UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
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(Mark One)
_X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from ______ to ______.
Commission File Number: 0-28100
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AXENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 87-0393420
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 Research Boulevard
Suite 200
Rockville, Maryland 20850
(Address of principal executive offices)
(301) 258-5043
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether 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______
As of November 11, 1998, there were 24,963,897 shares outstanding of the
Registrant's Common Stock, par value $.02 per share.
- --------------------------------------------------------------------------------
<PAGE>
AXENT TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of 4
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations 5
for the three and nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the 6
nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Comprehensive 7
Income (Loss) for the three and nine months ended
September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits 20
SIGNATURES 21
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The financial statements set forth below at September 30, 1998 and for the three
and nine month periods ended September 30, 1998 and 1997 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations.
These financial statements should be read in conjunction with the latest audited
consolidated financial statements and the notes thereto for the fiscal year
ended December 31, 1997, which are included in the Company's Annual Report on
Form 10-K as filed with the SEC on March 31, 1998.
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<PAGE>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1998 1997
(unaudited)
---------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 59,474 $ 51,618
Marketable securities 42,255 40,882
Accounts receivable, net 22,669 18,223
Other current assets 4,815 4,337
---------------- -----------------
Total current assets 129,213 115,060
---------------- -----------------
Property and equipment, net 6,762 4,263
Other assets 9,529 5,458
---------------- -----------------
Total assets $ 145,504 $ 124,781
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 15,931 $ 13,120
Deferred revenue 9,143 7,396
---------------- -----------------
Total liabilities 25,074 20,516
---------------- -----------------
Stockholders' equity:
Common stock, par value $0.02: 24,866,507 and 23,268,657
shares issued and outstanding, respectively 497 466
Additional paid-in capital 154,298 139,612
Accumulated deficit (33,969) (33,389)
Accumulated other comprehensive income (396) (85)
Unearned compensation -- (2,339)
---------------- -----------------
Total stockholders' equity 120,430 104,265
---------------- -----------------
Total liabilities and stockholders' equity $ 145,504 $ 124,781
================ =================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
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<PAGE>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ------------------------------
1998 1997 1998 1997
------------ ----------- ------------ -------------
Net revenues:
Product licenses $ 18,957 $ 13,491 $ 52,632 $ 37,004
Services 5,047 3,580 14,243 9,772
------------ ----------- ------------ -------------
Total net revenues 24,004 17,071 66,875 46,776
Cost of net revenues 2,472 1,676 6,882 4,499
------------ ----------- ------------ -------------
Gross profit 21,532 15,395 59,993 42,277
Operating expenses:
Sales and marketing 9,881 7,785 28,619 22,480
Research and development 4,353 3,119 12,680 8,879
General and administrative 1,578 1,692 4,490 5,207
Non-recurring charges -- -- 17,422 34,154
------------ ----------- ------------ -------------
Total operating expenses 15,812 12,596 63,211 70,720
------------ ----------- ------------ -------------
Income (loss) from continuing operations before royalties,
interest and taxes 5,720 2,799 (3,218) (28,443)
Royalty income 383 741 1,510 2,267
Interest income 1,228 1,154 3,313 3,398
Gain on sale of marketable securities -- -- 389 --
Income tax provision (2,571) (1,773) (2,749) (2,007)
------------ ----------- ------------ -------------
Income (loss) from continuing operations 4,760 2,921 (755) (24,785)
Income from discontinued operations -- -- -- 255
------------ ----------- ------------ -------------
Net income (loss) $ 4,760 $ 2,921 $ (755) $ (24,530)
------------ ----------- ------------ -------------
Net income (loss) per common share (basic):
Continuing operations $ 0.19 $ 0.13 $ (0.03) $ (1.10)
Discontinued operations -- -- -- 0.01
------------ ----------- ------------ -------------
Net income (loss) per common share (basic) $ 0.19 $ 0.13 $ (0.03) $ (1.09)
------------ ----------- ------------ -------------
Number of shares used in computing net income (loss) per
common share outstanding (basic) 24,807 22,793 24,322 22,474
Net income (loss) per common share (diluted):
Continuing operations $ 0.18 $ 0.11 $ (0.03) $ (1.10)
Discontinued operations -- -- -- 0.01
------------ ----------- ------------ ------------
Net income (loss) per common share (diluted) $ 0.18 $ 0.11 $ (0.03) $ (1.09)
============ ============ ============ ============
Number of shares used in computing net income (loss) per
common share outstanding (diluted) 26,026 25,491 24,322 22,474
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
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<PAGE>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Nine Months
Ended September 30,
------------------------------------
1998 1997
---------------- ---------------
CASH INFLOWS (OUTFLOWS)
Operating activities:
Net loss from continuing operations $ (755) $ (24,785)
Non-cash items:
Depreciation and amortization 2,239 1,746
Non-recurring costs 17,422 34,154
Gain on sale of marketable securities (389) --
Income tax benefit -- (471)
Payments for corporate acquisition (9,730) --
Change in assets and liabilities (4,318) (7,734)
---------------- ---------------
Net cash provided by continuing operations 4,469 2,910
Net cash used by discontinued operations -- (614)
---------------- ---------------
Net cash provided by operating activities 4,469 2,296
---------------- ---------------
Investing activities:
Capital expenditures (5,194) (1,789)
Proceeds from the sale of marketable securities 389 --
Purchases of short-term investments (64,034) (8,209)
Maturity of short-term investments 62,661 448
Payments for business acquisitions and other investments (238) (7,473)
---------------- ---------------
Net cash used by continuing operations (6,416) (17,023)
Net cash provided by discontinued operations -- 645
---------------- ---------------
Net cash used by investing activities (6,416) (16,378)
---------------- ---------------
Financing activities:
Proceeds from issuance of common stock 9,876 2,489
Proceeds from line of credit draws -- 490
Principal payments on line of credit -- (1,225)
---------------- ---------------
Net cash provided by continuing operations from financing activities 9,876 1,754
---------------- ---------------
Effect of exchange rate changes on cash (73) (87)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 7,856 (12,415)
Cash and cash equivalents, beginning of period 51,618 54,828
---------------- ---------------
Cash and cash equivalents, end of period $ 59,474 $ 42,413
================ ===============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
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<PAGE>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
(unaudited)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
<S> <C> <C> <C> <C>
-------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ---------------
Net income (loss) $ 4,760 $ 2,921 $ (755) $ (24,530)
Other comprehensive income (loss)
Recapitalization of gain on marketable securities -- -- (238) --
Currency translation effects (40) 7 (73) (87)
-------------- -------------- -------------- --------------
Comprehensive income (loss) $ 4,720 $ 2,928 $ (1,066) $ (24,617)
============== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
AXENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Basis of Presentation
AXENT Technologies, Inc. and its wholly owned subsidiaries (collectively, the
"Company" or "AXENT") develop, market, license and support enterprise-wide
information security solutions for client/server computing environments and
provide related services.
The Company's condensed consolidated financial statements have been restated to
reflect the acquisition of Raptor Systems, Inc. ("Raptor"), which was accounted
for as a pooling of interests and consummated on February 5, 1998, in accordance
with APB No. 16. AXENT's historical financial statements and related financial
information have been restated to combine earlier financial statements of AXENT
and Raptor.
The accompanying unaudited condensed consolidated financial statements reflect
all the adjustments, consisting of normal recurring adjustments, that, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. The results for the three and nine month periods
ended September 30, 1998 may not necessarily be indicative of the results for
the entire year or any future period. The December 31, 1997 condensed
consolidated balance sheet was derived from audited financial statements as of
the same date but does not include all disclosures required by generally
accepted accounting principles.
These financial statements should be read in conjunction with the Company's
annual audited financial statements for the year ended December 31, 1997, which
are included in the Company's Form 10-K filed with the SEC on March 31, 1998.
Business Combinations
On July 21, 1998, the Company completed the acquisition of Secure Network
Consulting, Inc. ("SNCI"), a privately-held information security consulting
firm. In conjunction with the acquisition, the Company issued 85,000 shares of
common stock to SNCI's shareholders. The transaction was accounted for using the
purchase method of accounting. The purchase price, including transaction costs,
was $2.3 million. This amount exceeded the fair value of assets acquired by
approximately $2.1 million, which is being amortized, on a straight-line basis,
over 7 years. The results of SNCI are included in the accompanying financial
statements from the date of acquisition.
On February 5, 1998, the Company consummated its merger with Raptor in which it
acquired 100% of the outstanding stock of Raptor for 10,952,380 shares of AXENT
common stock and exchanged stock options covering a total of 1,725,988 shares of
AXENT common stock. The Company incurred approximately $17.42 million in
non-recurring transaction and other related costs in relation to the merger. The
business combination was accounted for by the pooling of interests method of
accounting, and accordingly, the assets, liabilities and stockholders' equity
of Raptor were combined with the Company's respective accounts at recorded
values. Prior period financial statements have been restated to give effect to
the merger.
The following is a reconciliation of revenues and net loss previously reported
by the Company for the three and nine month periods ended September 30, 1997,
with the combined amounts currently presented in the financial statements for
those two periods:
<TABLE>
<CAPTION>
(in thousands) For the Three Months Ended For the Nine Months Ended
September 30, 1997 September 30, 1997
--------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AXENT Raptor Combined AXENT Raptor Combined
----------- ------------ -------------- ----------- ------------- ---------------
Revenues $ 9,739 $ 7,332 $17,071 $ 27,155 $ 19,621 $ 46,776
Net income (loss) 1,568 1,353 2,921 (23,656) (874) (24,530)
</TABLE>
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<PAGE>
During 1997, AXENT acquired AssureNet Pathways, Inc. ("AssureNet") by issuing
1,550,000 shares of AXENT common stock in exchange for all of the outstanding
shares of AssureNet preferred and common stock and certain outstanding AssureNet
stock options and warrants, when exercised. In addition, AXENT assumed all
other AssureNet stock options and warrants outstanding at the time of the
merger.
AssureNet's operations have been included in the Company's condensed
consolidated financial statements since January 7, 1997, and the acquisition was
accounted for using the purchase method of accounting. The total purchase price
of $32 million was allocated to the net assets acquired based on their estimated
fair market value, which included approximately $2.9 million of tangible assets;
$1.5 million in purchased software which is being amortized over three years on
a straight-line basis; and approximately $27.6 million of in-process research
and development based on the products' net present value using a discounted cash
flow model. The in-process research and development was expensed at the date of
the acquisition. After the acquisition, AXENT ceased to actively market the
majority of AssureNet hardware products and has focused its efforts on marketing
the Defender software products and related hardware tokens.
Net Income Per Common Share
During 1997, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings per Share," ("SFAS 128") to calculate net income per share.
Basic earnings per common share have been computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares outstanding plus an assumed increase in common
shares outstanding for dilutive securities. Potentially dilutive securities
consist of options and warrants to acquire common stock for a specified price
and their dilutive effect is measured using the treasury method. These
potentially dilutive securities have been excluded from the diluted earnings per
share calculation for each period presented in which they were anti-dilutive.
Earnings per share for all periods presented have been restated to conform to
SFAS 128.
The following table reconciles the weighted average number of common shares
during each period for basic earnings per share with the comparable amount for
diluted earnings per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Nine Months
(in thousands) September 30, Ended September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- ------------
Weighted average shares outstanding - (basic) 24,807 22,793 24,322 22,474
Stock options and warrants 1,219 2,698 -- --
------------- ------------- ------------- -------------
Weighted average shares outstanding - (diluted) 26,026 25,491 24,322 22,474
============= ============= ============= =============
</TABLE>
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<PAGE>
Discontinued Operations
In mid-1994, the Company made a strategic decision to focus its business on the
information security market and to divest itself of products and services
unrelated to such business. The following businesses have been divested by the
Company: (i) the storage management products business, which was sold in 1994
for cash, notes and the assumption of certain liabilities, (ii) the OpenVMS
utility software distribution business, which was conveyed to Raxco Software,
Inc. ("Raxco") in a spin-off effective December 31, 1995 and (iii) the Helpdesk
products business, which was sold in February 1996, for cash, a note, royalties
and the assumption of certain liabilities. The results of operations for these
divested businesses have been accounted for as discontinued operations in
accordance with Accounting Principles Bulletin No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
30").
Adoption of Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which is effective for fiscal years beginning after December 15, 1997. SFAS 130
requires additional disclosures with respect to certain changes in assets and
liabilities that previously were not required to be reported as results of
operations for the period. Effective for the fiscal year ending December 31,
1998, the Company has adopted SFAS 130.
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2 ("SOP 97-2"), "Software Revenue Recognition". SOP 97-2 is
effective for transactions entered into in fiscal years beginning after December
15, 1997, and provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions. The Company adopted
SOP 97-2 at the beginning of January 1, 1998, and the Company does not expect
the adoption of this standard to have a material impact on the Company's
financial position or results of operations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which is effective for fiscal years beginning
after December 15, 1997. SFAS 131 specifies revised guidelines for determining
an entity's operating segments and the type and level of financial information
to be disclosed. The Company does not expect the adoption of this standard to
have a material impact on the Company's financial position or results of
operations.
- 10 -
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934 and Section 27A4 of the Securities Act of
1933, which involve risk and uncertainties. These forward-looking statements are
identified by the use of the words "believes", "expects", "anticipates", "will",
"would" or similar expressions that contemplate future events. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those identified in "Certain Factors Affecting Future
Performance" (see below) and those discussed in the "Risk Factors" set forth in
the Company's Prospectus/Joint Proxy Statement dated January 2, 1998, as filed
with the SEC on January 5, 1998. The Company assumes no obligation to update or
correct forward-looking statements due to events or changes after the date of
this report.
Three Months Ended September 30, 1998 Compared to
Three Months Ended September 30, 1997
Net Revenues
The Company's net revenues from product licenses increased approximately 40.5%,
or $5.47 million, from $13.49 million for the three months ended September 30,
1997 to $18.96 million for the three months ended September 30, 1998. For those
periods in 1997 and 1998, net revenues from product licenses represented 79.0%
of total net revenues. The increase in product license revenue is primarily
attributable to the continued broader acceptance of the Company's products, the
introduction and general release of new products or versions and the expansion
of available products running on new or additional platforms.
The Company's net revenues from services increased approximately 41.0%, or $1.47
million, from $3.58 million for the three months ended September 30, 1997 to
$5.05 million for the three months ended September 30, 1998. The increase in
services revenues is primarily attributable to growth in the customer base
purchasing maintenance and increased implementation consulting services. For
those periods in 1997 and 1998, net revenues from services represented 21.0% of
total net revenues.
Revenues from North American and International operations were 70% and 30%
of total revenues, respectively, for the three months ended September 30, 1998
as compared to 82% and 18%, respectively, for the same period in 1997. The
increase in the International revenues as a percentage of total revenue from
1997 to 1998 are attributable to continued acceptance of the Company's products
in international markets, particularly in the United Kingdom and Europe.
Cost of Net Revenues
The Company's cost of net revenues includes cost of media, product packaging,
documentation and other production costs, amortization of purchased software
costs, product royalties, and the direct and indirect costs of providing
technical support, training and consulting services to the Company's customers.
Cost of net revenues increased approximately 47.5%, or $796,000, from $1.67
million for the three months ended September 30, 1997 to $2.47 million for the
three months ended September 30, 1998. For those periods in 1997 and 1998, cost
of net revenues represented 9.8% and 10.3% of net revenues, respectively. The
increase in the cost of net revenues is primarily attributable to the increase
in staff of the Company's customer support and consulting services operations
necessary to support a larger installed customer base as well as additional
products offered by the Company. Cost of net revenues, as a percentage of
revenues, may fluctuate from period to period due to a change in product mix, a
change in the number or size of transactions recorded in a quarter, integration
of acquired operations or products, or an increase or decrease in licenses of
royalty-bearing products.
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<PAGE>
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs, including
commissions, salaries, benefits and bonuses, travel, telephone, costs of
advertising, public relations seminars and trade shows. Sales and marketing
expenses increased 26.9%, or $2.10 million, from $7.78 million for the three
months ended September 30, 1997 to $9.88 million for the three months ended
September 30, 1998. For those periods in 1997 and 1998, sales and marketing
expenses represented 45.6% and 41.2% of total net revenues, respectively. The
increase in dollar amount was due to the an increase in sales staff to support
the Company's growth. The decrease in sales and marketing expenses as a
percentage of total net revenues was due primarily to the greater increase in
total net revenues. The Company currently anticipates that the dollar amount of
sales and marketing expenses will increase as the Company continues to hire
additional staff to support the Company's growth in future periods.
Research and Development
Research and development expenses consist primarily of personnel costs,
including salaries, benefits and bonuses, travel and other personnel-related
expenses of the employees engaged in ongoing research and development projects
and third-party development contracts. Costs related to research and development
of products are expensed as incurred. Research and development expenses
increased 39.6%, or $1.23 million, from $3.12 million for the three months ended
September 30, 1997 to $4.35 million for the three months ended September 30,
1998. For those periods in 1997 and 1998, research and development expenses
represented 18.3% and 18.1% of total net revenues, respectively. The increase in
dollar amount resulted from the addition of staff needed to develop, maintain
and enhance the Company's software products in an effort to keep pace in a
dynamic market where security needs and demands are constantly changing. The
Company currently anticipates that the dollar amount of research and development
expenses will increase as the Company continues to commit substantial resources
to research and development in future periods.
General and Administrative
General and administrative expenses consist primarily of personnel costs,
including salaries, benefits and bonuses and related costs for management,
finance and accounting, legal and other professional services. General and
administrative expenses decreased 6.7%, or $114,000, from $1.69 million for the
three months ended September 30, 1997 to $1.58 million for the three months
ended September 30, 1998. For those periods in 1997 and 1998, general and
administrative expenses represented 9.9% and 6.6% of total net revenues,
respectively. The decrease is primarily a result of the synergies gained from
the elimination of overlapping administrative functions associated with the
Raptor acquisition. The Company currently anticipates that the dollar amount of
general and administrative expenses will increase as the Company continues to
hire additional staff to support the Company's growth in future periods.
Income (Loss) from Continuing Operations before Royalties, Interest and Taxes
Income from continuing operations before royalties, interest and taxes increased
$2.92 million from $2.8 million for the three months ended September 30, 1997 to
$5.72 million for the three months ended September 30, 1998. The increase is
primarily attributable to the decrease in non-recurring charges as well as the
overall increase in world-wide revenues at a greater rate than the increase in
operating expenses incurred to generate such revenues.
Royalty Income
Royalty income consists of amounts payable to AXENT pursuant to the Exclusive
Distributor License Agreement with Raxco related to the OpenVMS utility software
products owned by AXENT. Royalty income declined 48.3%, or $358,000, from
$741,000 for the three months ended September 30, 1997 to $383,000 for the three
month period ended September 30, 1998. This decline is primarily attributable to
declining revenues recognized by Raxco for these products as a result of erosion
of market share that the OpenVMS platform has experienced world-wide. AXENT
expects that the amount of royalty income will continue to decline in future
periods. For the three month period ended September 30, 1998, Raxco reported to
the Company approximately $1.28 million of OpenVMS utility revenues.
- 12 -
<PAGE>
Interest Income
Interest income increased 6.4%, or $74,000, from $1.15 million for the three
month period ended September 30, 1997 to $1.23 million for the three month
period ended September 30, 1998. Interest income may fluctuate from period to
period due to changes in investment mix, varying cash balances and fluctuations
in interest rates.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities for financial statement purposes and their
respective tax basis. The Company's subsidiaries have a history of net operating
losses making the realization of its tax credit carryforwards uncertain.
Accordingly, the Company placed a partial valuation allowance against the
deferred tax assets of its subsidiaries.
The Company recorded a tax benefit related to its taxable loss from continuing
and discontinued operations for the three months ended September 30, 1997. The
Company recorded a tax provision related to its taxable income from continuing
operations for the three months ended September 30, 1998. The effective rate for
the three months ended September 30, 1998 was approximately 35%.
Income (Loss) from Continuing Operations
As a result of the above, the Company recorded a profit from continuing
operations of $4.76 million for the three months ended September 30, 1998
compared to a profit of $2.92 million for the three months ended September 30,
1997.
Nine Months Ended September 30, 1998 Compared to
Nine Months Ended September 30, 1997
Net Revenues
The Company's net revenues from product licenses increased approximately 42.2%,
or $15.63 million, from $37 million for the nine months ended September 30, 1997
to $52.63 million for the nine months ended September 30, 1998. For those
periods in 1997 and 1998, net revenues from product licenses represented 79.1%
and 78.7% of total net revenues, respectively. The increase in product license
revenue is primarily attributable to the continued broader acceptance of the
Company's products, the introduction and general release of new products or
versions and the expansion of available products running on new or additional
platforms.
The Company's net revenues from services increased approximately 45.8%, or $4.47
million, from $9.77 million for the nine months ended September 30, 1997 to
$14.24 million for the nine months ended September 30, 1998. The increase in
services revenues is primarily attributable to growth in the customer base
purchasing maintenance and increased implementation consulting services. For
those periods in 1997 and 1998, net revenues from services represented 20.9% and
21.3% of total net revenues, respectively.
Revenues from North American and International operations were 72% and 28% of
total revenues, respectively, for the nine months ended September 30, 1998 as
compared to 79% and 21%, respectively, for the same period in 1997. The increase
in the International revenues as a percentage of total revenue from 1997 to
1998 are attributable to continued acceptance of the Company's products in
international markets, particularly in the United Kingdom and Europe.
- 13 -
<PAGE>
Cost of Net Revenues
The Company's cost of net revenues includes cost of media, product packaging,
documentation and other production costs, amortization of purchased software
costs, product royalties, and the direct and indirect costs of providing
technical support, training and consulting services to the Company's customers.
Cost of net revenues increased approximately 53.0%, or $2.38 million, from $4.50
million for the nine months ended September 30, 1997 to $6.88 million for the
nine months ended September 30, 1998. For those periods in 1997 and 1998, cost
of net revenues represented 9.6% and 10.3% of net revenues, respectively. The
increase in the cost of net revenues is primarily attributable to the increase
in staff of the Company's customer support and consulting services operations
necessary to support a larger installed customer base as well as additional
products offered by the Company. Cost of net revenues, as a percentage of
revenues, may fluctuate from period to period due to a change in product mix, a
change in the number or size of transactions recorded in a quarter, integration
of acquired operations or products, or an increase or decrease in licenses of
royalty-bearing products.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs, including
commissions, salaries, benefits and bonuses, travel, telephone, costs of
advertising, public relations seminars and trade shows. Sales and marketing
expenses increased 27.3%, or $6.14 million, from $22.48 million for the nine
months ended September 30, 1997 to $28.62 million for the nine months ended
September 30, 1998. For those periods in 1997 and 1998, sales and marketing
expenses represented 48.1% and 42.8% of total net revenues, respectively. The
increase in dollar amount was due to the additional sales staff to support the
company's growth. The decrease in sales and marketing expenses as a percentage
of total net revenues was due primarily to the greater increase in total net
revenues. The Company currently anticipates that the dollar amount of sales and
marketing expenses will increase as the Company continues to hire additional
staff to support the Company's growth in future periods.
Research and Development
Research and development expenses consist primarily of personnel costs,
including salaries, benefits and bonuses, travel and other personnel-related
expenses of the employees engaged in ongoing research and development projects
and third-party development contracts. Costs related to research and development
of products are expensed as incurred. Research and development expenses
increased 42.8%, or $3.8 million, from $8.88 million for the nine months ended
September 30, 1997 to $12.68 million for the nine months ended September 30,
1998. For those periods in 1997 and 1998, research and development expenses
represented 19.0% of total net revenues. The increase in dollar amount resulted
from the addition of staff needed to develop, maintain and enhance the Company's
software products in an effort to keep pace in a dynamic market where security
needs and demands are constantly changing. The Company currently anticipates
that the dollar amount of research and development expenses will increase as the
Company continues to commit substantial resources to research and development in
future periods.
General and Administrative
General and administrative expenses consist primarily of personnel costs,
including salaries, benefits and bonuses and related costs for management,
finance and accounting, legal and other professional services. General and
administrative expenses decreased 13.8%, or $717,000, from $5.21 million for the
nine months ended September 30, 1997 to $4.49 million for the nine months ended
September 30, 1998. For those periods in 1997 and 1998, general and
administrative expenses represented 11.1% and 6.7% of total net revenues,
respectively. The decrease is primarily a result of the synergies gained from
the elimination of overlapping administrative functions associated with the
Raptor acquisition. The Company currently anticipates that the dollar amount of
general and administrative expenses will increase as the Company continues to
hire additional staff to support the Company's growth in future periods.
Non-Recurring Charges
In the nine months ended September 30, 1997, the Company incurred a one-time
charge associated with the acquisition of AssureNet of approximately $27.63
million to expense the purchased in-process research and development that had
not reached technological feasibility and had no probable future uses, as well
as a one-time charge of $6.52 million, $4.24 million net of taxes, for the
write-off of purchased in-process technology associated with the acquisition of
a perpetual license and its underlying products from Open Market, Inc. In the
nine months ended September 30, 1998, the Company incurred a one-time charge of
$17.42 million, $13.3 million net of taxes, for severance, investment banking,
legal, and accounting fees, and other costs related to the merger with Raptor.
- 14 -
<PAGE>
Income (Loss) from Continuing Operations before Royalties, Interest and Taxes
Loss from continuing operations before royalties, interest and taxes decreased
$25.22 million from a loss of $28.44 million for the nine months ended September
30, 1997 to a loss of $3.22 million for the nine months ended September 30,
1998. The decrease is primarily attributable to the decrease in non-recurring
charges as well as the overall increase in world-wide revenues offset in part by
the investments required to generate such revenues.
Royalty Income
Royalty income consists of amounts payable to AXENT pursuant to the Exclusive
Distributor License Agreement with Raxco related to the OpenVMS utility software
products owned by AXENT. Royalty income declined 33.4%, or $757,000, from $2.27
million for the nine months ended September 30, 1997 to $1.51 million for the
nine months ended September 30, 1998. This decline is primarily attributable to
declining revenues recognized by Raxco for these products as a result of erosion
of market share that the OpenVMS platform has experienced world-wide. AXENT
expects that the amount of royalty income will continue to decline in future
periods. For the nine month period ended September 30, 1998, Raxco reported to
the Company approximately $5.03 million of OpenVMS utility revenues.
Interest Income
Interest income decreased 2.5%, or $85,000, from $3.4 million for the nine month
period ended September 30, 1997 to $3.31 million for the nine month period ended
September 30, 1998. Interest income may fluctuate from period to period due to
changes in investment mix, varying cash balances and fluctuations in interest
rates.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities for financial statement purposes and their
respective tax basis. The Company's subsidiaries have a history of net operating
losses making the realization of its tax credit carryforwards uncertain.
Accordingly, the Company placed a partial valuation allowance against the
deferred tax assets of its subsidiaries.
The Company recorded a tax provision related to its taxable loss from continuing
and discontinued operations for the nine months ended September 30, 1997 and
1998. The effective rate excluding non-recurring charges for the nine months
ended September 30, 1998 was approximately 36%.
Income (Loss) from Continuing Operations
As a result of the above, the Company recorded a loss from continuing operations
of $755,000 for the nine months ended September 30, 1998, compared to a loss of
$24.79 million recorded for the nine months ended September 30, 1997.
Income from Discontinued Operations
Income from discontinued operations consists of the net results of operations
from the divested businesses of the Company, which for financial statement
purposes have been accounted for in accordance with APB No. 30 and classified as
discontinued operations. The Company's income from discontinued operations
decreased from $255,000 for the nine month period ended September 30, 1997 to $0
for the nine month period ended September 30, 1998. The Company currently
anticipates no further income from discontinued operations.
- 15 -
<PAGE>
Certain Risks and Uncertainties
Year 2000
The Company is in the process of assessing the Year 2000 compliance of its
software products, the software and hardware systems used for its internal
operations and the systems used by its resellers, distributors and suppliers who
the Company expects may be material to its business after 1999.
The current versions of the Company's products have been designed and tested to
process Year 2000 date data without interruption or error, and the Company
believes that the current version of each of its product offerings is
substantially Year 2000 compliant. The Company expects to continue Year 2000
testing of the current version of its products. The cost of continued testing
cannot currently be estimated, and will be included in the Company's research
and development expenses as incurred. Even with those efforts, there can be no
assurance that undetected errors or defects will not exist that could cause Year
2000 compliance problems in the Company's products. Such problems may result in
litigation and contractual claims by customers and increased expenses negatively
affecting the Company's future operating results. In the worst case, litigation,
claims and increased expenses could have a material adverse effect on the
Company's business, results of operations and financial condition, although the
Company currently believes such a result to be unlikely. In addition, older
versions of the Company's products may not be Year 2000 compliant, and customers
who have not subscribed for product maintenance and installed new versions and
updates supplied to them may be required to migrate to compliant versions of the
Company's products or suffer possible Year 2000 problems. Migrating those
customers to current versions of the Company's products may result in increased
expense levels for the Company and defocus in development of new products and
enhancement of existing products, and customers who fail to migrate to current
versions may commence litigation or make contractual claims against the Company,
which may have a material adverse effect on the Company in the worst case. The
Company expects that Year 2000 issues may alter the purchasing patterns of some
of its customers or prospective customers, which could have a material adverse
effect on the Company's business and results of operations.
The Company is assessing Year 2000 risk to its internal information systems,
hardware systems and business equipment containing embedded chips. The Company
expects to procure or replace internal information systems material to its
business in the course of developing and expanding its information systems. The
Company anticipates that those new systems will be Year 2000 compliant, and will
obtain contractual protections against Year 2000 problems; those systems
currently are expected to be installed and tested for Year 2000 compliance by
June 1999. There can be no assurance that those systems will operate as
warranted after 1999 or that contractual protections will adequately protect the
Company from loss and adverse material effects. The Company also has begun to
obtain questionnaires or written assurances from suppliers of equipment and
software used in the Company's operations that such products are Year 2000
compliant, and is currently unable to estimate the costs of replacing any items
that are determined not to be Year 2000 compliant. Failure of internal
information systems, equipment or third-party software to operate properly after
1999 could disrupt the Company's business and result in unanticipated expense to
repair or replace the defective item, which could adversely affect the Company's
business, operating results and financial condition. The Company has not yet
developed contingency plans in the event of failure of such systems, equipment
or third-party software.
The Company has begun to assess the Year 2000 compliance of systems used by
distributors, resellers and suppliers, including utility and telecommunications
providers, who the Company expects may be material to its business after 1999.
This assessment process generally consists of obtaining completed questionnaires
or written assurances regarding anticipated Year 2000 compliance. The Company
expects that this process will continue through 1999. There can be no assurance
that all distributors, resellers and suppliers from whom questionnaires or
assurances are requested will respond adequately to the Company or that
responses received by the Company will be accurate and complete. Year 2000
problems experienced by distributors, resellers and suppliers of the Company may
result in disruption of the Company's business and may require the Company to
obtain alternative sources of distribution and supply, if possible. The Company
has not yet developed contingency plans in the event of Year 2000 problems
experienced by its distributors, resellers or suppliers.
- 16 -
<PAGE>
Euro Conversion
The Company also is assessing the effect of the adoption by the European
Economic and Monetary Union of a single currency commencing in 1999 on the
Company's European operations. Although many of the Company's reseller,
distributor and license agreements with European companies currently are dollar
denominated, the Company is engaged in an ongoing assessment of the effect of
euro issues on product pricing, contracts, accounting systems and internal
operations. The Company expects that its accounting and administrative systems
will be upgraded to address currently anticipated euro issues without
significant material costs related to those issues and that it will not
experience significant operational disruptions with respect to euro issues.
Financial Condition-Liquidity and Capital Resources
The Company's overall cash and cash equivalents were $59.47 million at September
30, 1998, an increase of approximately $7.85 million from $51.62 million at
December 31, 1997. During the nine month periods ended September 30, 1997 and
1998, respectively, the Company financed its operations primarily through cash
reserves and available working capital. The Company's continuing operating
activities provided cash of $2.91 million and $4.47 million for the nine month
periods ended September 30, 1997 and 1998, respectively. Net cash provided by
operating activities in the nine months ended September 30, 1998, consisted
primarily of net income before acquisition costs and payments.
The Company made capital expenditures of approximately $1.79 million and $5.19
million for the nine month periods ended September 30, 1997 and 1998,
respectively. These purchases have generally consisted of computer workstations,
networking equipment, office furniture and equipment. The Company had no firm
commitments for capital expenditures as of September 30, 1998.
During the nine month period ended September 30, 1998, the Company's cash
position was also affected by the following: 1) the Company had cash outlays of
approximately $9.73 million for transaction costs associated with the
acquisition of Raptor; 2) the Company received proceeds of $9.88 million from
the issuance of common stock for stock option exercises and employee stock
purchase plan; 3) the Company purchased $64.03 million of marketable securities;
4) the Company received $62.66 million from the maturity of short-term
investments; and 5) the Company received proceeds of $389,000 from the sale of
common stock of MTI Technology Corporation.
The Company believes that cash generated from operations, together with existing
sources of liquidity, will be sufficient to meet its capital expenditures,
working capital and other cash requirements for the next twelve months and the
foreseeable future.
Certain Factors Affecting Future Performance
Although the Company has experienced significant growth in revenues from its
software products, the Company does not believe prior growth rates are
necessarily indicative of future operating results. In addition, the Company
expects increased competition and intends to invest significantly in its product
development. As a result, there can be no assurance that the Company will remain
profitable on a quarterly or annual basis. Due to the Company's limited
operating history with respect to many of its software products, predictions as
to future operating results are difficult. Future operating results may
fluctuate due to factors such as: demand for the Company's products; the size
and timing of customer orders; the effect of Year 2000 testing and remediation
expenses on customers' budgets; the number of competitors and the breadth and
functionality of their product offerings; the introduction of new products and
product enhancements by the Company or its competitors; a decrease in revenues
from distributors or resellers of the Company's products; the budgeting cycle of
customers; changes in the proportion of revenues attributable to license fees
and consulting services; the availability of services personnel to demonstrate,
install, configure and implement products; changes in the level of operating
expenses; competitive conditions in the industry; and changes in technologies
affecting computing, networking, communications, systems and applications
management and data security. The Company's future operating results also
may be affected if it fails to recognize the anticipated benefits of recent and
future acquisitions (including that of Raptor) on the timetable projected by
AXENT; those benefits include, among others, integration of product offerings
and coordination of sales, marketing and research and development teams without
disruption or unanticipated expense. The Company's future results of operations
may also be adversely affected if the anticipated integration of acquired
companies' (including Raptor's) operations produces unexpected expenses, delays,
inefficiencies, loss of key personnel, loss of resellers or distributors or loss
of consultants or if it leads to adverse effects on customer purchasing
decisions.
- 17 -
<PAGE>
The market for the Company's software products is highly competitive, and AXENT
expects that it will face increasing price pressures from its current
competitors and new market entrants. As a result of increasing consolidation in
the information security industry, the Company expects that it will become
subject to increased competition, which may negatively impact existing
collaborative, marketing, reselling, distribution or marketing agreements or
relationships and thereby materially adversely affect the Company's financial
condition and results of operations. Any material reduction in the price of the
Company's software products would negatively affect gross margins and could
materially adversely affect the Company's financial condition and results of
operations.
The licensing of many of the Company's enterprise-class software products
generally involve significant testing by and education of prospective customers
as well as a commitment of resources by both parties. For these and other
reasons, the sales cycle associated with the licensing of the Company's
enterprise-class security software products is typically long and subject to a
number of significant risks over which the Company has little or no control and,
as a result, the Company may expend significant resources pursuing potential
sales that will not be consummated.
The Company anticipates that international sales will continue to represent a
significant percentage of revenue in the foreseeable future. International sales
are subject to a number of risks, including unexpected changes in regulatory
requirements, export limitations on encryption technologies, tariffs and other
trade barriers, political and economic instability in foreign markets,
difficulty in the staffing, management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable collection,
currency fluctuations and potentially adverse tax consequences. The uncertainty
of the monetary exchange values has caused, and may in the future cause, some
foreign customers to delay new orders or delay payment for existing orders.
These factors may, in the future, contribute to fluctuations in the Company's
financial condition and results of operations. Although the Company's results of
operations have not been materially adversely affected to date as a result of
currency fluctuations, the long-term impact of currency fluctuations, including
any possible effect on the business outlook in other developing countries,
cannot be predicted.
The Company has experienced significant quarterly fluctuations in its operating
results and anticipates such fluctuations in the future. Generally, revenues,
operating income and net income have been higher in the fourth quarter of each
year than in the first quarter of the following year with the exception of 1997,
when the accounting treatment of the AssureNet acquisition mitigated that
historic trend. The Company believes that fourth calendar quarter revenues are
positively impacted by the end of year budgeting cycles of some large corporate
customers, as well as the annual nature of the Company's sales compensation
plans. Revenues also tend to be lower in the summer months, particularly in
Europe, when businesses often defer purchase decisions. However, past financial
performance should not be considered to be a reliable indicator of future
performance. Quarterly revenues and operating results depend on the volume and
timing of orders received, which may be affected by large individual
transactions and which sometimes are difficult to predict, especially with
regard to orders received through indirect distribution channels. The Company
historically has recognized a substantial portion of its license revenues in the
last month of each quarter, and often in the last week of each quarter, which
makes financial predictions especially difficult and raises a substantial risk
of variance of actual results from expectations; this is expected to continue
for the foreseeable future as the portion of revenues from indirect distribution
channels increases.
This Form 10-Q and the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially. Factors that might cause or contribute to such differences
include, but are not limited to those discussed in this section ("Factors that
May Affect Future Performance") and the section of the Company's
Prospectus/Joint Proxy Statement dated January 2, 1998 entitled "Risk Factors".
Readers should carefully review the risks described in other documents the
Company has filed from time to time with the SEC, including the annual report on
Form 10-K and the other quarterly reports on Form 10-Q filed or to be filed by
the Company in 1998. Readers are cautioned not to rely on forward-looking
statements. The Company has no obligation to publicly release any revisions to
forward-looking statements or reflect events or circumstances after the date of
filing of this Form 10-Q.
- 18 -
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Delaware Court of Chancery conducted a hearing in August 1998
regarding a proposed settlement of an action entitled Usher Fisher v. William
Kaiser, et. al., a purported class action on behalf of the stockholders of
Raptor against Raptor, the members of Raptor's Board and the Company in
connection with the merger of Raptor and the Company. As more fully reported in
Item 1 of Part II of the Form 10-Q of the Company for the period ended March 31,
1998, the parties to the action had reached agreement in principle in January
1998 to settle the action, including an agreement by Raptor to circulate certain
additional information to its stockholders prior to the meeting of its
stockholders to approve the merger and an agreement by the plaintiff generally
to refrain from further proceedings pending approval by the court of a final
settlement and approval of the merger by the stockholders of Raptor. The
settlement approved by the Delaware Court of Chancery dismissed the action with
prejudice and discharged all claims by the plaintiff or the members of the
purported class against the defendants and certain others relating to the
subject matter of the action, the merger transaction among Raptor and the
Company and certain related matters. Plaintiff's counsel applied for an award of
counsel fees and expenses of $250,000, which was approved by the court, and
which was paid by Raptor.
- 19 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) The following exhibits are filed or incorporated by reference, as stated below:
<S> <C> <C>
Exhibit Number Description
3.1 (1) Amended and Restated Certificate of Incorporation of AXENT.
3.2 (2) Amended and Restated Bylaws of AXENT.
4.1 (1) Specimen stock certificate for shares of Common Stock of AXENT.
10.1 (1) AXENT's 1991 Amended and Restated Stock Option Plan.
10.2 (3) AXENT's 1996 Amended and Restated Stock Option Plan.
10.3 (3) AXENT's 1996 Amended and Restated Directors' Stock Option Plan.
10.8 (1) Settlement Agreement effective as of September 13, 1991, by and among
AXENT and the parties thereto.
10.9 (1) Form of Indemnification Agreement between AXENT and its directors
and executive officers.
10.11 (1) Lease Agreement dated as of September 6, 1995, by and between Research Grove Associates and
AXENT.
10.11A* Second Amendment dated September 18, 1998 to Lease Agreement by and between Research Grove
Associates and AXENT.
10.12 (1) Lease of Real Property dated as of March 7, 1995, by and between TNK Associates and AXENT.
10.14 (1) Agreement dated as of December 30, 1987, by and between AXENT and William R. Davy.
10.15 (1) Agreement dated as of September 20, 1990, by and between AXENT and William R. Davy.
10.16 (1) Agreement dated as of November 7, 1991, by and between AXENT and William R. Davy.
10.17 (4) Memorandum of Understanding regarding certain compensation and severance matters relating to
Richard A. Lefebvre, dated July 22, 1997.
10.21 (1) Exclusive Distributor License Agreement, effective as of December 31, 1995, between
AXENT and Raxco Software, Inc.
10.22 (1) Administrative Services Agreement, effective as of December 31, 1995, between the Company and
Raxco Software, Inc.
10.24 (1) Agreement and Plan of Separation, effective as of December 31, 1995, between AXENT and Raxco
Software, Inc.
10.29 (3) Amended Agreement and Plan of Merger among AXENT,
Axquisition, Inc., and AssureNet Pathways, Inc, dated as
of January 6, 1997 and amended February 26, 1997.
10.30 (5) AXENT's 1998 Employee Stock Purchase Plan.
10.31 (5) AXENT's 1998 Incentive Stock Plan.
10.32 (5) AXENT's Exchange Option Plan for Optionees of Raptor Systems, Inc.
10.33 (5) Agreement and Plan of Merger among AXENT, Axquisition Two, Inc. and Raptor Systems, Inc. dated
as of December 1, 1997.
10.34* AXENT's Executive Severance General Guidelines.
10.35* Lease Agreement dated as of April 23, 1998 by and between Pracvest and AXENT.
10.36* Lease Agreement dated as of May 6, 1997 by and between CC&F
Second Avenue Trust and Raptor Systems, Inc.
10.36A* First Amendment to Lease dated as of December 15, 1997 by and between CC&F Second Avenue
Trust and Raptor Systems, Inc.
21.1 (6) Subsidiaries of the Registrant.
27 * Financial Data Schedule
- -------------------------------------------------------------------------------------------------------------------
(1) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-1 (File No. 333-01368) and incorporated herein by reference.
(2) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1996.
(3) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-4 (File No. 333-20207) and incorporated herein by reference.
(4) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1997.
(5) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-4 (File No. 444-43265) and incorporated herein by reference.
(6) Previously filed as an exhibit to AXENT's Annual Report on Form 10-K
for the year ended December 31, 1997 (File No. 0-28100) and
incorporated herein by reference.
* Filed herewith.
(b) AXENT filed no reports on Form 8-K during the three month period
ended September 30, 1998.
</TABLE>
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXENT TECHNOLOGIES, INC.
Date: November 16, 1998 By: /s/ Robert B. Edwards, Jr.
--------------------------------------------
Robert B. Edwards, Jr.
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
- 21 -
EXHIBIT 10.11A
SECOND AMENDMENT TO LEASE AGREEMENT DATED
SEPTEMBER 6, 1995 AND AMENDMENT ON OCTOBER 20, 1995, ENTERED INTO BY
AND BETWEEN RESEARCI I GROVE ASSOCIATES, A VI RG I NIA LI MITED
PARTNERSIHIP, AS LANDLORD
AND AXENT TECHNOLOG IES, INC.,
A DELAWARE CORPORATION, (Succcssor-ln-Interest to RAXCO, Inc.) AS TENANT
THIS SECOND AMENDMENT TO LEASE AGREEMENT is made this 18 Day of September
1998, by and between Research Grove Associates, A Virginia Limited Partnership
("Landlord"), and AXENT Technologies, Inc. a Delaware Corporation (Successor
In-Interest to RAXCO, Tue.) (herein after referred to as "Tenant")
RECITALS:
R-1. Landlord and Tenant entered into a Lease Agreement dated September 6,
1995 and Amended on October 20, 1995 (the "Lease"), whereby Tenant
leased from Landlord approximately 13,508 rentable square feet of space
in Landlord's building commonly known as Research West II, 2400
Research Boulevard, Rockville, MD 20850 for a term commencing October
9, 1995, and ending February 28, 1999 as more particularly described in
the Lease.
R-2. Tenant now desires to increase the size of the Demised Premises and to
lease from Landlord effective the later of October I, 1998 or the date
Landlord tenders possession of that certain portion of the second (2nd)
floor containing approximately 12, 850 rentable square feet ("First
Expansion Space") as shown on Exhibit "A-I " which is attached hereto
and made a part hereof. This suite shall be known as suite 250.
R-3. Landlord and Tenant desire to extend the Term of the Lease upon the terms
set forth herein.
R-4 Landlord desires to provide Tenant with a credit for leasehold
improvements.
NOW THEREFORE in consideration of the Demised Premises, (the sum of ten
dollars ($10.00) and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Landlord and Tenant
do hereby agree as follows:
1. Recitals: The recitals are incorporated herein by this reference.
2. Term: The Term of the Lease for Suites 200 and 250 is hereby
extended through the last day of February 2004.
3. Premises: Effective as of the later of October 1, 1998 or the date
Landlord tenders possession of the First Expansion Space to Tenant, Section
1 of the Lease is hereby amended to reflect that the First Expansion Space
(as shown on Exhibit "A-1" which is attached hereto and made a part hereof
containing approximately 12, 850 rentable square feet of space), shall be
added to and become part of the Demised Premises, whereupon the Demised
Premises shall contain a total of 26,358 rentable square feet of space.
4. Rent:
A. Minimum Rent (as defined in Section 3 of the Lease), for the First
Expansion Space shall be as follows: First Expansion Space through February
28, 1999, the annual Minimum Rent for the First Expansion Space shall be
Three Hundred Fourteen thousand Eight Hundred Twenty Five and xx/I 00
Dollars ($314,825.00), payable in advance on the first day of the month in
installments of Twenty Six Thousand Two Hundred Thirty Five and 42/100
Dollars ($26,235.42).
B. Effective March I, 1998, the annual Minimum Rent for the
Demised Premises (which includes the First Expansion Space) shall be
Six Hundred Forty Five Thousand Seven Hundred Seventy One and xx/l 00
Dollars ($645,771.00) payable in advance on the first day of the month
in installments of Fifty Three Thousand Eight Hundred Fourteen and
25/100 Dollars ($53,814.25).
<PAGE>
5. Pro Rata
Share
Pro Rita Share:
Improvement
6.Improvement
Allowance:
7. Ratification
Ratification:
Tenant's Pro Rata Share upon commencement of the Term of the First Expansion
Space Premises shall be Twenty-One and 21/100 Percent (21.21%).
The Tenant Improvement Allowance for the Demised Premises shall be Three Hundred
Ninety Five `thousand Three Hundred Seventy live Dollars ($395,370.00), payable
March 1,1999 within thirty (30) days of the date Landlord tenders possession of
the First Expansion Space to `Tenant.
Except as modified herein above, the L.ease shall remain in full force and
effect in accordance with its terms, and is hereby ratified, adopted and
confirmed by Landlord and Tenant.
<PAGE>
IN WITNESS WHEEREOF, Landlord and Tenant have caused this Second
Amendment to be executed by their duly authorized representatives as of the date
first above written.
WITNESS: LANDLORD: Research Grove Associates, A
Virginia Limited Partnership
/s/ John T. Kenny
By: John T. Kenney,
Managing General Partner
WITNESS: TENANT: AXENT Technologies, Inc
/S/ Robert B. Edwards, Jr.
Name: Robert B. Edwards, Jr.
Title: VP and CFO
<PAGE>
EXHIBIT 10.34
AXENT Technologies, Inc.
Compensation Committee - Executive Severance General Guidelines
<TABLE>
<CAPTION>
- ------------------------------- ------------------------ ------------------- ------------------------------------------------------
New Policy
<S> <C> <C> <C> <C>
Position (1) Length of Service Old Policy Without change of control With change of control
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Chief Executive Officer 9+ years Two Years Two Years Two years
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Chief Operating Officer N/A One Year One year One year
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Executive Vice President 9+ years One Year One Year One year
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Chief Financial Officer 6+ Years One Year One year One year
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Senior Vice President Less than one year 60 days 90 days One Year
Or Vice President More than 1 year but Six months Six months One Year
less than 3 years
More than 3 years One year One Year One year
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
Other Key employees Up to three months Up to six months
- ------------------------------- ------------------------- ------------------- ----------------------------- ------------------------
</TABLE>
<PAGE>
EXHIBIT 10.35
OFFICE LEASE
266 SECOND AVENUE, WALTHAM, MASSACHUSETTS
ARTICLE 1 REFERENCE DATA
1.1 Defined Terms.
The terms listed below shall have the following meanings throughout this Lease:
"DATE OF THIS LEASE": May 6, 1997 (The date on which both parties have executed
this Lease).
"LANDLORD": CC&F Second Avenue Trust, a Massachusetts nominee trust "LANDLORD'S
ADDRESS": c/o Cabot, Cabot & Forbes 99 Summer Street Boston, Massachusetts
02110 FAX (617) 737-4975 "TENANT": Raptor Systems, Inc.
"TENANT'S ADDRESS": Prior to occupancy: 69 Hickory Drive Waltham, MA 02154 From
and after the Commencement Date for the Phase I Premises: 266 Second Avenue
Waltham, MA 02154
"BUILDING": The building located at 266 Second Avenue, Waltham, Massachusetts.
"PROPERTY": The Building and the legal parcels (the "Lot") on which the Building
and its parking areas are situated. The Lot is described in Exhibit B,
attached hereto. The term "Property" shall also include any additional
improvements constructed on the Lot and any additional parking lot or
garage providing parking for the Building as provided in Section 2.1(c).
"PREMISES": Initially, the space located on the second floor of the
Building, comprised of the "Phase I Premises" as shown on Exhibit A. Upon
the occurrence of the Commencement Date for future Phases (as provided in
Section 2.2) and, if applicable, the First Floor Expansion Space (as
provided in Section 2.5), such future Phases shall be included as part of
the Premises. The Phase II Premises and the Phase III Premises will each
consist of approximately 9,000 to 10,000 rentable square feet on the second
floor, in locations to be agreed upon by Landlord and Tenant. Where the
context permits, the term "Phase" as used herein shall include the Phase I
Premises, the Phase II Premises, the Phase III Premises and, if applicable,
the First Floor Expansion Space.
"RENTABLE SQUARE FEET IN THE PREMISES": From and after the Commencement Date for
the Phase I Premises until the Commencement Date for the Phase II Premises,
approximately 30,000 rentable square feet, subject to final confirmation as
set out in Section 2.2. From and after the Commencement Date for any future
Phase, the Rentable Square Feet in the Premises will increase by the
rentable area of such Phase. The parties estimate that the Phase I
Premises, the Phase II Premises and the Phase III Premises will contain, in
the aggregate, approximately 49,834 rentable square feet, and the First
Floor Expansion Space will contain approximately 10,000 rentable square
feet. "TENANT'S PERCENTAGE": The number (expressed as a percentage)
obtained by dividing the Rentable Square Feet in the Premises by the
rentable square feet in the Building. The rentable square feet in the
Building is expected to be 95,919, and as a result Tenant's Percentage for
the Phase I Premises (30,000 square feet) is expected to be 31.28%. The
actual rentable square feet in the Building and in the Phase I Premises
will be calculated by Landlord's architect upon completion of the Phase I
Premises and will be set out in Landlord's notice establishing the
Commencement Date for the Phase I Premises (which notice is described in
Section 2.2(a)). Tenant's Percentage will increase upon the Commencement
Date of each Phase, based on measurements of each Phase by Landlord's
architect. Landlord agrees that the actual Rentable Square Feet in the
Premises, in the aggregate, will not exceed 50,831 square feet and the
actual rentable square feet in the Building will be not less than 94,001
square feet. "SCHEDULED PHASE I PREMISES COMMENCEMENT DATE": December 15,
1997. "SCHEDULED PHASE II PREMISES COMMENCEMENT DATE": The earlier to occur
of (i) the date which is twelve (12) months after the Commencement Date for
the Phase I Premises, or (ii) the date that is one hundred twenty (120)
days after the date Landlord receives written notice from Tenant that
Tenant has elected to accelerate the date of its occupancy of the Phase II
Premises. "SCHEDULED PHASE III PREMISES COMMENCEMENT DATE": The earlier to
occur of (i) the date which is eighteen (18) months after the Commencement
Date for the Phase I Premises, or (ii) the date that is one hundred twenty
(120) days after the date Landlord receives written notice from Tenant that
Tenant has elected to accelerate the date of its occupancy of the Phase III
Premises. "TERM": Seventy-eight (78) calendar months, commencing on the
Commencement Date for the Phase I Premises. "BASE RENT": From and after the
Commencement Date for the Phase I Premises, through and including the last
day of the sixtieth (60th) full calendar month of the Term, at the annual
rate of $26.00 multiplied by the Rentable Square Feet in the Premises. (The
Base Rent is subject to adjustment prior to delivery of the second segment
of the Phase I Premises, as provided in Section 2.2(a) hereof.) From and
after the first day of the sixty-first (61st) full calendar month of the
Term, through the remainder of the Term, at the annual rate of $27.75
multiplied by the Rentable Square Feet in the Premises. "EXPENSE STOP": The
product of $7.50 multiplied by the Rentable Square Feet in the Premises.
"PERMITTED USES": General office, software development, and sales office
purposes (but not retail sales), consistent with Section 6.3 hereof.
"TENANT'S PARKING SPACES: The product of .0039 multiplied by the Rentable
Square Feet in the Premises (i.e., 3.9 spaces per 1,000 rentable square
feet). "SECURITY DEPOSIT": $647,842.00 (subject to adjustment as provided
in Section 10.24.) The Security Deposit shall be provided to Landlord by
certified check or through a letter of credit, as provided in Section
10.24. "BROKERS": Avalon Partners, Inc. and Whittier Partners. 1.2 Exhibits
There are attached hereto and incorporated as a part of this Lease: (a)
EXHIBIT A - Premises (b) EXHIBIT B - Lot (c) EXHIBIT C - Notice of
Commencement Date (d) EXHIBIT D - Form of Clerk's Certificate (e) EXHIBIT E
- Route 128 Exposure Area (g) EXHIBIT F - Description of the Project (h)
EXHIBIT G - Tenant's Special Power and HVAC Requirements (i) EXHIBIT H -
Supplemental Escrow Agreement
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ARTICLE 2 PREMISES AND TERM
2.1 The Premises, Common Areas and Parking.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises, as generally shown on Exhibit A, to be more particularly
described in the final plans described in Section 4.1 hereof. The Premises does
not include exterior faces of exterior walls and exterior window glass; anything
beyond the interior face of demising walls; and pipes, ducts, conduits, wires
and fixtures serving other parts of the Building, but does include any
additional telephone closets or other utility, mechanical or storage spaces or
facilities made available during the Term for Tenant's exclusive use.
(b) Tenant shall also have the right to use the Common Areas in common
with other tenants. The Common Areas include the Building's common lobbies,
corridors, stairways, loading platforms and elevators, the common walkways and
driveways necessary for access to the Building, the common toilets and shower
areas, corridors and elevator lobbies of any multi-tenant floor, the parking
lots and/or garages serving the Building and the Building's cafe. Tenant will
have twenty-four (24) hour access to the Premises, seven (7) days per week. All
use of the Common Areas shall be only upon the reasonable terms generally
applicable to all tenants in the Building, as set forth from time to time by
Landlord.
(c) Tenant shall be entitled to use Tenant's Parking Spaces (set out in
Section 1.1) in the parking lots serving the Building, which number includes a
pro rata share of any handicapped or visitor spaces contained in such lots;
provided, however, that Landlord and Tenant agree that Tenant's Parking Spaces
shall be undesignated and shall be allocated by Landlord either (i) between the
two existing parking lots serving the Building, or (ii) between such existing
lots and the parking lot(s) located on neighboring parcels acquired by Landlord
after the Date of this Lease (provided that any parking located on such
neighboring lots shall not be located further from the Premises than the
existing parking lot located across Second Avenue from the Building) in either
case in proportion to the total number of parking spaces existing on each lot.
Landlord may, at its election, provide the parking on any parking lot described
herein in a parking garage or structure. It is understood that Landlord shall
not be responsible for policing said parking lots but that Landlord will limit
the number of parking spaces leased to other tenants in the Building so as to
ensure that the number of parking spaces which Tenant is entitled to use are
available for Tenant's use. Tenant shall reasonably cooperate with Landlord to
assure that Tenant and its employees and visitors observe all reasonable parking
regulations established by Landlord from time to time and to assure that Tenant
and its employees and visitors do not use more parking spaces than the number of
parking spaces provided to Tenant hereunder.
2.2 Term.
(a) Both parties shall be bound by all the terms of this Lease as of
the Date of this Lease. The Term of this Lease shall commence on the
Commencement Date for the Phase I Premises, as provided below. Subsequent Phases
shall be added to the Premises on the applicable Commencement Date for each such
Phase.
The Commencement Date for each Phase shall be the earlier of (i) the
date on which such Phase is Ready for Occupancy, but in no event earlier than
the Scheduled Phase I Premises Commencement Date, the Scheduled Phase II
Premises Commencement Date, or the Scheduled Phase III Premises Commencement
Date, as applicable or (ii) the date on which Tenant begins to conduct business
within any portion of such Phase. Each Phase shall be deemed to be "Ready for
Occupancy" when the construction of the Leasehold Improvements, as such term is
defined in Section 4.1, in such Phase has been substantially completed in
accordance with the Final Plans pursuant to Section 4.1, as reasonably
determined by Landlord, and any certificate or approval required by local
governmental authority for occupancy of such Phase has been obtained.
Notwithstanding the foregoing, the delivery of the Phase I Premises
will occur in two segments (a "segment"), the first of which will contain
between 7,500 and 10,000 square feet and the second of which will contain the
balance of the Phase I Premises. Not later than May 23, 1997, Tenant will
identify for Landlord the size and location of the first segment. Only the first
segment will be taken into account in determining the Commencement Date for the
Phase I Premises. However, prior to the Second Segment Rent Date (defined
below), the Base Rent and Additional Rent due hereunder will be reduced
proportionately so that Tenant is required to pay Base Rent and Additional Rent
only on the first segment of the Phase I Premises. The Second Segment Rent Date
will be the later of (i) January 15, 1998 or (ii) the date on which the second
segment is Ready for Occupancy.
As soon as may be convenient after the delivery of each Phase (or
segment, in the case of Phase I), Landlord shall deliver to Tenant written
notice ("Notice") in the form attached as Exhibit C, setting out the
Commencement Date for such Phase or segment, and the Rentable Square Feet in the
Premises, the Tenant's Percentage, the Base Rent, and the Tenant's Parking
Spaces, all adjusted to reflect the addition of such Phase (or segment) to the
Premises. Tenant shall promptly return to Landlord a countersigned original of
each Notice.
(b) Tenant acknowledges that as of the date of this Lease, Landlord has
contracted in writing to purchase the Property from the current owner on or
before June 5, 1997, but has not yet acquired the Property or obtained all of
the permits necessary for the Project described in Section 4.1 herein and for
the use of the Property as contemplated herein. Landlord agrees from time to
time prior to the Commencement Date for the Phase I Premises, to keep Tenant
informed of its progress (including, without limitation, providing notice to
Tenant promptly after the acquisition of the Property and promptly after
commencement of construction), and to respond to all reasonable requests of
Tenant concerning the status of the Project. Landlord agrees to use reasonable
efforts to acquire the Property and commence construction of the building
renovations on or before the respective Target Dates set out below. However, if
due to unanticipated difficulties, Landlord does not proceed with the
acquisition or development of the Project, Landlord agrees to promptly notify
Tenant and upon such notice this Lease will terminate, and will thereafter have
no further force and effect, provided that this termination right will expire on
the earlier of (i) the date on which Landlord acquires the Property, or (ii)
July 1, 1997. Upon such termination, Landlord and Tenant shall not have any
further obligations or liability to each other with respect to the Project or
this Lease.
In the event that Landlord has not acquired the Property by July 1,
1997 or has not commenced construction of the building renovations on or before
July 15, 1997 (each such date being referred to herein as a "Target Date"), then
Tenant may give notice to Landlord within ten (10) days after the applicable
Target Date, of its election to terminate this Lease. Such notice will be
effective to terminate this Lease, in which case neither party shall have any
further rights, liabilities, or obligations hereunder, unless prior to receipt
of such notice the Landlord has either acquired the Property or commenced
construction (as applicable) in which case Tenant's notice shall have no force
and effect. For purposes hereof, Landlord will be deemed to have commenced
construction of the Project when it has entered into a construction contract for
the Project (or if the work is to be performed by more than one contractor, for
the initial demolition and renovation work to the Building) and such contractor
has commenced operations on the Property.
(c) Landlord shall use reasonable efforts to deliver the first segment
of the Phase I Premises by the Scheduled Phase I Premises Commencement Date, the
second segment by January 15, 1998, the Phase II Premises by the Scheduled Phase
II Premises Commencement Date, and the Phase III Premises by the Scheduled Phase
III Premises Commencement Date. If any Phase (or segment) is not Ready for
Occupancy on the applicable Scheduled Commencement Date for such Phase, Landlord
shall not be subject to any liability for such failure, except as expressly set
forth below, and such failure shall not affect the validity of this Lease, but
Tenant shall not be liable for any rent until the Commencement Date for the
applicable Phase. Notwithstanding the foregoing, if the first segment of the
Phase I Premises are not Ready for Occupancy by December 15, 1997, or if the
second segment of the Phase I Premises are not Ready for Occupancy by January
15, 1998, Tenant shall receive one day of free Base Rent for each day delivery
of such segment is delayed beyond such date, provided that (i) such free rent
arrangements shall not apply to the extent that such delay was caused by any
action or inaction of Tenant or any Force Majeure, except that any extension of
such December 15 or January 15 date due to Force Majeure delays will not exceed
sixty (60) days, (ii) a failure of Landlord's contractor to complete
construction on schedule shall not constitute "Force Majeure" unless such
failure was attributable to an event which would itself constitute Force Majeure
and (iii) such free rent will only apply to the segment which was the subject of
the delay.
(d) To the extent that any Phase (or segment) is not Ready for
Occupancy because Tenant has failed to comply with Tenant's obligations under
Section 4.1 or under any work letter or construction agreement between the
parties, or has otherwise delayed Landlord in preparing any Phase (or segment)
or in obtaining a Certificate of Occupancy for any Phase (or segment), then
Tenant will pay to Landlord, as additional rent, an amount equal to the Base
Rent and Additional Rent which would have been payable for the period from (i)
the date that such Phase (or segment) would have been Ready for Occupancy except
for such Tenant-caused delay through (ii) the Commencement Date for such Phase
(or segment).
2.3 Extension Option
(a) Tenant shall have the option to extend the Term of this Lease for
two successive periods of five (5) years each (such periods being herein
referred to as the "First Extension Period" and the "Second Extension Period"),
on all of the terms and conditions contained in this Lease, except that Landlord
shall not be obligated to undertake any additional Leasehold Improvements to the
Premises, the Base Rent and the Expense Stop for each extension period shall be
calculated as set forth in this Section 2.3, and there shall be no additional
extension options beyond the Second Extension Period, the parties agreeing that
the maximum Term of this Lease, including extensions, shall be sixteen and
one-half (16 1/2) years. Tenant shall exercise each extension option by giving
Landlord notice of its election to do so, on or before the date that is two
hundred seventy (270) days prior to the expiration of the initial Term (or the
First Extension Period, as the case may be); provided, however, that if Tenant
fails to give timely notice to Landlord of Tenant's exercise of either extension
option, Tenant shall be deemed to have waived its extension option rights under
this Section 2.3. The word "Term" as used in this Lease shall include the
initial Term, the First Extension Period and the Second Extension Period where
the context so requires.
(b) The Base Rent during each extension period shall be equal to
ninety-five percent (95%) of the market rental value of the Premises, taking
into account the applicable Expense Stop and the other terms of this Lease, the
"as is" condition of the Premises, and (if applicable) the absence of a tenant
improvement allowance and brokerage commission for the extension period, but,
with respect to the First Extension Period, in no event lower than the Base Rent
for the last year of the original term hereof as set forth in Section 1.1, and
with respect to the Second Extension Period, in no event lower than the Base
Rent during the First Extension Period (the "Extension Rent"). The Expense Stop
during each extension period shall be an amount equal to Tenant's Percentage of
the actual Operating Expenses incurred in the last full Fiscal Year prior to
Tenant's notice of its election to extend the initial Term (or the First
Extension Period, as applicable). Landlord shall give Tenant notice of the
amount of the Extension Rent promptly after Tenant notifies Landlord of its
election to exercise either extension option. If Tenant agrees with Landlord's
determination of the Extension Rent, Tenant shall notify Landlord of such
agreement within twenty (20) days after Tenant receives Landlord's notice of the
amount of the Extension Rent. If Tenant disagrees with Landlord's determination
of the Extension Rent, Tenant may, by notice given to Landlord within twenty
(20) days after Tenant receives Landlord's notice of the amount of the Extension
Rent, (i) revoke Tenant's election to exercise the Extension Option whereupon
the Extension Option and all of Tenant's rights related thereto set forth in
this Section 2.3 shall terminate or (ii) elect to have the fair market rental
value for the Premises determined by the appraisal process (the "Appraisal
Process") set forth in subsection 2.3(c) below, which fair market rental value
determination shall be binding on both Landlord and Tenant. If Tenant does not
notify Landlord within such twenty (20) day period of (x) Tenant's agreement to
the Extension Rent, (y) Tenant's revocation of its exercise of the Extension
Option, or (z) Tenant's election to have the fair market rental value determined
by the Appraisal Process, the Extension Option and all of Tenant's rights
related thereto set forth in this Section 2.3 shall terminate.
(c) Within ten (10) days after Landlord receives Tenant's election to
use the Appraisal Process, if Tenant shall elect to have the fair market rental
value for the Premises determined by the Appraisal Process, Landlord and Tenant
shall adopt the following procedures:
(i) Landlord and Tenant will each promptly choose one
disinterested real estate appraisal firm of recognized competence in
the greater Boston area to perform an appraisal. Each appraisal will
determine the fair market rental of the Premises, taking into account
the quality, size, configuration, Building amenities, available
parking, the location of the Building and the Premises (including,
without limitation, the Building's proximity and access to Route 128),
and the then current market rental rates for comparable office space in
the central Route 128 area. The two appraisers shall within ten (10)
days after the date of the later appointment appoint a third appraiser
satisfying the above qualifications. If the two appraisers cannot agree
on a third appraiser, they shall immediately apply to the President of
the Greater Boston Real Estate Board to select a third appraiser
satisfying the above qualifications. The third appraiser, however
selected, shall not have acted previously in any capacity for either
Landlord or Tenant. If either Landlord or Tenant fails to appoint an
appraiser within the allotted time, the single appraiser who has been
appointed shall determine the fair market rental value for the Premises
for the applicable Extension Period. Each party shall bear the costs of
its own appraiser and one-half of the cost of the third appraiser.
(ii) Within thirty (30) days after the selection of the third
appraiser, each of the appraisers shall submit its determination of the
fair market rental value for the Premises for the applicable Extension
Period to Landlord. None of the determinations shall be opened until
all have been submitted. The appraisal furthest from the middle
appraisal shall be excluded and the remaining two appraisals shall be
added together and their total divided by two; provided, however, that
if no appraisal is more than ten percent (10%) more or less than the
middle appraisal, then all three appraisals shall be added together and
their total divided by three. The resulting quotient shall be the fair
market rental value for the Premises which is used to determine the
Extension Rent for the applicable Extension Period.
(d) Notwithstanding any contrary provision of this Section 2.3 or any
other provision of this Lease, Tenant's rights to extend this Lease under this
Section 2.3 shall be void and of no effect unless on the date Tenant notifies
Landlord that it is exercising either extension option and on the date of
commencement of the applicable Extension Period (i) this Lease is in full force
and effect, (ii) Tenant is not in default of any of its obligations under this
Lease beyond any applicable cure periods, (iii) Tenant has neither assigned this
Lease nor sublet fifty percent (50%) or more of the Premises (except for
Permitted Transfers), and (iv) Tenant is occupying at least fifty percent (50%)
of the Premises; provided, however, that Landlord reserves the right to waive
the provisions of this subsection 2.3(c). The conditions described in the
preceding subparagraphs (i) through (iv) are hereinafter referred to
collectively as the "Exercise Conditions".
2.4 Right of First Offer.
If, at any time during the Term of this Lease, Landlord constructs an
office building on the existing parking lot for the Building which is located
across Second Avenue from the Building (the "Adjacent Lot"), and if Landlord
intends to submit a proposal or proposals to third parties for the purpose of
leasing all or any portion of such building, provided Tenant then satisfies the
Exercise Conditions, Landlord shall first offer (in writing) to lease up to the
entire rentable area of such building to Tenant on any terms and conditions
determined by Landlord. Tenant may accept Landlord's offer as to the entire
rentable area of such building or as to a portion of such building, provided
that such portion shall constitute at least fifty percent (50%) and not more
than seventy-five percent (75%) of the rentable area of such building. If Tenant
shall not have accepted such offer within thirty (30) days of the date of any
such offer, the offer shall conclusively be deemed to have been rejected by
Tenant; thereafter, Landlord shall be free to submit proposals, offer to lease
and to lease all or any portion of the proposed building to other parties on any
terms and conditions determined by Landlord, and this Section 2.4 shall have no
further force and effect. In the event that Tenant has timely accepted
Landlord's offer as to less than the entire rentable area of the proposed
building, this Section 2.4 shall have no further applicability to the balance of
space in the proposed building. In addition, notwithstanding any contrary
provision of this Section 2.4 or any other provision of this Lease, Tenant's
rights under this Section 2.4 shall be void and of no further force and effect
if Tenant fails to satisfy the Exercise Conditions as of the date of Landlord's
offer of space in the proposed building to Tenant or as of the commencement date
of Tenant's lease of space in the proposed building.
If Tenant accepts Landlord's offer to lease space in the proposed
building, Tenant shall execute and deliver to Landlord a lease for such space
using the terms of this Lease (except as necessary to incorporate the terms set
out in Landlord's offer) within thirty (30) days of receipt of the lease from
Landlord. If Tenant fails to do so, the Landlord shall thereafter be free to
submit proposals, offer to lease and to lease all or any portion of the proposed
building to other parties as provided above and this Section 2.4 shall have no
further force and effect.
The right of first offer set out in this Section 2.4 shall terminate if
Landlord agrees to sell, transfer, convey or ground lease the Adjacent Lot
separately from the Building to an unrelated third party. In such event the
provisions of this Section 2.4 shall automatically terminate, and from and after
the date of any such sale, transfer, conveyance, or ground lease, Tenant shall
have no rights in and to the First Offer Space or the Adjacent Lot.
2.5 Expansion Option.
Tenant shall have the right to lease from Landlord additional space on
the first floor of the Building consisting of approximately 10,000 rentable
square feet of space (in a single block of space) to be designated by Landlord
(the "First Floor Expansion Space"), provided that (i) on or before the date
that is one hundred twenty (120) days after the Commencement Date for the Phase
I Premises, Tenant shall give Landlord written notice of its election to lease
the First Floor Expansion Space, and (ii) at the time of such notice and on the
Commencement Date for the First Floor Expansion Space, Tenant satisfies the
Exercise Conditions, Tenant hereby agreeing that if Tenant fails to satisfy the
Exercise Conditions as of the date of such notice, or as of the Commencement
Date for the First Floor Expansion Space, Tenant's rights under this Section 2.5
shall expire and be of no further force and effect. Upon receipt of any such
notice, Landlord and Tenant will prepare plans for the First Floor Expansion
Space and Landlord shall improve the First Floor Expansion Space using the
construction procedures described in Section 4.1, and the Tenant Allowance and
occupancy procedures described in Sections 4.2 and 4.3. The Commencement Date
for the First Floor Expansion Space shall be the earlier to occur of (i) the
date on which the First Floor Expansion Space is Ready for Occupancy, as such
term is defined in Section 2.2, or (ii) the date on which Tenant begins to
conduct business operations in any portion of the First Floor Expansion Space.
Upon the Commencement Date for the First Floor Expansion Space, the
First Floor Expansion Space will be included as part of the Premises, and the
Tenant's Percentage, Base Rent, Rentable Square Feet in the Premises and
Tenant's Parking Spaces will be appropriately increased.
2.6 Confirmation of Expiration of Tenant's Rights Under Article 2.
In the event any of the rights granted to Tenant under Sections 2.3,
2.4 or 2.5 expire and become of no further force and effect, Tenant hereby
agrees to furnish Landlord with an affidavit or certificate confirming the
expiration of any such right within twenty (20) days of a written request
therefor from Landlord. Should the Tenant fail to furnish any such certificate
or affidavit within such twenty (20) day period, Landlord may send a second
request and if Tenant fails to furnish any such certificate or affidavit within
ten (10) days after such second request, Tenant hereby irrevocably designates
and appoints Landlord as its attorney-in-fact to execute such certificate or
affidavit in the name of Tenant.
ARTICLE 3 RENT
3.1 Base Rent and Additional Rent.
Tenant shall pay one-twelfth (1/12th) of the Base Rent each month in
advance on the first day of each calendar month during the Term. For any partial
month at the beginning or end of the Term (or at the time Tenant takes occupancy
of additional Phases, including the First Floor Expansion Space), Tenant shall
pay a proportional share of the amount that would be due for a full month and
with respect to a partial month at the beginning of the Term, or upon delivery
of any additional Phase, Tenant shall pay such proportional share on the
applicable Commencement Date. In addition to the Base Rent, Tenant shall pay all
additional rent and rental adjustments provided herein at the times set forth
herein, or if no time for payment is specified, then payment shall be made
within thirty (30) days after Tenant's receipt of an invoice from Landlord or
another billing authority. All payments shall be made to Landlord at Landlord's
Address or such other place as Landlord may designate in writing, without prior
demand and without deduction or offset except as may be specifically set forth
herein. Tenant shall not pay, and Landlord shall not accept, any rental payment
more than one month in advance.
3.2 Adjustment for Operating Expenses.
(a) Tenant shall pay, as additional rent, Tenant's Share of Expenses
for the Property.
(b) For each Fiscal Year during the Term, Tenant's Share of Expenses
shall consist of the excess of (i) Tenant's Percentage of the total Operating
Expenses for the Property for that Fiscal Year over (ii) the Expense Stop. For
any partial Fiscal Year at the beginning or end of the Term, Tenant's Share of
Expenses shall be adjusted proportionately for the part of the Fiscal Year
falling within the Term. Tenant's Percentage may change if the Building is
changed or reconfigured, but shall in all cases be equal to the percentage that
the Rentable Square Feet in the Premises bears to the total rentable square
footage in the Building, calculated on a consistent basis.
(c) Before each Fiscal Year, Landlord shall give Tenant an estimate of
the expected Operating Expenses for the Property for the coming Fiscal Year, and
a calculation of the estimated amount of Tenant's Share of Expenses. Tenant
shall pay one-twelfth of the estimated amount of Tenant's Share of Expenses each
month with its payment of Base Rent. After the end of each Fiscal Year, Landlord
shall give Tenant a statement showing the actual Operating Expenses for that
Fiscal Year, and a calculation of the actual amount of Tenant's Share of
Expenses. Any underpayment by Tenant shall be made up by cash payment to
Landlord within thirty (30) days; any overpayment shall be paid to Tenant within
thirty (30) days at Landlord's option, or shall be credited against the next due
Base Rent, provided that any overpayment shall be paid in cash to Tenant within
thirty (30) days if the Term has ended. No delay by Landlord in providing any
such statement shall be deemed a waiver of Tenant's obligation to pay Tenant's
Share of Expenses. Tenant shall have the right, upon not less than 10 business
days' notice, to inspect, audit and copy during usual business hours those
portions of the books and records kept by Landlord, relating in each case to
costs and expenses for which Tenant has responsibility hereunder. Landlord shall
maintain all books and records, including contracts, invoices and other similar
evidence of expenditures, for at least 5 years after the end of the relevant
fiscal year. Tenant may seek reimbursement of its share of any Operating Expense
which it contests within twelve (12) months after the delivery of the annual
statement of expenses for the year in which Operating Expenses were incurred (or
within twelve (12) months of delivery of any supplemental or corrected
statement, with respect to the supplemental information or corrected items.) In
the absence of written notice to Landlord objecting to any particular expense
within twelve (12) months after delivery of the annual statement of expenses,
any right of Tenant to contest or seek reimbursement for Operating Expenses
incurred in the period covered by such statement shall be deemed irrevocably
waived. Nothing contained herein shall entitle Tenant to offset or withhold any
Base Rent or additional rent on account of any Operating Expenses which it
contests. Landlord agrees that, except to the extent Landlord subsequently
receives bills or invoices, any correction or adjustment of its calculations of
Operating Expenses for any year will occur not later than twelve (12) months
after delivery of the annual statement of expenses for such year.
(d) As used herein, the term "Fiscal Year" means any twelve-month
period selected by Landlord for operating purposes. Landlord may change its
Fiscal Year and interim accounting periods, so long as the periods so revised
are reconciled with prior periods in accordance with generally accepted
accounting principles.
(e) The term "Operating Expenses" means the total cost of operation of
the Property and shall include without limitation: (i) Taxes, as defined below;
(ii) all supplies, materials, labor, equipment, and utilities used in or related
to the operation, maintenance, and repair of the Property or any part thereof
(including without limitation, any operating costs incurred by Landlord in
connection with the Building's cafe but not including the costs of initially
constructing such cafe or the costs of personnel, food and supplies, rent
subsidies, and provided that such cafe is not leased to a third party for profit
by Landlord or operated for profit by Landlord); (iii) all maintenance,
management, janitorial, legal, accounting, insurance, and service agreement
costs related to the Property or any part thereof, including, without
limitation, service contracts with independent contractors; (iv) assessments and
charges incurred by Landlord under any declaration of covenants, easements,
conditions or restrictions affecting the Property, and (v) costs (including
financing charges) of improvements to the Property that are designed to increase
safety, improve energy efficiency or otherwise reduce Operating Expenses, or are
required to comply with legal requirements imposed after the initial completion
of the Building, all such improvements to be amortized in accordance with
generally accepted accounting principles. Any of the above services may be
performed by Landlord or its affiliates, provided that fees for the performance
of such services shall be reasonable and competitive with fees charged by
unaffiliated entities for the performance of such services in comparable
buildings in the area. Operating Expenses shall not include (1) legal fees,
brokerage commissions, advertising costs, or other related expenses incurred by
Landlord in connection with the leasing of space to individual tenants in the
Property; (2) repairs, alterations, additions, improvements or replacements made
to rectify or correct any defect in the original design, materials or
workmanship of the Property or common areas (but not including repairs,
alterations, additions, improvements or replacements made as a result of
ordinary wear and tear); (3) damage and repairs attributable to fire or other
casualty; (4) damage and repairs necessitated by the negligence or willful
misconduct of Landlord, Landlord's employees, contractors or agents; (5)
executive salaries or salaries of service personnel to the extent that such
personnel perform services not solely in connection with the management,
operation, repair or maintenance of the Property; (6) Landlord's general
overhead expenses not related to the Property; (7) legal fees, accountants' fees
and other expenses incurred in connection with disputes with other tenants or
occupants of the Property or associated with the enforcement of the terms of any
leases with tenants or the defense of Landlord's title to or interest in the
Property or any part thereof; (8) costs (including permit, license and
inspection fees) incurred in renovating or otherwise improving, decorating or
painting or altering space for tenants or other occupants or of vacant space
(excluding common areas) in the Property; (9) damage to the Property caused by
another tenant of the Property; (10) cost of any service provided to Tenant or
other occupants of the Property for which Landlord is reimbursed; (11) except as
expressly provided above (improvements to increase safety, reduce Operating
Expenses, etc.) cost and expenses which would be capitalized under generally
accepted accounting principles, including without limitation any costs
associated with the base building work described in Exhibit F (whether or not
the same would be described in Subsection 3.2(e)(v)) and any costs associated
with any expansion of the Building or the construction of any structured parking
or other buildings on the Property; (12) building management fees in excess of
those charged by independent property managers; (13) costs incurred for any
hazardous waste cleanup attributable to waste which existed on the Property
prior to the Commencement Date for the Phase I Premises; (14) Landlord's debt
service payments (including principal payments), and (15) depreciation or other
non-cash charges. Landlord shall not collect in excess of one hundred percent
(100%) of Operating Expenses and shall not recover any item of cost more than
once. If the Building is less than 95% occupied in any Fiscal Year during the
Term, Operating Expenses shall be calculated as though the Building had been
fully assessed and 95% occupied, and the result shall constitute the Operating
Expenses for all purposes hereunder. If during all or part of any Fiscal Year,
Landlord is not performing or furnishing any item or service to any portion of
the Property (the cost of which, if performed or furnished by Landlord to such
portion of the Property, would constitute a part of Operating Expenses), on
account of (a) such item or service not being required or desired by a tenant,
or (b) any tenant obtaining or providing such item or service itself, or (c) any
other reason, then, Operating Expenses shall be deemed to be increased by an
amount equal to the additional costs and expenses which would reasonably have
been incurred during such period by Landlord if it had performed or furnished
such item or service to 95% of the Building.
(f) The term "Taxes" means any form of assessment, rental tax, license
tax, business license fee, levy, charge, penalty, tax or similar imposition,
imposed by any authority having the power to tax, including any city, county,
state or federal government, or any school, agricultural, lighting, library,
drainage or other improvement or special assessment district, as against the
Property or any part thereof or any legal or equitable interest of Landlord
therein, or against Landlord by virtue of its interest therein, and any
reasonable costs incurred by Landlord in any proceeding for abatement thereof,
including, without limitation, attorneys' and consultants' fees. Landlord's
income and franchise taxes shall not be included in Taxes. If Landlord obtains
an abatement of any Taxes relating to any period with respect to which Tenant
paid its share of Operating Expenses, Landlord agrees to recalculate Tenant's
share of Operating Expenses for such period and (provided Tenant is not then in
default of any of its obligations hereunder) refund any overpayment to Tenant.
The provisions of this Section shall survive the expiration or earlier
termination of this Lease.
ARTICLE 4 CONSTRUCTION
4.1 Leasehold Improvements by Landlord.
(a) Subject to Landlord's acquisition of the Property and receipt of
all required permits and approvals, Landlord shall, at its sole cost and
expense, rehabilitate the Building for use as a first-class office building
comparable to other first-class office buildings in the Waltham area (including
the installation of a card access security system for the Common Areas of the
Building), and shall perform all work necessary for delivery of the Premises as
"shell space", based on the outline specifications and schematic drawings
attached as Exhibit F (the "Project"). Tenant agrees that Exhibit F is
descriptive of the general layout and level of finish for the Project, is solely
schematic and is subject to refinement by Landlord provided that such
refinements do not materially increase the costs of the Leasehold Improvements.
Without limitation, Landlord may select the materials to be used on all exterior
surfaces of the Building, provided that the exterior walls will consist of glass
curtain walls in lobby atrium areas and masonry (either brick or precast
concrete) in the balance of the Building. Landlord shall also be responsible for
constructing, at its sole cost and expense, a demising wall between the Phase I
Premises and the subsequent Phases prior to the Commencement Date for the Phase
I Premises, and a demising wall between the Phase II Premises and the Phase III
Premises prior to the Commencement Date for the Phase II Premises. All expenses
incurred in connection with the construction of such demising walls shall be
borne by Landlord, and shall not be deducted from the Tenant Allowance, as such
term is herein defined. Tenant hereby confirms to Landlord that the power and
HVAC systems and services described in Exhibit F will be adequate to meet
Tenant's power and HVAC requirements, except to the extent Tenant has identified
in Exhibit G any area of the Premises that will require special power or HVAC
services (any special services will be included in "Improvement Cost" described
in Section 4.1(c) hereof). All construction by Landlord will be completed in a
good and workmanlike manner, using first class materials, in accordance with all
applicable laws, rules, ordinances and regulations.
(b) Landlord shall construct leasehold improvements in the Premises on
a Phase by Phase basis in the manner herein described. All such improvements are
herein referred to generally as the "Leasehold Improvements."
Tenant shall prepare, at its sole cost and expense, preliminary space
plans for each Phase, showing the general layout of the Phase, including the
location of offices and cubicles (the "Preliminary Plans"). Tenant shall submit
the Preliminary Plans to Landlord for its review on or before May 23, 1997 in
the case of the Phase I Premises, and within one hundred eighty (180) days prior
to the applicable Scheduled Commencement Date in the case of subsequent Phases
(or, if Tenant gives Landlord notice that it has elected to accelerate its
occupancy of the Phase II Premises or the Phase III Premises, simultaneously
with delivery of such notice). Tenant may include with such plans a list of
proposed subcontractors. Landlord agrees to include such subcontractors in the
competitive bid process described in subsection (c) below unless it objects to
any such subcontractor by notice to Tenant within ten (10) days of its receipt
of such list. Landlord shall review and price the Preliminary Plans, and shall
approve or disapprove such plans within ten (10) days of its receipt. Any
disapproval by Landlord will set out the reasons therefor. Tenant shall
thereupon revise the Preliminary Plans based on Landlord's comments (if
necessary) and shall resubmit the revised Preliminary Plans to Landlord within
twenty (20) days of Tenant's receipt of Landlord's notice.
Upon Landlord's and Tenant's agreement as to the final form of the
Preliminary Plans, Landlord's architect shall prepare and deliver to Tenant and
its consultants, for Tenant's approval (which approval shall not be unreasonably
withheld) the final architectural plans for the Leasehold Improvements to be
constructed in the Phase (the "Final Plans"), which Final Plans shall include,
without limitation a layout plan showing the general layout of the Phase and
partitions therein, a reflected ceiling plan, a telephone and electrical outlet
location plan, a list of equipment to be installed in the Phase, plans and
specifications for special millwork requirements, and mechanical, electrical and
plumbing plans. Tenant shall review such plans and approve or disapprove such
plans within ten (10) days of receipt. Any disapproval by Tenant will set out
reasons therefor. Landlord shall thereupon revise the Final Plans based on
Tenant's comments (if necessary) and shall resubmit the revised Final Plans to
Tenant within twenty (20) days of Landlord's receipt of Tenant's notice. Any
failure by Tenant to approve, disapprove or comment on the Final Plans within
the time required under this subsection shall be deemed to be an approval by
Tenant of such plans.
Promptly after approval of the Final Plans by both parties and the
issuance of a building permit therefor, Landlord diligently shall cause the
Leasehold Improvements for the applicable Phase to be installed, in accordance
with the Final Plans, by Landlord's contractor in a first-class workmanlike
manner, unless a Change Order is made in accordance with the requirements set
forth below.
In the event Tenant desires to have the Leasehold Improvements
constructed other than as set forth in the Final Plans and Landlord and Tenant
subsequently agree to a change in the Final Plans and any change in the
Improvement Cost resulting from such change, Landlord's contractor and Tenant
shall execute a written agreement concerning the scope of the revised work or
materials desired by Tenant and the cost of such work or materials (a "Change
Order"). All costs for labor, materials, and the general contractor's costs
(which shall be limited as set forth below) resulting from a Change Order,
including the cost of all plans prepared pursuant thereto (the "Change Order
Costs"), shall be included in the Tenant Allowance, as such term is defined in
Section 4.2 herein. Tenant hereby agrees that any delay by Tenant in approving
the Final Plans, or any request by Tenant for a Change Order will constitute
Tenant's agreement to a corresponding delay in the Scheduled Commencement Date
for the applicable Phase and a corresponding delay in the December 15 date
described in Section 2.2(c).
(c) The costs of the Leasehold Improvements (the "Improvement Cost")
shall be paid in the manner described in Section 4.2 and shall include the costs
incurred in preparing the Final Plans, Change Order Costs, permit and insurance
costs, payments to the contractor installing the Leasehold Improvements, and all
other costs incurred by Landlord in connection with its design or installation
of the Leasehold Improvements, but shall not include (i) the costs of
construction management services which shall be provided by Landlord at no cost
to Tenant, and (ii) the cost of professional interior design services, which, if
required, shall be provided by Tenant at Tenant's sole cost and expense. In
order to reduce the Improvement Cost, Tenant shall be permitted to install its
existing card access security system in the Premises, at its sole cost and
expense, in accordance with all applicable terms and conditions of this Lease,
provided that such security system is compatible with any card access security
system for the Building to be installed by Landlord. Landlord agrees that all
subcontractors will be subject to a competitive bid process, provided that
Tenant timely submits its Preliminary Plans and timely responds to Landlord's
request for approval of Final Plans, and further provided that Landlord reserves
the final right to select subcontractors, so long as Landlord has reasonable
cause for selecting any subcontractor which was not the low bidder. Landlord
hereby agrees that the costs of Landlord's general contractor attributed to
overhead, profit and general conditions shall not exceed the lesser of (x)
thirteen percent (13%) of the total Improvement Cost or (y) the amount
(expressed as a percentage of total construction costs) attributed to overhead,
profit and general conditions in the primary contract for the Landlord's
construction work described in Exhibit F.
(d) The Leasehold Improvements installed in each Phase shall be part of
the Premises and the sole property of Landlord. Within twenty (20) days after
the respective Commencement Date for each Phase, Tenant shall give Landlord a
"punch list" of any items needing correction; any matters not shown on the punch
list (except latent defects not discoverable by visual inspection) shall be
deemed approved by Tenant. Landlord shall promptly correct any items on such
list that, in Landlord's reasonable judgment, require correction. Except as set
forth herein, Landlord shall have no obligation to improve any Phase.
4.2 Tenant Allowance.
Landlord hereby grants Tenant an allowance in the amount of up to
twenty-three dollars ($23.00) per rentable square foot of each Phase (the
"Tenant Allowance"). To the extent that the Improvement Cost for any Phase
exceeds the Tenant Allowance for such Phase, Tenant shall, on the Phase I
Commencement Date (and on the commencement date for each subsequent phase),
reimburse Landlord the full amount of such excess costs ("Tenant's T.I.
Payment") as additional rent. Prior to each commencement date Landlord will give
notice to Tenant of any such excess, which notice shall be accompanied by an
itemization, in reasonable detail, of the components of Improvement Cost.
Notwithstanding the foregoing, to the extent Landlord holds back retainage from
its contractor which relates to unfinished items of Leasehold Improvements,
Tenant may hold back a corresponding portion of Tenant's T.I. Payment and will
pay such amount to Landlord within three (3) business days after notice from
Landlord that it intends to pay such holdback to its contractor. If the full
amount of the Tenant Allowance is not used in connection with the installation
of the Leasehold Improvements in any Phase, Tenant may use any remaining portion
of the Tenant Allowance allocable to such Phase for any future Phase. Tenant
will have no rights to use any portion of the Tenant Allowance which remains
unused after completion of all Phases (including the Expansion Premises, for so
long as Tenant has rights thereto under this Lease).
4.3 Tenant's Occupancy.
Landlord agrees that Tenant and its contractors shall have the right of
access to each Phase for purposes of installing, at the Tenant's sole cost and
expense, wiring, cabling and furnishings in such Phase during the fourteen (14)
day period preceding each applicable Commencement Date upon the following terms
and conditions:
(a) The Tenant coordinates the scheduling of the Tenant's early
access activities with the Landlord's general contractor so as
not to interfere with or delay the completion of the Leasehold
Improvements by the Landlord's general contractor;
(b) The Tenant's use and occupancy of each Phase prior to the
applicable Commencement Date shall be upon all of the terms
and conditions of the Lease, except that no Base Rent or
additional rent shall be due or payable with respect to such
period.
4.4 Alterations by Tenant.
(a) Tenant shall not make any alterations, decorations, additions,
installations, substitutes or improvements ("Alterations") in and to the
Premises, without first obtaining Landlord's written consent, which consent
Landlord shall not unreasonably withhold or delay, except that Tenant may
undertake any non-structural Alteration which does not affect the Building's
systems or areas outside the Premises and which costs not more than twenty-five
thousand dollars ($25,000) in individual instances and not more than fifty
thousand dollars ($50,000) in the aggregate in any twelve (12) month period.
Notwithstanding the foregoing, Tenant shall have no right to undertake and
Landlord shall have no obligation to consent to Alterations that would or could,
in Landlord's reasonable judgment (i) violate the Certificate of Occupancy for
the Premises or the terms of any superior lease or mortgage affecting the
Property, (ii) materially and adversely affect the appearance, value, or
structure of the Building, (iii) require excessive removal expenses, (iv)
materially and adversely affect any other part of the Building or affect the
mechanical, electrical, sanitary or other service systems of the Building, (v)
involve the installation of any materials subject to any liens or conditional
sales contracts or (vi) require unusual expense to readapt the Premises to
ordinary office use on expiration or termination of this Lease. Tenant shall pay
Landlord's reasonable costs of reviewing or inspecting any proposed Alterations.
(b) All work on any Alterations shall be done at reasonable times in a
first-class workmanlike manner, by contractors approved by Landlord, according
to plans and specifications approved by Landlord. All work shall be done in
compliance with all applicable laws, regulations, and rules of any government
agency with jurisdiction, and with all regulations of the Board of Fire
Underwriters or any similar insurance body or bodies. Tenant shall be solely
responsible for the effect of any Alterations on the Building's structure and
systems, whether or not Landlord has consented to the Alterations. Upon
completion of any Alterations, Tenant shall provide Landlord with a complete set
of "as-built" plans, unless Tenant requests in writing that Landlord waive such
requirement, which waiver Landlord will not unreasonably withhold.
(c) Tenant shall keep the Property and Tenant's leasehold interest
therein free of any liens or claims of liens, and shall discharge any such liens
within ten days of their filing. Before commencement of any work, Tenant's
contractor shall provide any completion and lien indemnity bond required by
Landlord (only for work which costs twenty five thousand dollars ($25,000) or
more), and Tenant shall provide evidence of commercial general liability
insurance with such limits as Landlord may reasonably require, naming Landlord
as an additional insured, and evidence that each contractor and subcontractor
carries worker's compensation insurance in statutory amounts covering all of its
employees. Tenant shall indemnify Landlord and hold it harmless from and against
any cost, claim, or liability arising from any work done by Tenant. All of
Tenant's work shall (i) be performed in such manner as not to interfere with the
occupancy of any other tenant in the Building nor delay, or impose any
additional expense upon Landlord in, the construction, maintenance or operation
of the Building, and (ii) be coordinated with any work being performed by
Landlord and in such manner as to maintain harmonious labor relations and not
cause any work stoppage or damage the Building or Lot or interfere with Building
construction or operation. Landlord may post any notices it considers necessary
to protect it from responsibility or liability for any Alterations, and Tenant
shall give sufficient notice to Landlord to permit such posting.
(d) All Alterations affixed to the Premises shall become part thereof
and remain therein at the end of the Term. However, if Landlord gives Tenant a
notice to remove any Alterations at the time any Alterations are affixed (or
proposed to be affixed), Tenant shall do so and shall pay the cost of removal
and any repair required by such removal. Any Alterations not affixed to the
Premises and all of Tenant's personal property, trade fixtures, equipment,
furniture, and movable partitions shall remain Tenant's property, removable at
any time. The moveable supplemental air conditioning units expected to be
purchased as part of the initial tenant improvements may be removed by Tenant at
the end of the Term if the aggregate Improvement Cost for all Phases exceeded
the total Tenant Allowance by an amount which is at least equal to Landlord's
costs of purchasing such units, and Tenant paid such excess as required under
Section 4.2 hereof. If Tenant fails to remove any such materials at the end of
the Term, they shall be deemed to have been abandoned and Landlord may remove
and store them at Tenant's expense, without liability to Tenant, and may sell
them at public or private sale and apply the proceeds to any amounts due
hereunder, including costs of removal, storage and sale.
ARTICLE 5 LANDLORD'S OBLIGATIONS AND RIGHTS
5.1 Services Furnished by Landlord.
(a) Landlord shall furnish services, utilities, facilities and supplies
equal in quality to those customarily provided by landlords in first-class
quality office buildings in the central Route 128 area. Such services,
facilities and supplies shall include the services described in this Section 5.1
and Section 5.2 and the following: (i) cleaning services for Building Common
Areas and the Premises, (ii) rubbish removal, (iii) window cleaning, (iv) rest
room supplies, (v) sewer and water service to the Building's rest rooms, (vi)
landscape maintenance, (vii) snow removal for walks, driveways and parking
areas, (viii) maintenance of plantings in interior Common Areas and, (ix) such
other services, utilities, facilities and supplies as are being provided by
other first-class office buildings in the central Route 128 area of comparable
size to the Building. In the event that Landlord is prevented or delayed from
providing any service, Landlord shall not be liable to Tenant therefor, nor
except as expressly otherwise provided in Section 8.1 shall Tenant be entitled
to any abatement or reduction of rent by reason thereof, nor shall the same give
rise to a claim in Tenant's favor that such failure constitutes actual or
constructive, total or partial, eviction from the Premises. Landlord also
reserves the right to institute such policies, programs and measures as may be
necessary, required or expedient for the conservation or preservation of energy
services or as may be required to comply with applicable laws, codes, rules,
regulations or standards.
(b) Subject to the provisions of Sections 5.1(a) and 6.10 Landlord
shall furnish space heating and cooling as normal seasonal changes may require
to provide reasonably comfortable space temperature and ventilation for
occupants of the Premises under normal business operation, daily from 8:00 a.m.
to 6:00 p.m. (Saturdays from 9:00 a.m. to 1:00 p.m.), Sundays and holidays
excepted. If Tenant shall require air-conditioning or ventilation outside the
hours and days above specified, Landlord shall furnish such service at Tenant's
expense (such expense will be calculated using a method reasonably determined by
Landlord to reflect actual electric, maintenance and other expenses and
management costs incurred by Landlord in providing such service). In the event
Tenant introduces onto the Premises equipment which overloads the systems,
and/or in any other way causes the systems not adequately to perform their
proper functions, supplementary systems may at Landlord's option be provided by
Landlord at Tenant's expense.
(c) Subject to the provisions of Sections 5.1(a) and 6.10 Landlord
shall provide electric power for normal lighting and office machine use.
Tenant's use of electrical energy in the Premises shall not at any time exceed
the capacity of any of the electrical conductors or equipment in or otherwise
serving the Premises. In order to ensure that such capacity is not exceeded and
to avert possible adverse effect upon the Building electric service, Tenant
shall not, without prior consent of Landlord in each instance, connect to the
Building electric distribution system any fixtures, appliances or equipment
which operate on a voltage in excess of 120 volts nominal or make any alteration
or addition to the electric system of the Premises. Landlord, at its option and
at Tenant's expense, may require separate metering and billing to Tenant for the
electric power required for any special equipment (such as computers and
reproduction equipment) that require either 3-phase electric power or any
voltage other than 120.
(d) Landlord will construct and maintain during the term hereof a cafe,
as approximately shown and described on Exhibit F, for employees and visitors of
tenants in the Building and others who may be permitted to use the cafe by
Landlord. The cafe will (except in unusual or unforeseen circumstances) be open
on all business days and will serve hot and cold luncheon meals.
(e) Landlord shall furnish, at Tenant's expense, reasonable additional
Building operation services which are usual and customary in similar office
buildings in the central Route 128 area upon reasonable advance request of
Tenant at reasonable and equitable rates from time to time established by
Landlord; such charges, if any, shall be considered to be additional rent.
5.2 Repairs and Maintenance.
Landlord shall repair and maintain the Common Areas and the roof,
exterior walls and structural portions of the Building and the basic plumbing,
electrical, mechanical and heating, ventilating and air-conditioning systems
therein, unless such repair or maintenance is attributable to any action of
Tenant or any matter for which Tenant is responsible under the provisions of
Section 6.5 hereof.
5.3 Quiet Enjoyment.
Upon Tenant's paying the rent and performing its other obligations,
Landlord shall permit Tenant to peacefully and quietly hold and enjoy the
Premises, subject to the provisions hereof.
5.4 Insurance.
Landlord shall insure the Property, including the Building, against
damage by fire and standard extended coverage perils, in the full replacement
cost thereof, and shall carry commercial general liability insurance. The amount
of liability insurance and the deductibles on property and liability policies
will be in such amounts as would be carried by a prudent owner of a similar
building in the area. Landlord may carry any other forms of insurance as it or
its mortgagee may deem advisable. Tenant shall have no right to any proceeds
from such policies. Landlord shall not carry any insurance on any of Tenant's
property, and shall not be obligated to repair or replace any of it.
Changes by Landlord
Landlord may at any time make any changes, additions, improvements,
repairs or replacements to the Property, including the Common Areas, that it
considers desirable and may lay pipes, conduits, wires and the like above the
ceiling or in the walls in the Premises, provided the same are not visible from
within the Premises. In so doing, Landlord may use or temporarily close any of
the Common Areas, or permanently change their configuration. Landlord shall
maintain access to the Premises and shall use reasonable efforts to minimize
interference with Tenant's normal activities, but no such interference shall
constitute constructive eviction or give rise to any abatement of rent or
liability of Landlord to Tenant.
5.6 Access to Premises; Utility Suspension.
Landlord shall have reasonable access to the Premises to inspect
Tenant's performance hereunder and to perform any acts required of or permitted
to Landlord herein, and may temporarily stop any service or utility system in
conjunction therewith. Landlord shall use reasonable efforts to minimize
interference with Tenant's normal activities, but no such interference shall
constitute constructive eviction or give rise to any abatement of rent or
liability of Landlord to Tenant. Landlord shall at all times have a key to the
Premises, and Tenant shall not install any additional lock without Landlord's
consent. Any entry into the Premises by Landlord, under this section or any
other section of this Lease permitting such entry, shall be on reasonable
advance notice; provided, however, that such restriction shall not apply to any
situation that Landlord in good faith believes to be an emergency.
5.7 Failure to Provide Services and Repairs.
(a) Landlord shall not be liable for any failure to perform any act or
provide any service required hereunder unless Tenant shall have given notice of
such failure, and such failure continues for at least thirty days thereafter. If
any such failure is caused by factors beyond Landlord's reasonable control, then
Landlord shall not be liable to Tenant in any event. No such failure whether or
not within Landlord's reasonable control, shall constitute constructive eviction
or give rise to any rental abatement or reduction except as provided in
subsection 5.7(b) and (c), below. Except as specifically provided in Section
10.7, Tenant hereby waives any right to make repairs or provide maintenance at
Landlord's expense under any law or ordinance.
(b) In the event (i) Landlord fails to perform any act or provide any
service required hereunder and such failure occurs for reasons other than events
that are beyond Landlord's reasonable control or if Landlord undertakes work
described in Section 5.5 hereof which, for reasons other than events that are
beyond Landlord's reasonable control, results in interference with Tenant's use
and occupancy of the Premises; (ii) such failure or undertaking causes such
substantial interference with Tenant's use and occupancy that Tenant cannot use
the Premises for the conduct of its business, and (iii) such substantial
interference continues after notice from Tenant to Landlord in excess of ten
(10) consecutive days (other than for causes which are beyond Landlord's
reasonable control), Base Rent hereof shall be abated for the period from the
date of commencement of such substantial interference to the date on which such
substantial interference no longer exists; provided, however, that the
provisions of this subsection (b) shall not apply to occurrences governed by the
provisions of Sections 8.1 or 8.2 hereof.
(c) In the event that for reasons beyond Landlord's reasonable control,
Landlord (i) fails to perform any act or provide any service required hereunder,
or any undertaking described in Section 5.5 hereof results in interference with
Tenant's use and occupancy of the Premises; (i) such failure or undertaking
causes such substantial interference with Tenant's use and occupancy that Tenant
cannot use the Premises for the conduct of its business, and (ii) such
substantial interference continues after notice from Tenant to Landlord in
excess of thirty (30) consecutive days, Base Rent shall be abated beginning on
the thirty-first (31st) consecutive day of such substantial interference and
continuing until the date on which such substantial interference no longer
exists; provided, however, that the provisions of this subsection (c) shall not
apply to occurrences governed by the provisions of Sections 8.1 or 8.2 hereof.
(d) In the event that (i) Landlord fails to perform any act or provide
any service required hereunder or undertakes any work described in Section 5.5
hereof, (ii) such failure or undertaking causes such substantial interference
with Tenant's use and occupancy that Tenant cannot use the Premises for the
conduct of its business and (iii) such substantial interference continues for
one hundred eighty (180) consecutive days, Tenant may, by written notice to
Landlord while such substantial interference continues, elect to terminate this
Lease. In such case this Lease will terminate on the date which is fifteen (15)
days after such notice unless such substantial interference is discontinued
prior to such date.
5.8 Inclusion of Costs in Operating Expenses.
Nothing in this Article shall be construed to modify the definition of
Operating Expenses, or otherwise amend the calculation of Operating Expenses.
5.9 Signs.
Landlord shall provide and install, at Landlord's expense with respect
to the first such installation and at Tenant's expense with respect to any
subsequent installation, letters or numerals on the door to the Premises to
identify Tenant's name and Building address; all such letters and numerals shall
be in the building standard graphics and no others shall be used or permitted on
the Premises. Landlord will include Tenant's name in a directory to be
maintained in the main and second floor lobbies of the Building.
In addition, Landlord shall install, at Tenant's sole cost and expense,
up to two (2) exterior wall signs on the Building, in accordance with the plans
and specifications to be delivered by Tenant to Landlord (the "Tenant's Wall
Signs"), provided that Tenant's Wall Signs and Tenant's monument sign (described
below) shall collectively comprise not more than sixty percent (60%) of the
allowable signage area for the Building. Landlord shall install the Tenant's
Wall Signs in accordance with all applicable laws, by-laws, ordinances and
codes; provided, however, that Tenant shall be responsible for obtaining all
permits and other governmental approvals required in connection with Landlord's
installation of the Tenant's Wall Signs. Landlord and Tenant agree that the
Tenant shall have exclusive signage rights in the area identified as the "Route
128 Exposure Area" on Exhibit E. Tenant's Wall Signs shall be in the most
prominent location of the exterior wall signs located on the Property. Tenant
shall also have the right, at its cost and expense, to a prominent,
non-exclusive presence (in proportion to the amount of space in the Building
occupied by each tenant) on the monument sign to be constructed by Landlord on
the Second Avenue side of the Building.
ARTICLE 6 TENANT'S COVENANTS
Tenant covenants until the end of the Term and for such further time as
Tenant occupies any part of the Premises:
6.1 Payments.
Tenant shall pay when due all Base Rent and all additional rent and
other charges of any kind hereunder.
6.2 Repair and Yield Up.
Tenant shall keep the Premises in good order and condition, and shall
promptly repair any damage to the Premises or the rest of the Property caused by
Tenant or its agents, servants, employees, or invitees, licensees or independent
contractors. Landlord may require such repair to be done by a contractor
designated by Landlord at Tenant's cost, provided that costs to be charged to
Tenant are reasonable and competitive. At the end of the Term, Tenant shall
peaceably yield up the Premises in good order, repair and condition, except for
reasonable wear and tear and any casualty damage for which Landlord has received
insurance proceeds. Tenant shall remove its own property and (if required by
Landlord) any Alterations, repairing any damage caused by such removal and
restoring the Premises and leaving them clean and neat. Nothing herein shall
require Tenant to remove the Leasehold Improvements.
6.3 Use.
(a) Tenant shall use the Premises only for the Permitted Uses, and
shall not use or permit the Premises to be used for any other purpose. Landlord
warrants that under the terms of its special permit issued by the Town of
Waltham, the Building may be used for the Permitted Uses. Tenant shall not use
or occupy the Premises in violation of: (i) any recorded covenants, conditions
and restrictions affecting the Property of which Tenant has been given notice by
Landlord, (ii) any law or ordinance or any Certificate of Occupancy issued for
the Building or the Premises, or (iii) any Rules and Regulations issued by
Landlord for the Building of which Tenant has been given a copy. Tenant shall
comply with any directive of any governmental authority with respect to Tenant's
use or occupancy of the Premises. Tenant shall not do or permit anything in or
about the Premises which will in any way damage the Premises, cause any noise to
emanate from the Premises, obstruct or interfere with the rights of other
tenants or occupants of the Building, or injure or annoy them, or use the
Premises or allow them to be used for any unlawful purpose. Tenant shall not
cause, maintain or permit any nuisance in, on or about the Premises, or commit
or allow any waste in or upon the Premises. Tenant shall not use utility
services in excess of amounts reasonably determined by Landlord to be within the
normal range of demand for the Permitted Uses.
(b) Tenant shall not obstruct any of the Common Areas or any
portion of the Property
outside the Premises, and shall not place or permit any signs, curtains, blinds,
shades, awnings, aerials or flagpoles, or the like, visible from outside the
Premises.
(c) Tenant shall keep the Premises equipped with all safety appliances
required by law because of any use made by Tenant other than ordinary office
use, and shall procure all licenses and permits required because of such use.
This provision shall not broaden the Permitted Uses.
(d) Tenant shall not place a load upon the floor of the Premises
exceeding the load per square foot such floor was designed to carry, as
determined by Landlord or its structural engineer. Partitions shall be
considered as part of the load. Landlord may prescribe the weight and position
of all safes, files and heavy equipment that Tenant desires to place in the
Premises, so as properly to distribute their weight. Tenant's business machines
and mechanical equipment shall be installed and maintained so as not to transmit
noise or vibration to the Building structure or to any other space in the
Building. Tenant shall be responsible for the cost of all structural engineering
required to determine structural load and all acoustical engineering required to
address any noise or vibration caused by Tenant.
(e) Tenant shall not keep or use any article in the Premises, or permit
any activity therein, which is prohibited by any insurance policy covering the
Building and Leasehold Improvements, or would result in an increase in the
premiums thereunder. In determining whether increased premiums are a result of
Tenant's activity, a schedule issued by the organization computing the insurance
rate on the Building or the Leasehold Improvements, showing the various
components of the rate, shall be conclusive evidence. Tenant shall promptly
comply with all reasonable requirements of the insurance authority or of any
insurer relating to the Premises. If the use or occupation of the Premises by
Tenant or by anyone Tenant allows on the Premises causes or threatens
cancellation or reduction of any insurance carried by Landlord, Tenant shall
remedy the condition immediately upon notice thereof. Upon Tenant's failure to
do so, Landlord may, in addition to any other remedy it has under this Lease,
enter the Premises and remedy the condition, at Tenant's cost, which Tenant
shall promptly pay as additional rent. Landlord shall not be liable for any
damage or injury caused as a result of such an entry, and shall not waive its
rights to declare a default because of Tenant's failure. 6.4 Assignment;
Sublease.
(a) Tenant shall not assign, mortgage, pledge or otherwise transfer
this Lease or make any sublease of the Premises, or permit occupancy of any part
thereof by anyone other than Tenant (any such act being referred to herein as a
"Transfer" and the other party with whom Tenant undertakes such act being
referred to herein as a "Transferee") without the prior written consent of
Landlord. Without limitation of the foregoing, Landlord may refuse consent to
any Transfer to any governmental authority or agency or to any Transfer which
would cause Landlord to be in violation of any mortgage on the Property or any
other agreement or instrument. In all other cases, Landlord agrees that it shall
not unreasonably withhold its consent to any proposed Transfer of the Premises
by Tenant, pending Landlord's satisfactory review of the information to be
supplied by Tenant regarding the proposed Transferee's creditworthiness and
intended use of the Premises, and the compatibility of such use with the other
tenants and the character of the Building. Any request by Tenant for such
consent shall be in writing and shall include the name of the proposed
Transferee, the nature of its business and proposed use of the Premises,
complete information as to its financial condition, and the terms and conditions
of the proposed Transfer. Tenant shall supply such additional information about
the proposed Transfer and Transferee as the Landlord reasonably requests. Tenant
shall reimburse Landlord for its legal and other expenses in connection with any
request for consent. If Tenant is a corporation, partnership, or other business
organization, the transfer of ownership interests, whether in one transaction or
a series, forming a majority of the equity interests in Tenant, shall constitute
a Transfer, unless Tenant is a corporation whose stock is traded on an exchange
or over the counter. Notwithstanding the foregoing, Landlord's consent will not
be required for the following "Permitted Transfers": (i) an assignment or
transfer of this Lease to an entity controlling or controlled by or under common
control with Tenant, provided that Tenant gives prompt notice of such assignment
to Landlord and in such case Tenant will remain fully liable on a joint and
several basis with the Transferee for all of Tenant's obligations hereunder, or
(ii) in the event Tenant is acquired by or merged into another entity, provided
that Tenant gives prompt notice thereof to Landlord and provides evidence to
Landlord that the net worth of the entity succeeding to Tenant's interest in
this Lease (measured after such acquisition or merger) is greater than the net
worth of Tenant at all times during the one-year period prior to the acquisition
or merger.
(b) Any Transfer shall specifically make applicable to the Transferee
all of the provisions of this Section so that Landlord shall have against the
Transferee all rights with respect to any further Transfer which are set forth
herein; no Transfer shall affect the continuing primary liability of Tenant
(which shall be joint and several with Transferee); no consent to any of the
foregoing in a specific instance shall operate as a waiver in a subsequent
instance; and no Transfer shall be binding upon Landlord or its successors,
unless Tenant shall deliver to Landlord a recordable instrument containing a
covenant of assumption by the Transferee running to Landlord and all persons
claiming by, through or under Landlord. The Transferee's failure to execute such
instrument shall not, however, release or discharge Transferee from its
liability as a Transferee hereunder. Tenant shall not enter into any Transfer
that provides for rental or other payment based on the net income or profits
derived from the Premises. With respect to any Transfer, Landlord shall be
entitled to receive fifty percent (50%) of all amounts received by Tenant in
excess of the Base Rent and additional rent reserved in this Lease applicable to
the space being Transferred, after deduction of all Tenant's reasonable
subleasing expenses, including without limitation, reasonable attorneys' fees,
brokerage commissions, tenant improvement expenses and free rent.
(c) Landlord Option.
(1) Right to Cancel. Notwithstanding any contrary provision of
this Section 6.4 in connection with any proposed Transfer, Landlord
shall have an option to cancel and terminate this Lease if the request
is to assign the Lease or to sublet all of the Premises; or, if the
request is to sublet a portion of the Premises only, to cancel and
terminate this Lease with respect to such portion. The foregoing shall
not apply to Permitted Transfers. Landlord may exercise said option in
writing within thirty (30) days after Landlord's receipt from Tenant of
a notice from Tenant that it intends to market the space to other
potential tenants (or, in the absence of such notice, within thirty
(30) days after Landlord's receipt from Tenant of a request to assign
or sublet), and in each case such cancellation or termination shall
occur as of the date set forth in Landlord's notice of exercise of such
option, which shall not be less than sixty (60) days nor more than
ninety (90) days following the giving of such notice.
(2) Cancellation. If Landlord exercises Landlord's option to
cancel this Lease or any portion thereof, Tenant shall surrender
possession of the Premises, or the portion thereof which is the subject
of the option, as the case may be, on the date set forth in such notice
in accordance with the provisions of this Lease relating to surrender
of the Premises at the expiration of the Term. If this Lease is
cancelled as to a portion of the Premises only, Base Rent after the
date of cancellation shall be abated on a pro rata basis.
(d) Any agreement by which Tenant agrees to enter into or execute any
Transfer at the direction of any other party, or assigns its rights in the
income arising from any Transfer to any other party, shall itself constitute a
Transfer hereunder.
(e) Any Transfer or attempted Transfer not in compliance with all of
the terms and conditions set forth above shall be void, and shall be a default
under this Lease.
(f) Notwithstanding any contrary provision of this Lease, Tenant shall
have no right to assign this Lease or sublet all or any portion of the Premises
and any such assignment or sublease shall be void unless on both (i) the date on
which Tenant notifies Landlord of its intention to enter into any assignment or
sublease and (ii) the date on which such assignment or sublease is to take
effect, Tenant is not in default of any of its obligations under this Lease;
provided, however, that Landlord shall retain the right to waive the provisions
of this Section 6.4(f).
(g) The acceptance by the Landlord of the payment of Rent, additional
rent or other charges following an assignment, subletting or other Transfer
prohibited by this Section 6.4 shall not be deemed to be a consent by the
Landlord to any such assignment, subletting or other Transfer, nor shall the
same constitute a waiver of any right or remedy of the Landlord.
6.5 Waiver and Indemnity.
Tenant shall indemnify Landlord and hold it harmless from and against
any cost, claim, action, liability or damage of any kind arising from (i)
Tenant's use and occupancy of the Premises or any activity done or permitted by
Tenant in, on, or about the Premises, (ii) any breach or default by Tenant of
its obligations under this Lease, or (iii) any negligent, tortious, or illegal
act or omission of Tenant, its agents, employees, invitees or contractors. The
foregoing shall not apply to loss or damage which is caused by other tenants in
the Building or by Landlord's negligence or willful misconduct. Tenant shall, at
its expense and with counsel satisfactory to Landlord, defend Landlord in any
action or proceeding arising from any such claim, and shall indemnify Landlord
against all costs and fees of any kind incurred therein. As a material
consideration to Landlord for executing this Lease, Tenant assumes all risk of
loss, damage or injury to any person or property in, on, or about the Premises
from any cause including, without limitation, theft. Specifically, and without
limitation of the foregoing, Landlord shall not be liable for injury or damage
which may be sustained by the person or property of Tenant, its employees,
invitees, or any other person in or about the Premises, caused by or resulting
from fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction, or
other defects of pipes, sprinklers, wires, appliances, plumbing,
air-conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises, any other portion of the Property, or
other sources. Landlord shall not be liable to Tenant or any other person or
entity for any damages arising from any act or omission of any other tenant of
the Building.
Landlord shall indemnify Tenant and hold it harmless from and against
any cost, claim, action, liability or damage of any kind arising from Landlord's
negligence or willful misconduct.
6.6 Tenant's Insurance.
(a) Tenant shall maintain the following insurance throughout the Term:
(i) "All Risk" or Special Form property insurance including, but not limited to,
fire, extended coverage, vandalism and malicious mischief coverage upon all
property owned by Tenant and located in the Building, in the full replacement
cost thereof; (ii) Commercial General Liability Insurance to include personal
injury, bodily injury, property damage liability (with a broadening
endorsement), premises/operations, blanket contractual liability, in limits not
less than Five Million Dollars ($5,000,000.00) per occurrence, inclusive, with a
deductible not to exceed One Hundred Thousand Dollars ($100,000.00); (iii)
Workers Compensation insurance with limits at least as required by applicable
law; (iv) Employers Liability insurance with limits of at least $1,000,000 each
accident, $1,000,000 each employee, and $1,000,000 policy limit for disease; and
(v) Business Interruption Insurance as presently carried by Tenant. The Landlord
shall have the right from time to time to require additional insurance or
coverages or increase such minimum limits as Landlord may reasonably require,
upon notice to the Tenant.
(b) All policies shall be taken out with insurers acceptable to
Landlord, in form satisfactory to Landlord, and shall (i) include Landlord and
any mortgagee of Landlord as additional insureds, as their interests may appear,
(ii) contain a waiver of any right of subrogation against Landlord, its agents,
employees, and representatives which might arise for any reason, (iii) contain a
cross-liability endorsement, and (iv) contain a provision that any coverage
afforded thereby shall be primary and noncontributing with respect to any
insurance carried by Landlord, and any insurance carried by Landlord shall be
excess and noncontributing. Tenant shall provide certificates of insurance in
form satisfactory to Landlord before the Commencement Date, and shall provide
certificates evidencing renewal at least ten (10) days before the expiration of
any such policy. All policies shall contain an endorsement requiring at least
thirty (30) days' prior written notice to Landlord and any mortgagee of Landlord
prior to any material change, reduction, cancellation or other termination.
(c) Upon termination of this Lease pursuant to any casualty, Tenant
shall retain any proceeds attributable to Tenant's personal property and
Alterations not affixed to the Premises, but Tenant shall immediately pay to
Landlord any insurance proceeds received by Tenant relating to the Leasehold
Improvements and any Alterations affixed to the Premises unless Landlord has
required their removal.
6.7 Right of Entry.
Tenant shall permit Landlord and its agents to examine the Premises at
reasonable times and make any repairs or replacements Landlord deems necessary;
to remove, at Tenant's expense, any Alterations, signs, curtains, blinds or the
like not consented to by Landlord; and to show the Premises to prospective
tenants during the last twelve (12) months of the Term and to prospective
purchasers and mortgagees at all times.
6.8 Payment of Taxes
Tenant shall pay before delinquency all taxes levied against Tenant's
personal property or trade fixtures in the Premises and any Alterations
installed by Tenant. If any such taxes are levied against Landlord or its
property, or if the assessed value of the Premises is increased by the inclusion
of a value placed on Tenant's property, Landlord may pay such taxes, and Tenant
shall upon demand repay to Landlord the portion of such taxes resulting from
such increase. Tenant may bring suit against the taxing authority to recover the
amount of any such taxes, and Landlord shall cooperate therein. The records of
the City Assessor shall determine the assessed valuation, if available and
sufficiently detailed. If not so available or detailed, the actual cost of
construction shall be used.
6.9 Environmental Compliance.
Tenant shall not cause or allow any hazardous wastes, toxic substances
or toxic or hazardous materials (collectively, "Hazardous Materials") to be
used, generated, stored or disposed of on, under or about, or transported to or
from, the Premises (collectively, "Hazardous Materials Activities") without
first receiving Landlord's written consent, which may be withheld for any reason
and revoked at any time. If Landlord consents to any such Hazardous Materials
Activities, Tenant shall conduct them in strict compliance (at Tenant's expense)
with all applicable Regulations, as hereinafter defined, and using all necessary
and appropriate precautions. Landlord shall not be liable to Tenant for any
Hazardous Materials Activities by Tenant, Tenant's employees, agents,
contractors, licensees or invitees, whether or not consented to by Landlord.
Tenant shall indemnify, defend with counsel acceptable to Landlord and hold
Landlord harmless from and against any claims, damages, costs and liabilities
arising out of Tenant's Hazardous Materials Activities. For purposes hereof,
Hazardous Materials shall include but not be limited to substances defined as
"hazardous substances", "toxic substances", or "hazardous wastes" in the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the federal Hazardous Materials Transportation Act, as amended, and the
federal Resource Conservation and Recovery Act, as amended ("RCRA"), or any
other similar state, local or federal law; those substances defined as
"hazardous wastes" in the Massachusetts Hazardous Waste Facility Siting Act, as
amended (Massachusetts General Laws Chapter 21D); those substances defined as
"hazardous materials" or "oil" in Massachusetts General Laws Chapter 21E, as
amended; and as such substances are defined in any regulations adopted and
publications promulgated pursuant to said laws (collectively, "Regulations").
Prior to using, storing or maintaining any Hazardous Materials on or about the
Premises, Tenant shall provide Landlord with a list of the types and quantities
thereof, and shall update such list as necessary for continued accuracy. Tenant
shall also provide Landlord with a copy of any Hazardous Materials inventory
statement required by any applicable Regulations, and any update filed in
accordance with any applicable Regulations. If Tenant's activities violate or
create a risk of violation of any Regulations, Tenant shall cease such
activities immediately upon notice from Landlord. Tenant shall immediately
notify Landlord both by telephone and in writing of any spill or unauthorized
discharge of Hazardous Materials or of any condition constituting an "imminent
hazard" under RCRA. Landlord, Landlord's representatives and employees may enter
the Premises at any time during the Term to inspect Tenant's compliance
herewith.
Landlord shall indemnify and hold Tenant harmless from and against any
claims, damages, costs and liabilities arising out of the presence of any
concentrations of Hazardous Materials on the Property as of the date of this
Lease, which are identified in the Haley & Aldrich report for the Property,
dated January, 1997, or the report entitled "Asbestos-Containing Building
Materials Survey and Inspection at 266 Second Avenue, Waltham, MA", prepared by
ATC Environmental, Inc., dated January, 1997.
6.10 Utilities
Tenant shall pay all charges for all separately metered and separately
billed gas, telephone and other utility services used, rendered or supplied upon
or in connection with the Premises and shall indemnify Landlord against any
liability or damage on such account.
Landlord shall install, at its sole cost and expense, a permanent
electric "check meter" measuring the consumption of electricity in the Premises,
which shall be read monthly by Landlord. Tenant shall pay to Landlord, as
additional rent, the costs of the electricity consumed in the Premises, as
reflected by the check meter, within thirty (30) days of billing therefor. In
the event that all or a portion of Tenant's electrical service becomes
separately metered and billed directly by the utility company to Tenant, Tenant
shall pay, as additional rent, all amounts so billed to the utility company when
due. Landlord agrees to use reasonable efforts, as of the date of deregulation
(anticipated to be January 1, 1998) to negotiate the price of electricity and
select the most cost effective electric utility service provider for the
Property.
ARTICLE 7 DEFAULT
7.1 Events of Default.
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The failure by Tenant to make any payment of Base Rent or
additional rent or any other payment required hereunder, as and when
due, where such failure shall continue for a period of ten (10) days
after written notice thereof from Landlord to Tenant.
(ii) The failure by Tenant to observe or perform any
of the express or implied covenants or provisions of this
Lease to be observed or performed by Tenant, other than as
specified in clause (i) above, where such failure shall
continue for a period of more than ten (10) days after written
notice thereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall
commence such cure within said thirty-day period and
thereafter diligently prosecute such cure to completion, which
completion shall occur not later than sixty (60) days from the
date of such notice from Landlord.
(iii) The failure by Tenant or any guarantor of any
of Tenant's obligations under this Lease to pay its debts as
they become due, or Tenant or any such guarantor becoming
insolvent, filing or having filed against it a petition under
any chapter of the United States Bankruptcy Code, 11 U.S.C.
Section 101 et seq. (or any similar petition under any
insolvency law of any jurisdiction), proposing any
dissolution, liquidation, composition, financial
reorganization or recapitalization with creditors, making an
assignment or trust mortgage for the benefit of creditors, or
if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or
business of Tenant or such guarantor.
(iv) The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets, or
this leasehold, or any other voluntary or involuntary
encumbrance of Tenant's leasehold interest hereunder.
(b) In the event of any such default by Tenant, whether or not the Term
shall have begun, in addition to any other remedies available to Landlord at law
or in equity, Landlord shall have the immediate option, or the option at any
time while such default exists and without further notice, to terminate this
Lease and all rights of Tenant hereunder; and Tenant shall then quit and
surrender the Premises to Landlord, but Tenant shall remain liable as
hereinafter provided.
7.2 Damages.
In the event that this Lease is terminated under any of the provisions
contained in Section 7.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
over the rental value of the Premises for said residue of the Term. In
calculating the rent reserved there shall be included, in addition to the Base
Rent and all additional rent, the value of all other considerations agreed to be
paid or performed by Tenant for said residue (excluding from such considerations
the Tenant's obligation to insure the Premises subsequent to the later of the
termination of the Lease or the date on which Tenant vacates the Premises).
Tenant further covenants as an additional and cumulative obligation after any
such termination to pay punctually to Landlord all the sums and perform all the
obligations which Tenant covenants in this Lease to pay and to perform in the
same manner and to the same extent and at the same time as if this Lease had not
been terminated. In calculating the amounts to be paid by Tenant under the
immediately preceding covenant Tenant shall be credited with any amount paid to
Landlord as compensation as in this Section 7.2 provided and also with the net
proceeds of any rent obtained by Landlord by reletting the Premises, after
deducting all Landlord's reasonable expenses in connection with such reletting,
including, without limitation, all repossession costs, brokerage commissions,
fees for legal services and expenses of preparing the Premises for such
reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or
any part or parts thereof, for a term or terms which may at Landlord's option be
equal to or less than or exceed the period which would otherwise have
constituted the balance of the Term and may grant such concessions and free rent
as Landlord in its sole judgment considers advisable or necessary to relet the
same (provided that concessions and free rent will be amortized over the term of
the reletting for purposes of calculating the credit for reletting proceeds),
and (ii) make such alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable or necessary to relet the
same, and no action of Landlord in accordance with the foregoing or failure to
relet or to collect rent under reletting shall operate or be construed to
release or reduce Tenant's liability as aforesaid.
In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section 7.2, Landlord may by written notice to Tenant, at any time after this
Lease is terminated under any of the provisions contained in Section 7.1 or is
otherwise terminated for breach of any obligation of Tenant and before such full
recovery, elect to recover, and Tenant shall thereupon pay, as liquidated
damages, an amount equal to the aggregate of the Base Rent and additional rent
accrued under Sections 3.1 and 3.2 in the 12 months ended next prior to such
termination plus the amount of Base Rent and additional rent of any kind accrued
and unpaid at the time of termination and less the amount of any recovery by
Landlord under the foregoing provision of this Section 7.2 up to the time of
payment of such liquidated damages.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be provided, whether or not the amount
be greater, equal to, or less than the amount of the loss or damages referred to
above.
ARTICLE 8 CASUALTY AND TAKING
8.1 Damage by Fire and Other Casualty.
If the Premises or the Building are damaged by fire or other casualty,
Landlord shall repair the damage, provided (a) such repairs can be made within
one hundred eighty days from the date of such damage ("Repair Period") under all
applicable laws and regulations using reasonable diligence, but without payment
of overtime or other premiums, and (b) insurance proceeds are made available to
Landlord in a timely manner for such repairs. In such event, this Lease shall
remain in full force and effect, but rent shall be proportionately abated while
the repairs are made, based on the extent of interference with Tenant's use of
the Premises (unless the damage was caused by the act or omission of Tenant or
its agents, employees, invitees or contractors).
If such repairs cannot be made within the Repair Period under the
conditions set forth above, Landlord shall so notify Tenant within thirty days
of the date of such damage. Thereupon, either party may terminate this Lease by
written notice given within twenty (20) days, such termination to be effective
thirty (30) days after the notice of termination. If neither party terminates,
Landlord shall repair the damage, and the Lease shall remain in force and
effect, subject to the rent abatement provisions set forth above.
If Landlord fails to commence such repairs within the Repair Period or
thereafter fails to diligently pursue such repairs to completion, subject to
delays of not more than sixty (60) days in the aggregate due to Force Majeure,
Tenant may terminate this Lease by written notice, and such termination will be
effective thirty (30) days after such notice unless Landlord substantially
completes such repairs prior to the end of such thirty (30) day period.
Landlord shall be not be required to repair any damage to the property
of Tenant or any Alterations. Nothing herein shall require Landlord to repair
any casualty occurring during the last six months of the Term.
8.2 Eminent Domain.
If any part of the Premises is taken or appropriated under the power of
eminent domain or conveyed in lieu thereof (hereinafter, "Taken"), which
materially affects Tenant's occupancy of the Premises, either party shall have
the right to terminate this Lease at its option. If any part of the Property
shall be Taken so as to materially affect the normal operation of the Building,
Landlord may terminate this Lease at its option. In either of such events,
Landlord shall receive subject to the rights of Landlord's first mortgagee (and
Tenant shall assign to Landlord upon demand from Landlord), any income, rent,
award or any interest thereon which may be paid in connection therewith. Tenant
shall have no claim against Landlord for any part of the sums paid by virtue of
such proceedings, whether or not attributable to the value of the unexpired
Term. If a part of the Premises is Taken and neither party elects to terminate
this Lease, but the Premises have been damaged as a consequence thereof,
Landlord shall restore the remaining Premises at its cost. Landlord shall not be
required to repair or restore any damage to Tenant's property or any
Alterations. Thereafter, the rent for the remainder of the Term shall be
proportionately reduced, based on the degree of interference with Tenant's use
of the Premises. If the temporary use or occupancy of any part of the Premises
is Taken, this Lease shall be unaffected by such taking and Tenant shall
continue to pay all rent payable hereunder; Tenant shall be entitled to receive
that portion of any award which represents compensation for the use of or
occupancy of the Premises, and Landlord shall be entitled to receive that
portion which represents the cost of restoration of the Premises.
ARTICLE 9 RIGHTS OF PARTIES HOLDING PRIOR INTERESTS
9.1 Subordination.
This Lease shall be subject and subordinate to any mortgage now or
hereafter placed on the Lot or Building, or both, or any portion or portions
thereof, and to each advance made or hereafter to be made under any mortgage,
and to all renewals, modifications, increases, consolidations, replacements and
extensions thereof and all substitutions therefor. This Section 9.1 shall be
self-operative and no further instrument of subordination shall be required. In
conformation of such subordination, Tenant shall execute and deliver promptly
any certificate that Landlord or any mortgagee may request. In the event that
any mortgagee or its respective successor in title shall succeed to the interest
of Landlord, then, at the option of such mortgagee or successor, this Lease
shall nevertheless continue in full force and effect and Tenant shall and does
hereby agree to attorn to such mortgagee or successor and to recognize such
mortgagee or successor as its Landlord. Any mortgagee shall have the election to
subordinate its mortgage to this Lease, exercisable by sending a notice of such
election to Tenant, which notice may be recorded at the option of the mortgagee.
Notwithstanding the foregoing, Landlord shall obtain non-disturbance and
attornment agreements for Tenant from any current or future mortgagees.
9.2 Modification, Termination, and Cancellation.
No assignment of the Lease and no agreement to make or accept any
surrender, termination or cancellation of this Lease and no agreement to modify
so as to reduce the rent, change the Term, or otherwise materially change the
rights of Landlord under this Lease, to relieve Tenant of any obligations or
liability under this Lease, shall be valid unless consented to by Landlord's
mortgagees of record, if any. No fixed rent, additional rent, or any other
charge shall be paid more than ten (10) days prior to the due date thereof and
payments made in violation of this provision shall (except to the extent that
such payments are actually received by a mortgagee) be a nullity as against any
mortgagee and Tenant shall be liable for the amount of such payments to such
mortgagee.
9.3 Rights of Mortgagee.
No act or failure to act on the part of Landlord which would entitle
Tenant, under the terms of this Lease or as a matter of law, to be released from
Tenant's obligations hereunder or to terminate this Lease shall result in a
release of such obligations or termination of this Lease unless Tenant first
gives written notice of and a specific description of Landlord's act or failure
to act to Landlord's mortgagees of record, if any, and such mortgagee fails to
cure such default within thirty (30) days after receipt of such notice. However,
if such cure reasonably requires more than thirty days to effect, such mortgagee
shall have such additional time as is reasonably necessary in the circumstances,
including time to take possession of the Property. This Section shall not impose
any obligation on any such mortgagee.
ARTICLE 10 MISCELLANEOUS
10.1 Financial Statements; Authority.
(a) Tenant represents and warrants that any financial statements
provided by it to Landlord were true, correct and complete when provided, and
that no material adverse change has occurred since that date that would render
them inaccurate or misleading. During the term, Tenant agrees to provide to
Landlord updated financial statements, in form reasonably acceptable to
Landlord, upon request (but not more frequently than once per quarter.) Tenant
agrees that in the event Tenant's corporate structure is altered through merger,
acquisition or the like, such that Tenant becomes a parent, division or
subsidiary of another corporate entity, any and all financial statements
delivered by Tenant pursuant to this Section will contain financial information
pertaining only to Tenant's operations and not to any such parent, division or
subsidiary.
(b) Tenant represents and warrants that those persons executing this
Lease on Tenant's behalf are duly authorized to execute and deliver this Lease
on its behalf, and that this Lease is binding upon Tenant in accordance with its
terms. If the Tenant is a corporation, each of the persons executing this
instrument on behalf of the Tenant, hereby covenant and warrant that the Tenant
is a duly existing and valid corporation and that the Tenant is qualified to do
business in Massachusetts. Further, if the Tenant is a corporation, the Tenant
shall deliver to the Landlord, at the time of execution of this Lease, a Clerk's
or Secretary's Certificate in the form attached hereto as Exhibit D (or other
suitable form satisfactory to counsel for the Landlord), as to the due
authorization of the execution of this Lease and incumbency of the signing
officer.
10.2 Notices.
Any notice required or permitted hereunder shall be in writing.
Communications shall be addressed to Landlord at Landlord's Address, with a copy
to Cabot, Cabot & Forbes, 99 Summer Street, Boston, MA 02110, Attn: General
Counsel; and to Tenant at Tenant's Address. Any communication so addressed shall
be deemed duly given (i) when delivered by hand, (ii) when sent by facsimile
transmission, with a confirmation copy by regular mail, (iii) or when sent by
Federal Express (or other guaranteed one day delivery service) or (iv) three
days after being sent by registered or certified mail, return receipt requested.
Either party may change its address by giving notice to the other.
10.3 No Waiver or Oral Modification.
No provision of this Lease shall be deemed waived by Landlord or Tenant
except by a signed written waiver. No consent to any act or waiver of any breach
or default, express or implied, by Landlord or Tenant, shall be construed as a
consent to any other act or waiver of any other breach or default. Landlord's
failure to enforce any covenant or condition of this Lease shall not be deemed a
waiver thereof, and its failure to enforce any of the Rules and Regulations
against Tenant or any other tenant in the Building shall not be deemed a waiver
thereof. The receipt by Landlord of any rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. This Lease
may not be changed or amended orally, but only by written instrument.
10.4 Acceptance of Partial Payments of Rent; Delivery of Keys.
No acceptance by Landlord of a lesser sum than the Annual Base Rent and
additional rent then due shall constitute a waiver of any claim to the remaining
balance nor be deemed to be other than on account of the earliest installment of
such rent due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or pursue any other remedy in
this Lease provided. The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof shall not operate as a termination of
this Lease or surrender of the Premises.
10.5 Cumulative Remedies.
Landlord's remedies under this Lease are cumulative and not exclusive
of any other remedies to which Landlord may be entitled in case of Tenant's
breach or threatened breach of this Lease. Landlord shall be entitled to the
remedies of injunction and specific performance with respect to any such breach.
10.6 Partial Invalidity.
If any provision of this Lease, or the application thereof in any
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Lease shall not be affected thereby, and each provision hereof shall be
valid and enforceable to the fullest extent permitted by law.
10.7 Self-Help.
If Tenant fails to perform any obligation hereunder, Landlord may enter
the Premises and perform it on Tenant's behalf. In so doing, Landlord may make
any payment of money or perform any other act. All sums so paid by Landlord, and
all incidental costs and expenses, shall be considered additional rent under
this Lease and shall be payable to Landlord immediately on demand, together with
interest at the rate of the lesser of three percentage points above the then
prevailing prime rate or reference rate ("Prime Rate") as set by The Chase
Manhattan Bank (USA), N.A. in its main office in New York, New York or the
maximum interest rate permitted by law.
If Landlord fails to perform any obligation hereunder, and such failure
continues for more than ten (10) days after written notice to Landlord, Tenant
may send a second notice to Landlord specifying the nature of such failure and
the action it proposes for Landlord to take to remedy such failure. If Landlord
has not commenced action to remedy such failure within ten (10) days after such
second notice, or thereafter fails to diligently proceed to complete such
action, Tenant may take reasonable action to remedy Landlord's failure and
Landlord will reimburse Tenant for the reasonable costs of such action expended
by Tenant, promptly upon receipt of appropriate evidence of completion of the
work and payment by Tenant. In no event will Tenant be permitted to offset or
deduct any amount owing to Tenant under this Section 10.7 against rent or any
other obligation of Tenant hereunder.
10.8 Tenant's Estoppel Certificate
Within twenty (20) days after written request by Landlord, Tenant shall
execute, acknowledge and deliver to Landlord a written statement certifying (a)
that this Lease is unmodified and in full force and effect, or is in full force
and effect as modified and stating the modifications; (b) the amount of Base
Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default, and (e) such other matters
as may be reasonably requested by Landlord. Any such statement may be relied
upon by a purchaser, assignee or lender. If Tenant fails to execute, acknowledge
and deliver such statement within such twenty (20) day period, Landlord may send
Tenant a second request for such statement, which request will provide that
failure to provide the statement will constitute a default under this Lease.
Tenant's failure to execute, acknowledge and deliver such statement within ten
(10) days after such second notice shall be a default under this Lease (for
which no further grace or cure period shall be applicable, notwithstanding
Section 7.1 hereof) and shall also be conclusive upon Tenant that (1) this Lease
is in full force and effect and has not been modified except as represented by
Landlord; (2) there are no uncured defaults in Landlord's performance and Tenant
has no right of offset, counterclaim or deduction against rent; and (3) not more
than one month's Base Rent has been paid in advance.
10.9 Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery against
the other and against the officers, employees, agents, and representatives of
the other, on account of loss by or damage to the waiving party or its property
or the property of others under its control, to the extent that such loss or
damage is insured against under any insurance policy that either may have in
force at the time of the loss or damage or would have been insured against under
an insurance policy required to be maintained under the provisions of this
Lease. Each party shall notify its insurers that the foregoing waiver is
contained in this Lease.
10.10 All Agreements; No Representations.
This Lease contains all of the agreements of the parties with respect
to the subject matter hereof and supersedes all prior dealings between them with
respect to such subject matter. Each party acknowledges that the other has made
no representations or warranties of any kind except as may be specifically set
forth in this Lease.
10.11 Brokerage.
Tenant represents and warrants that it has not dealt with any real
estate broker or agent in connection with this Lease or its negotiation except
Brokers. Landlord agrees that it shall be responsible for any compensation,
commission or other amount due Brokers in connection with this transaction.
Tenant shall indemnify Landlord and hold it harmless from any cost, expense, or
liability (including costs of suit and reasonable attorneys' fees) for any
compensation, commission or fees claimed by any other real estate broker or
agent in connection with this Lease or its negotiation by reason of any act of
Tenant.
10.12 Successors and Assigns
This Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that only the
original Landlord named herein shall be liable for obligations accruing before
the beginning of the Term, and thereafter the original Landlord named herein and
each successive owner of the Premises shall be liable only for obligations
accruing during the period of their respective ownership.
10.13 Submission Not an Option
The submission of this Lease or a summary of some or all of its
provisions for examination does not constitute a reservation of or option for
the Premises or an offer to lease, and it is not effective as a lease or
otherwise until the execution by and delivery to both Landlord and Tenant.
Applicable Law
This Lease shall be construed and enforced in accordance with the laws
of the Commonwealth of Massachusetts, without regard to its choice of law rules.
10.15 Waiver of Jury Trial.
Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other, on or in respect to any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenant's use or occupancy of the Premises, and/or claim of injury or damages.
10.16 Attorneys' Fees.
If either Landlord or Tenant institutes any action to enforce the
provisions of this Lease or to seek a declaration of rights hereunder, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
court costs as part of any award.
10.17 Surrender.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
10.18 Holdover
If Tenant holds over in occupancy of the Premises after the expiration
of the Term, Tenant shall become a tenant at sufferance only, at a rental rate
equal to one and one-half times the Base Rent in effect at the end of the Term,
plus the amount of Tenant's Share of Expenses then in effect, and otherwise
subject to the terms and conditions herein specified, so far as applicable, and
shall be liable for all damages sustained by Landlord on account of such holding
over. This Section shall not operate as a waiver of any right of reentry
provided in this Lease, and Landlord's acceptance of rent after expiration of
the Term or earlier termination of this Lease shall not constitute consent to a
holdover or result in a renewal. If Tenant fails to surrender the Premises upon
the expiration of the Term or earlier termination despite demand by Landlord to
do so, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including, without limitation, any claim made by any succeeding
tenant resulting from such failure.
10.19 Late Payment.
Tenant acknowledges that the late payment by Tenant to Landlord of any
sums due under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impractical to fix. Therefore, if any Base Rent or other sum hereunder is not
paid within thirty (30) days of the due date, Tenant shall pay to Landlord, as
additional rent, the sum of three percent (3%) of the overdue amount as a late
charge. The overdue amount, if not received within ten days thereafter, shall
also bear interest, as additional rent, at the lesser of the Prime Rate plus
three percent (3%) or the maximum interest rate permitted by law, calculated
from the date the late charge becomes due until the date of payment to Landlord.
Landlord's acceptance of any late charge or interest shall not constitute a
waiver of Tenant's default with respect to the overdue amount.
10.20 Time of Essence
Time is of the essence of this Lease. In the event that the time for
performance of any obligation hereunder, except the payment of Base Rent, falls
on a day other than a business day, the time for performance shall be extended
to the next business day. The term "business day" shall mean any day that is not
a Saturday, Sunday or a state or federal holiday on which office businesses in
Boston, Massachusetts are generally closed.
Force Majeure.
If Landlord or Tenant is prevented from or delayed in performing any
act required of it hereunder, and such prevention or delay is caused by strikes,
labor disputes, inability to obtain labor, materials, or equipment, inclement
weather, acts of God, governmental restrictions, regulations, or controls,
judicial orders, enemy or hostile government actions, civil commotion, fire or
other casualty, or other causes beyond such party's reasonable control
(collectively, "Force Majeure"), the performance of such act shall be excused
for a period equal to the period of prevention or delay. A party's financial
inability to perform its obligations shall in no event constitute Force Majeure.
Nothing in this section shall excuse or delay Tenant's obligation to pay any
rent or other charges due under this Lease.
10.22 Limitation On Liability
In consideration of the benefits accruing hereunder, Tenant hereby
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord:
(a) The obligations of Landlord under this Lease do not constitute
personal obligations of the trustees, individual partners, directors, officers
or shareholders of Landlord, Landlord's beneficiary or any constituent partner
of Landlord's beneficiary, and Tenant shall not seek recourse against the
trustees, partners, directors, officers or shareholders of Landlord, Landlord's
beneficiary or any constituent partner of Landlord's beneficiary or any of their
personal assets for satisfaction of any liability with respect to this Lease;
(b) Tenant's sole and exclusive remedy shall be against the Landlord's
interest in the Property;
(c) Neither Landlord's beneficiary nor any constituent
partner of Landlord's beneficiary
shall be sued, named as a party in any suit or action, or served with process
therein (except if necessary to secure jurisdiction), and neither Landlord's
beneficiary nor any constituent partner of Landlord's beneficiary shall be
required to respond to any service of process;
(d) No judgment will be taken against Landlord's beneficiary nor any
constituent partner of Landlord's beneficiary, and no writ of execution will be
levied against the assets of Landlord's beneficiary or any such partner;
(e) These covenants and agreements are enforceable both by Landlord and
also by Landlord's beneficiary, any constituent partner of Landlord's
beneficiary and shall bind Tenant and its successors and assigns.
10.23 Recording.
The Tenant agrees not to record this Lease. At the request of either
party, Landlord and Tenant agree that at the request of either party, they will
execute a Notice of Lease, in recordable form reasonably acceptable to both
parties.
10.24 Security Deposit
Tenant agrees to deliver into escrow with Old Republic Title Insurance
Company ("Escrow Agent"), within two (2) business days after the execution and
delivery of this Lease by Landlord and Tenant, a certified check (payable to Old
Republic Title Insurance Company) or an irrevocable letter of credit (in a form
approved by Landlord) in the amount set forth in Section 1.1. Escrow Agent will
hold the funds or such letter of credit in escrow, to be delivered to Landlord
upon acquisition of the Property by Landlord. If Landlord does not acquire the
Property by the applicable Target Date and Landlord or Tenant terminates this
Lease in accordance with the provisions of Section 2.2 (b) hereof, the Escrow
Agent will return such funds or such letter of credit to Tenant, promptly after
the effective date of such termination. Any interest earned on funds held in
escrow will be paid to Tenant. The terms of such escrow will be as set out in
the supplemental escrow agreement attached hereto as Exhibit H. In addition, if
Tenant elects to exercise its rights with respect to the First Floor Expansion
Space, Tenant shall deliver to Landlord either (i) a certified check in an
amount equal to six (6) months' Base Rent attributable to the First Floor
Expansion Space, or (ii) if the initial security deposit delivered hereunder is
in the form of a letter of credit, a replacement letter of credit in a form
approved by Landlord in the combined amount of the security deposit set forth in
Section 1.1 and six (6) months' Base Rent attributable to the First Floor
Expansion Space. Such certified check or replacement letter of credit shall be
delivered to Landlord along with Tenant's notice of its election to lease the
First Floor Expansion Space. The initial security deposit delivered in
connection with the execution of this Lease, and the additional security
delivered in connection with the Tenant's exercise of its rights with respect to
the First Floor Expansion Space are collectively referred to herein as the
"Security Deposit".
Landlord shall hold the Security Deposit, throughout the Lease Term, as
security for the performance by Tenant of all obligations on the part of Tenant
to be kept and performed. Landlord shall have the right from time to time
without prejudice to any other remedy Landlord may have on account thereof, to
apply the Security Deposit, or any part thereof, to Landlord's damages arising
from any default on the part of Tenant. Upon such application, the amount so
applied shall be paid by Tenant to Landlord (or in the case of a letter of
credit, the letter of credit shall be restored) upon demand in order that the
Security Deposit may at all times be equal to the amount set forth in Section
1.1.
Provided Tenant is not then in default of any of its obligations
hereunder, Landlord shall return the Security Deposit, or so much thereof as
shall not have theretofore been applied in accordance with the terms of this
Section 10.24, to Tenant within thirty (30) days following the expiration or
earlier termination of the Lease Term and surrender of possession of the
Premises by Tenant to Landlord. In the event the Security Deposit delivered by
Tenant is in the form of cash paid by a certified check, Landlord shall, unless
otherwise required by law and except as provided in the next sentence, have no
obligation to pay interest on the Security Deposit and shall have the right to
commingle the same with Landlord's other funds. Landlord agrees that if it
elects to hold the Security Deposit in a separate account, Landlord will pay to
Tenant (not less frequently than annually) any interest earned on the Security
Deposit; if Landlord holds the Security Deposit with its general operating funds
and earns interest on such funds, it will pay to Tenant (not less frequently
than annually) interest on the Security Deposit at the interest rate applicable
to such funds. If Landlord conveys Landlord's interest under this Lease, the
Security Deposit, or any part thereof not previously applied, may be turned over
by Landlord to Landlord's grantee, and, if so turned over, Tenant agrees to look
solely to such grantee for proper application of the Security Deposit in
accordance with the terms of this Section 10.24, and the return thereof in
accordance herewith. Tenant agrees that Tenant will not assign, encumber or
pledge, attempt to assign, encumber or pledge the moneys deposited herein as
security, and that neither Landlord, nor its successors and assigns, shall be
bound by any such assignment, encumbrance or pledge, attempted assignment,
attempted pledge, or attempted encumbrance.
If Tenant elects to deliver an irrevocable letter of credit as its
Security Deposit, such letter of credit shall be in a form reasonably acceptable
to Landlord and shall be drawn on a bank approved in writing by Landlord and
located in eastern Massachusetts. The letter of credit shall be addressed to
Landlord, shall permit partial draws, and shall be payable upon simple demand by
Landlord accompanied by a sworn statement of an authorized officer or agent of
Landlord stating that the drawing represents amounts due to Landlord from Tenant
under this Lease following an event of default.
Such letter of credit will be issued for a term of not less than twelve
(12) months. Tenant shall furnish to Landlord a replacement letter of credit not
later than thirty (30) days prior to the expiration of the then-current letter
of credit and the final letter of credit shall not expire until thirty (30) days
after the end of the Term of the Lease. Failure by Tenant to deliver any
replacement letter of credit in the time provided shall be an immediate event of
default under this Lease and shall entitle Landlord to immediately draw upon the
letter of credit for the full amount of the Security Deposit. In such case,
Landlord will hold the net proceeds of any such drawing on the letter of credit
as a security deposit under this Section 10.24 (after deducting any amounts then
owed to Landlord hereunder and costs incurred by Landlord in connection with
such drawing).
<PAGE>
EXECUTED as a sealed instrument in two or more counterparts on the day
and year first above written.
"Landlord"
CC&F Second Avenue Trust
By:/S/ JOHN A. PIROVANO
John A. Pirovano,
as Trustee
and not
individually
"Tenant"
Raptor Systems, Inc.
By:/S/ ROBERT FINCKE
Name: Robert Fincke
Its: VP, Treasurer
<PAGE>
EXHIBIT A
PREMISES
Attach a copy of the Floor Plan showing the location of the Premises.
<PAGE>
EXHIBIT B
PROPERTY DESCRIPTION
<PAGE>
EXHIBIT C
NOTICE OF COMMENCEMENT DATE
To: Raptor Systems, Inc. Date: __________
Re: Lease dated ____________, 19__ between [Affiliate of CC&F], Landlord, and
Raptor Systems, Inc., Tenant, concerning the Premises (as defined in the
subject Lease) located at 266 Second Avenue, Waltham, Massachusetts.
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm
as follows:
1. That the [Phase I Premises, Phase II Premises, Phase III Premises or
First Floor Expansion Space], as such premises are defined in the Lease (the
"Premises") have been accepted herewith by the Tenant as being substantially
complete in accordance with the subject Lease, and that there is no deficiency
in construction. Without limiting the foregoing, Tenant's execution of this
Notice shall constitute a specific acknowledgment and acceptance of the various
start-up inconveniences that may be associated with the use of the Common Areas
such as certain construction obstacles including scaffolding, delays in the use
of freight elevator service, certain elevators not being available to Tenant,
the passage of work crews using elevators, uneven air-conditioning service, and
other typical conditions incident to recently constructed office buildings.
Further, Tenant's execution of this Notice shall constitute an acknowledgment,
in light of the practical impossibility of ensuring that every floor slab has
been installed with absolutely no deflection, that all wood floor coverings,
wood paneling, and similar interior Leasehold Improvements have been and/or will
be designed to accommodate the actual floor slab deflection unique to each
particular area of the Premises to be so improved.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the Commencement
Date with respect to the [Phase I Premises, Phase II Premises, Phase III
Premises or First Floor Expansion Space] is _______________________.
3. That in accordance with the subject Lease, the total actual Rentable
Square Feet in the Premises (including all previous space), as measured by
Landlord is ________ rentable square feet, Tenant's Parking Spaces are ________,
and Tenant's Percentage is ____________.
4. That in accordance with the subject Lease, Base Rent commenced to
accrue on _______________________, in the amount of $_______________.
5. If the Commencement Date with respect to the [Phase I Premises,
Phase II Premises, Phase III Premises or the First Floor Expansion Space] of the
subject Lease is other than the first day of the month, the first billing will
contain a pro rata adjustment. Each billing thereafter shall be for the full
amount of the monthly installment as provided for in said Lease.
6. Rent is due and payable in advance on the first day of each and
every month during the term of said Lease. Your rent checks should be made
payable to CC&F Second Avenue Trust, c/o Cabot, Cabot & Forbes, 99 Summer
Street, Boston, MA 02110.
AGREED AND ACCEPTED
"Tenant"
Raptor Systems, Inc.
By:________________________________
Its __________________________
"Landlord"
CC&F Second Avenue Trust
By:________________________________
As Trustee but not individually
<PAGE>
EXHIBIT D
CLERK'S CERTIFICATE
I, [name of clerk], Clerk [Secretary] of [name of corporation], hereby
certify that the following is a true copy of a resolution of the board of
directors of this corporation adopted at a meeting duly called and held on
[date], a quorum being present and acting throughout, and that such resolution
has not been revoked, amended or modified and is in full force and effect:
VOTED: That the President [or other officer] be and is hereby
authorized, singly, to execute and deliver on behalf of this
corporation a lease between _______________________, as landlord , and
this corporation, as tenant, for approximately ____ rentable square
feet of office space in the landlord's building located at
______________________, Massachusetts, upon such terms and conditions
as the signing officer shall determine to be necessary or appropriate.
The signature of the President [or refer to other officer as
applicable] thereon shall conclusively evidence its approval by this
vote. This is to certify further that as of the date hereof
________________________
is the
President [or refer to other officer as applicable] of this corporation.
- -----------------------------
Clerk [Secretary]
Dated: _____________, 19__
[SEAL]
<PAGE>
EXHIBIT E
[ATTACH PLAN SHOWING ROUTE 128 EXPOSURE AREA]
<PAGE>
9
EXHIBIT F
DESCRIPTION OF THE PROJECT
<PAGE>
EXHIBIT G
TENANT'S SPECIAL POWER AND HVAC REQUIREMENTS
<PAGE>
EXHIBIT H
SUPPLEMENTAL ESCROW AGREEMENT
We, the undersigned, do hereby jointly and severally agree that the
Escrow Agent, Old Republic National Title Insurance Company ("ORNTIC") shall
incur no liability whatsoever in connection with its good faith performance
under this Escrow Agreement, and do hereby jointly and severally release and
waive any claims we may have against ORNTIC, which may result from its
performance in good faith of its wire transfer of funds. ORNTIC shall be liable
only for loss or damage caused directly by its acts of negligence while
performing as Escrow Agent under this Escrow Agreement.
The Escrow Agent shall be entitled to rely upon authenticity of any
signature and the genuineness and validity of any writing received by Escrow
Agent relating to this Escrow Agreement. Escrow Agent may rely upon any oral
identification of a party notifying Escrow Agent or ally as to matters relating
to this Agreement if such oral notification is permitted thereunder. Escrow
Agent is not responsible for the nature, content, validity or enforceability of
any of the escrow documents except for those documents prepared by ORNTIC.
In the event of any disagreement between the parties hereto resulting
in conflicting instructions to, or adverse claims or demands upon the Escrow
Agent with respect to the release of the escrow funds or the escrow documents,
the Escrow Agent may refuse to comply with any such instruction, claim or demand
so long as such disagreement shall continue and in so refusing the Escrow Agent
shall not release the escrow funds or the escrow documents. The Escrow Agent
shall not be, or become liable in any way for its failure or refusal to comply
with any such conflicting instructions or adverse claims or demands and it shall
be entitled to continue to refrain from acting until such conflicting
instructions or adverse claims or demands (a) shall have been adjusted by
agreement and it shall have been notified in writing thereof by the parties
hereto; or (b) shall have been determined in a court of competent final
jurisdiction.
The Escrow Agent may, at its sole discretion, resign by giving thirty
(30) days written notice thereof to the parties hereto. The parties shall
furnish to the Escrow Agent written instructions for the release of the escrow
funds and escrow documents. If the escrow agent shall not have received such
written instructions within thirty (30) days, the Escrow Agent may petition any
court of competent jurisdiction for the appointment of a successor Escrow Agent
and upon such appointment deliver the escrow funds and escrow documents to such
successor. Costs and fees incurred by the Escrow Agent may, at the option of the
Escrow Agent, be deducted from any funds held pursuant hereto.
The parties hereto do hereby certify that they are aware that the
Federal Deposit Insurance Corporation (FDIC) coverages applies only to a maximum
amount of $100,000.00 for each individual depositor and that they are aware that
ORNTIC assumes no responsibility for, nor will they hold ORNTIC liable for any
loss occurring which arises from the fact that the amount held by the Escrow
Agent in any account may cause the aggregate amount of any individual depositors
accounts to exceed $100,000.00 and that the excess amount not insured by the
Federal Deposit Insurance Corporation. Federal I.D. or Social Security Number
_______________________________ By _____________________________ By
_______________________________ Address ________________________ Title
____________________________ Telephone ______________________ By
_______________________________
Title
- ----------------------------
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY/ESCROW AGENT
By _____________________________
Address ________________________
Telephone ______________________
<PAGE>
(1) Unless otherwise provided in employment agreement.
For Terminations without cause and without a change of control, severance
includes: Full base salary (excluding unearned bonuses, commissions and
overides) and
participation in related benefits (medical, dental and vision coverage with
payment of employee contribution, auto allowance and reimbursement of
authorized business expenses) for the period of severance.
Employment is deemed to continue for purposes of permitting the executive
to exercise stock options through the severance period (or until the stated
option expiration date, if earlier).
For terminations without cause that occur within 9 months after a change of
control, severance includes: Full base salary and full targeted bonus or
override/commission; and related
benefits (medical, dental and vision coverage without payment of employee
contribution, auto allowance and reimbursement of authorized business
expenses) for the period of severance.
Full accelerated vesting of all unvested options upon termination and
employment is deemed to continue for purposes of permitting the executive
to exercise stock options through the severance period (or until the stated
option expiration date, if earlier).
A termination will be deemed to occur should an acquiring company without
the consent of the individual require relocation of an executive to an
office more than 50 miles from then-current office location, significantly
reduce the functional responsibility of the executive from that immediately
before change of control, or significantly reduce the executive's
compensation package.
AXENT agrees to indemnify executive for liabilities resulting from the
performance of his duties and responsibilities for AXENT and its
subsidiaries.
Executives must agree to non-hiring and non-compete covenants with AXENT to
receive severance.
"Change of control" is as defined in AXENT's 1998 stock option plan in effect in
August 1998.
Compensation Committee Approval:
/S/ JOHN F. BURTON /S/ GABRIEL A. BATTISTA
<PAGE>
EXHIBIT 10.35A
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE (this "Amendment"), dated as of December
15, 1997 is hereby entered into between John A. Pirovano, not individually, but
as Trustee of CC&F Second Avenue Trust, a Massachusetts nominee trust, having
its principal office at c/o Cabot, Cabot & Forbes, 99 Summer Street, Boston,
Massachusetts 02110 ("Landlord"), and Raptor Systems, Inc., a Delaware
corporation, having its principal office at 69 Hickory Drive, Waltham,
Massachusetts ("Tenant").
Reference is made to the following facts:
A. Landlord and Tenant entered into a lease (the "Lease"), dated May 6,
1997, for approximately 49,834 rentable square feet of office space (the
"Premises") in the building located at 266 Second Avenue, Waltham,
Massachusetts.
B. The Lease requires Landlord to deliver the Premises to Tenant in
three phases: the Phase I Premises, the Phase II Premises, and the Phase III
Premises.
C. Under Section 1.1 of the Lease, the Phase I Premises were estimated
to contain approximately 30,000 rentable square feet. After further
remeasurement, the Phase I Premises are estimated to contain approximately
31,500 rentable square feet.
D. The Lease requires Landlord to deliver the Phase I Premises to
Tenant in two segments. The scheduled delivery date for the first segment of the
Phase I Premises is December 15, 1997. The scheduled delivery date for the
second segment of the Phase I Premises is January 15, 1998.
E. Tenant has requested, and Landlord has agreed, that (i) an
additional 3,000 rentable square feet of space be incorporated into the Phase I
Premises, as remeasured, and (ii) the delivery of the first and second segments
of the reconfigured Phase I Premises be delayed until January 15, 1998, and
March 1, 1998, respectively. In connection with Tenant's holdover occupancy of
its current premises, Tenant has further requested, and Landlord has agreed,
that Landlord shall pay a portion of such holdover rent in return for an
increase in the Rent payable under the Lease.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Tenant's Holdover Rent. On or before January 15, 1998, Tenant shall
provide Landlord with written notice ("Tenant's Holdover Rent Notice") of the
amount of the holdover rent (the "Holdover Rent") due from Tenant to its
existing landlord for the period from January 15, 1998 through February 28,
1998. On or before March 10, 1998, Landlord shall reimburse Tenant for the
amount of the Holdover Rent in an amount not to exceed $79,266.00. In the event
Tenant's notice indicates that the amount of the Holdover Rent is less than
$79,266.00, Landlord shall apply such difference to reduce the amount of the
Tenant's T.I. Payment (as such term is defined in Section 4.2 of the Lease) due
and payable by Tenant on the Phase I Premises Commencement Date in connection
with the construction of the Leasehold Improvements for the Phase I Premises.
Tenant hereby acknowledges that any delay by Tenant in the delivery of Tenant's
Holdover Rent Notice will result in a corresponding delay in Landlord's
reimbursement of the Holdover Rent.
2. Section 1.1 of the Lease is hereby amended as follows:
a.The "Premises" shall be "Initially, the space located on the
second floor of the
Building, comprised of the "Phase I Premises" consisting of
approximately 34,500 square feet as shown on Exhibit A-1. Upon
the occurrence of the Commencement Date for future Phases (as
provided in Section 2.2) and, if applicable, the First Floor
Expansion Space (as provided in Section 2.5), such future
Phases shall be included as part of the Premises. The Phase II
Premises shall consist of approximately 6,000 to 7,000
rentable square feet on the second floor, in a location to be
agreed upon by Landlord and Tenant. The Phase III Premises
shall consist of the balance of rentable square footage on the
second floor of the Building, consisting of approximately
8,334 to 9,334 rentable square feet. Where the context
permits, the term "Phase" as used herein shall include the
Phase I Premises, the Phase II Premises, the Phase III
Premises and, if applicable, the First Floor Expansion Space."
b. The definition of "Rentable Square Feet in the Premises" is
hereby amended by deleting the reference to "approximately
30,000 rentable square feet" in the first paragraph thereof,
and replacing it with "approximately 34,500 rentable square
feet." c. The definition of "Tenant's Percentage" is hereby
amended by deleting the second sentence of the first paragraph
thereof and replacing it with the following: "The rentable
square feet in the Building is expected to be 95,919, and as a
result, Tenant's Percentage for the Phase I Premises (34,500
rentable square feet) is expected to be 35.97%." d. The
"Scheduled Phase I Premises Commencement Date" shall be
January 15, 1998. e. The "Scheduled Phase II Premises
Commencement Date" shall be "[t]he earlier to occur of (i)
December 15, 1998, or (ii) the date that is one hundred twenty
(120) days after the date Landlord receives written notice
from Tenant that Tenant has elected to accelerate the date of
its occupancy of the Phase II Premises." f. The "Scheduled
Phase III Premises Commencement Date" shall be "[t]he earlier
to occur of (i) June 15, 1999, or (ii) the date that is one
hundred twenty (120) days after the date Landlord receives
written notice form Tenant that Tenant has elected to
accelerate the date of its occupancy of the Phase III
Premises." g. "Base Rent" shall be calculated as follows:
"From and after the Commencement Date for the Phase I
Premises, through and including the last day of the
sixtieth (60th) full calendar month of the Term, at
the annual rate of $26.45 multiplied by the Rentable
Square Feet in the Premises. (The Base Rent is
subject to adjustment prior to delivery of the second
segment of the Phase I Premises, as provided in
Section 2.2(a) hereof). From and after the first day
of the sixty-first (61st) full calendar month of the
Term, through the remainder of the Term, at the
annual rate of $28.20 multiplied by the Rentable
Square Feet in the Premises."
3. Section 2.2(a) of the Lease is hereby amended by deleting the third
full paragraph thereof and replacing it with the following:
"Notwithstanding the foregoing, the delivery of the Phase I
Premises will occur in two segments (a "segment"), the first
of which will contain approximately 31,500 rentable square
feet and the second of which will contain the balance of the
Phase I Premises (i.e., approximately 3,000 rentable square
feet), as shown on the attached Exhibit A-1. Only the first
segment will be taken into account in determining the
Commencement Date for the Phase I Premises. However, prior to
the Second Segment Rent Date (defined below), the Base Rent
and Additional Rent due hereunder will be reduced
proportionately so that Tenant is required to pay Base Rent
and Additional Rent only on the first segment of the Phase I
Premises. The Second Segment Rent Date shall be the earlier of
(i) the date on which such segment is Ready for Occupancy, but
in no event earlier than March 1, 1998, or (ii) the date on
which Tenant begins to conduct business within such segment."
4. Section 2.2(c) of the Lease is hereby deleted and replaced with the
following:
"(c) Landlord shall use reasonable efforts to deliver the
first segment of the Phase I Premises by the Scheduled Phase I
Premises Commencement Date, the second segment by March 1,
1998, the Phase II Premises by the Scheduled Phase II Premises
Commencement Date, and the Phase III Premises by the Scheduled
Phase III Premises Commencement Date. If any Phase (or
segment) is not Ready for Occupancy on the applicable
Scheduled Commencement Date for such Phase (or segment),
Landlord shall not be subject to any liability for such
failure, except as expressly set forth below, and such failure
shall not affect the validity of this Lease, but Tenant shall
not be liable for any rent until the Commencement Date for the
applicable Phase (or segment). Notwithstanding the foregoing,
if the first segment of the Phase I Premises is not Ready for
Occupancy by January 15, 1998, or if the second segment of the
Phase I Premises is not Ready for Occupancy by March 1, 1998,
Tenant shall receive one day of free Base Rent for each day
delivery of such segment is delayed beyond such date, provided
that (i) such free rent arrangements shall not apply to the
extent that such delay was caused by any action or inaction of
Tenant or any Force Majeure, except that any extension of such
January 15 or March 1 date due to Force Majeure delays will
not exceed sixty (60) days, (ii) a failure of Landlord's
contractor to complete construction on schedule shall not
constitute "Force Majeure" unless such failure was
attributable to an event which would itself constitute "Force
Majeure, and (iii) such free rent will only apply to the
segment which was the subject of the delay."
5. Section 2.5 of the Lease is hereby amended by deleting the first
paragraph thereof and replacing it with the following:
"Tenant shall have the right to lease from Landlord additional
space on the first floor of the Building consisting of
approximately 10,000 rentable square feet of space (in a
single block of space) to be designated by Landlord (the
"First Floor Expansion Space"), provided that (i) on or before
April 14, 1998, Tenant shall give Landlord written notice of
its election to lease the First Floor Expansion Space
("Tenant's Expansion Space Notice"), and (ii) at the time of
the delivery of Tenant's Expansion Space Notice and on the
Commencement Date for the First Floor Expansion Space, Tenant
satisfies the Exercise Conditions, Tenant hereby agreeing that
if Tenant fails to satisfy the Exercise Conditions as of the
date of such notice, or as of the Commencement Date for the
First Floor Expansion Space, Tenant's rights under this
Section 2.5 shall expire and be of no further force and
effect. Within forty-five (45) days after the delivery of
Tenant's Expansion Space Notice, Tenant shall deliver to
Landlord Preliminary Plans (as such term is defined in Section
4.1 herein) for the First Floor Expansion Space. Upon such
delivery, Landlord and Tenant will prepare Final Plans for the
First Floor Expansion Space in accordance with the plan
preparation procedures described in Section 4.1, and
thereafter, Landlord shall improve the First Floor Expansion
Space using the construction procedures described in Section
4.1, and the Tenant Allowance and occupancy procedures
described in Sections 4.2 and 4.3. The Commencement Date for
the First Floor Expansion Space shall be the earlier to occur
of (i) the date on which the First Floor Expansion Space is
Ready for Occupancy, as such term is defined in Section 2.2,
or (ii) the date on which Tenant begins to conduct business
operations in any portion of the First Floor Expansion Space."
6. Exhibit A to the Lease is hereby deleted and replaced with the
attached Exhibit A-1. All references in the Lease to Exhibit A shall be deemed
to be references to Exhibit A-1.
7. Tenant hereby confirms that all of Tenant's rights to terminate the
Lease granted to Tenant under Section 2.2(b) of the Lease have lapsed or are
otherwise of no further force and effect.
8. The foregoing provisions are effective as of the date hereof. In all
other respects, Landlord and Tenant hereby reaffirm all of the covenants,
agreements, terms, conditions, and other provisions of the Lease which is
incorporated in full herein by reference, and all covenants, agreements, terms,
conditions, and provisions thereof shall remain in full force and effect except
as modified hereby.
9. This Amendment may be executed simultaneously in counterparts, each
of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a sealed instrument as of the date and year first above written.
LANDLORD: CC&F Second Avenue Trust
By: /S/ John A. Pirovano
John A. Pirovano, not individually,
but as Trustee
TENANT: Raptor Systems, Inc.
By: /S/ Robert Fincke
Name: Robert Fincke
Title: VP, Treasurer
<PAGE>
EXHIBIT A-1
266 Second Avenue
Second Floor
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
AXENT TECHNOLOGIES, INC.
FINANCIAL DATA SCHEDULE
The schedule contains summary financial information extracted from the condensed
consolidated balance sheet and statement of operations of AXENT Technologies,
Inc. as of and for the nine months ended September 30, 1998 and 1997,
respectively, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
September 30,
1998 1997
---- ----
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 59,474,000 42,413,000
<SECURITIES> 42,255,000 41,782,000
<RECEIVABLES> 26,840,000 16,423,000
<ALLOWANCES> 4,171,000 2,664,000
<INVENTORY> 96,000 0
<CURRENT-ASSETS> 129,213,000 102,525,000
<PP&E> 12,511,000 8,411,000
<DEPRECIATION> 5,749,000 4,434,000
<TOTAL-ASSETS> 145,504,000 112,402,000
<CURRENT-LIABILITIES> 25,074,000 17,733,000
<BONDS> 0 0
0 0
0 0
<COMMON> 497,000 460,000
<OTHER-SE> 119,933,000 94,209,000
<TOTAL-LIABILITY-AND-EQUITY> 145,504,000 112,402,000
<SALES> 0 0
<TOTAL-REVENUES> 66,875,000 46,776,000
<CGS> 0 0
<TOTAL-COSTS> 6,882,000 4,499,000
<OTHER-EXPENSES> 63,211,000 70,720,000
<LOSS-PROVISION> 60,000 91,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,218,000) (28,443,000)
<INCOME-TAX> (2,749,000) (2,007,000)
<INCOME-CONTINUING> (755,000) (24,785,000)
<DISCONTINUED> 0 255,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (755,000) (24,530,000)
<EPS-PRIMARY> (0.03) (1.09)
<EPS-DILUTED> (0.03) (1.09)
</TABLE>
