case may be), subject only to the limitations contained below in
this Paragraph 7, and (ii) Tenant shall make full and complete
attainment to Mortgagee or such Transferee as the successor landlord
under the Lease. In the event that Mortgagee or any Transferee shall,
in accordance with the foregoing, succeed to the interest of Landlord
under the Lease, Mortgagee and any such Transferee shall not be:
(a) liable for any act or omission of Landlord or any prior landlord,
other than to remedy continuing defaults of which Mortgagee has
received written Notice;
(b) obligated to Tenant for any security deposit or other sums
deposited with any prior landlord (including Landlord) under the Lease
and not physically delivered to Mortgagee;
(c) bound by any rent or additional rent which the Tenant might have
paid for more than the current month to any prior landlord (including
Landlord);
(d) bound by any amendment or modification of the Lease or, except as
provided in the Lease, any cancellation or surrender of this Lease made
without the express written consent of Mortgagee subsequent to the date
hereof;
(e) subject to any offsets, claims or defenses which Tenant might have
against any prior landlord (including Landlord);
(f) obligated or liable to Tenant with respect to any moving or
relocation allowance for any improvements to the Premises or any part
thereof;
(g) bound or liable under any oral notice given by Tenant to Landlord
or any prior landlord; or
(h) obligated or liable (financially or otherwise) on account of any
representation, warranty, or indemnification obligation of Landlord
with respect to hazardous materials, asbestos, or other environmental
laws, claims or liabilities, whether expressly stated as such or
subsumed within general obligations to comply with laws or preserve the
benefits of Tenant's use and enjoyment of the Premises.
8. All notices required or permitted by this Agreement shall be given
by (i) hand delivery, (ii) U.S. Registered or Certified Mail, return
receipt requested, or a nationally reputable overnight courier service,
and shall be addressed to the recipient at the respective address
specified in the opening paragraph of this Agreement. No notice shall
be effective unless and until actually received.
9. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
[EXECUTION PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
as of the date first above written.
Tenant:
KVH INDUSTRIES, INC.
By:
Name: Richard C. Forsyth
Title: Chief Financial Officer
Landlord:
COLE TAYLOR BANK, as Trustee
under Trust Agreement dated
September 30, 1997 and
known as Trust No. 97-7559
By:
Name:
Title:
Mortgagee:
KEYBANK NATIONAL ASSOCIATION
By:
Name:
Title:
<PAGE>
State of Rhode Island
County Newport
Then personally appeared Richard C. Forsyth the Chief Financial Officer
of KVH Industries, Inc., and acknowledged the foregoing instrument to be his
free act and deed, and the free act and deed of said corporation, before me.
Notary Public
My commission expires: 7/6/02
State of
County
Then personally appeared __________________________, the
________________ of Cole Taylor Bank) as Trustee aforesaid, and acknowledged the
foregoing instrument to be his free act and deed, and the free act and deed of
said institution, as trustee, before me.
Notary Public
My commission expires:
State of
County
Then personally appeared __________________ the ________________ of KeyBank
National Association, and acknowledged the foregoing instrument to be his free
act and deed, and the free act and deed of said institution, before me.
Notary Public
My commission expires:
