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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-15527
VIALOG CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3305282
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
35 NEW ENGLAND
BUSINESS CENTER, SUITE 160
ANDOVER, MA 01810
(Address of principal executive offices)
(978) 975-3700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
As of March 13, 2000, the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the Company was $57,939,091.
Shares of voting and non-voting common equity held by each executive officer
and director and by each person who beneficially owns 10% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The aggregate market value has
been computed based on a price per share of $6.375, the closing sales price of
the Company's common stock on March 13, 2000. On such date, the Company had
9,152,485 shares of common stock outstanding.
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PART I
This Annual Report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-
looking statements should be read with the cautionary statements and important
factors included in this Form 10-K. (See Item 7.--Management's Discussion and
Analysis of Financial Condition and Results of Operations, Safe Harbor for
Forward-Looking Statements.) Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than
statements of historical facts. Such forward-looking statements may be
identified, without limitation, by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts," "projects," and
similar expressions. The Company's expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable
basis, including management's examination of historical operating trends, data
contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
Item 1. Business.
Introduction
VIALOG Corporation (including its subsidiaries, "VIALOG" or the "Company"),
a Massachusetts corporation, is a leading independent provider of value-added
conferencing services. Since its founding on January 1, 1996, the Company has
grown substantially, primarily through acquisitions. On November 12, 1997,
VIALOG acquired six private conference service bureaus. On February 10, 1999,
VIALOG completed an initial public offering of its common stock and acquired
three additional private conference service bureaus.
In order to increase operating efficiencies, during 1999, VIALOG
successfully consolidated the operations of the nine acquired companies into
four operating subsidiaries, which the Company refers to as operating centers.
These operating centers are located in Reston, Virginia; Montgomery, Alabama;
Chanhassen, Minnesota and Cambridge, Massachusetts. A brief description of
each of the Company's operating centers is set forth below:
The Reston Center had net revenues of approximately $18.4 million in 1998
and of approximately $27.4 million in 1999. The Reston Center specializes
in providing conferencing services to numerous organizations, including
financial institutions, government agencies, trade associations and
professional service firms. The Reston Center is also primarily responsible
for the development and provision of services in the fast-growing
videoconferencing marketplace. As of March 1, 2000, the Reston Center had
approximately 194 employees.
The Montgomery Center had net revenues of $17.1 million in 1998 and
approximately $15.2 million in 1999. The Montgomery Center specializes in
providing conferencing services to the retail industry and to various
telecommunications providers. As of March 1, 2000, the Montgomery Center
had approximately 140 employees and is the primary support center for
VIALOG's new, innovative Ready-To-MeetTM conference service.
The Chanhassen Center had net revenues of approximately $7.5 million in
1998 and approximately $10.3 million in 1999. The Chanhassen Center
services a general corporate clientele with a specialty in the
communications industry. As of March 1, 2000, VIALOG's Chanhassen Center
had approximately 87 employees.
The Cambridge Center had net revenues of approximately $5.9 million in
1998 and approximately $6.9 million in 1999. The Cambridge Center services
a general business clientele. As of March 1, 2000, the Cambridge Center had
approximately 46 employees. The Cambridge Center will be relocated to a new
VIALOG facility in Bedford, Massachusetts during 2000.
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The five operating centers closed during 1999 in connection with the
Company's consolidation of operations accounted for additional revenues of
$10.9 million in 1998 and $10.7 in 1999. The conferencing traffic from these
centers is now handled by the four remaining operating centers.
In addition to the consolidation of the operating centers, VIALOG also
completed several other initiatives during 1999 including:
. the launching of WebConferencing.com, VIALOG's new Internet portal site,
and Ready-To-MeetTM, VIALOG's new reservation-less conferencing service,
. the expansion or introduction of premium videoconferencing, web
presentation sharing, and audio streaming services,
. the expansion and restructuring of VIALOG's national sales force, and
. the streamlining and centralization of various administrative functions.
Description of Business
Company Overview
VIALOG is a leading independent provider of audio, video and Internet
conferencing services. The Company believes it is the largest company focused
solely on conferencing services, with four operating centers, state-of-the-art
digital conferencing technology, an Internet portal site (WebConferencing.com)
and an experienced national sales force. The Company believes it
differentiates itself from its competitors by providing innovative products,
superior customer service and an extensive range of enhanced and customized
conferencing solutions. The Company has capitalized on the growth in the
conferencing services market, and has built a large, stable client base
ranging from Fortune 500 companies to small institutions. Customers also
include certain major long distance telecommunications providers who have
outsourced their conferencing services to the Company. During 1999, the
Company provided services to more than 6,000 customers representing over
32,000 accounts.
Audioconferencing is currently the Company's principal service offering.
However, VIALOG is leveraging long-term relationships with its customers in
the traditional audioconferencing business to expand into "new media" market
opportunities including video and web-based services. The Company now offers
an innovative new reservation-less audioconferencing service, Ready-To-MeetTM,
as well as enhanced audioconferencing services such as digital replay and
audio streaming. Media enhanced services now offered by VIALOG include
videoconferencing, fax and e-mail broadcast, as well as a family of Internet
conferencing services. Introduced in October 1999, the Company's user-friendly
Internet portal site, WebConferencing.com, provides internet access to all of
the Company's conferencing services.
VIALOG has embraced a strategy of "solutions selling" that offers customized
conferencing solutions to each of its customers. This includes various
vertical industry applications in the medical and financial marketplaces, as
well as other customized applications like conference event planning and
coaching. Further, customized formats are specifically designed for such
applications as investor relations calls, auctions and interactive educational
programs. The Company has designed its service delivery infrastructure to be
flexible so that comprehensive, custom solutions for each customer may be
easily designed and implemented across a variety of technologies including the
Internet.
The industry in which the Company operates has been experiencing significant
growth. The Company intends to capitalize on this growth by continuing to
expand its national sales and marketing programs. In recognition of what
management believes is a broad trend among telecommunications providers to
outsource labor-intensive activities such as teleconferencing, VIALOG is also
continuing to focus on its wholesale business. VIALOG has established and will
continue to pursue partnerships with Internet businesses to increase market
penetration via the Internet for VIALOG's services.
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Industry Overview
Services
The conferencing industry, which includes audio, video and Internet
conferencing, provides a range of services to facilitate multiparty
communications with participants in different locations. Through conferencing
services, customers conduct routine meetings, run training sessions, and share
information when face-to-face meetings would be too costly, impractical or
inconvenient. Industry studies published by Frost & Sullivan estimate that the
conferencing services sector will grow at a compound annual rate of
approximately 24% between 1998 and 2003.
Audioconferencing
Audioconferencing connects multiple parties on a single telephone call
through specialized telephone equipment known as a "bridge." Each bridge has
multiple ports which allow conference participants to connect to a conference
call. Calls may be established manually by an operator who places calls to or
receives calls from conference participants. The Company believes that
technological advances, combined with the greater overall awareness and
acceptance of audioconferencing as a business tool, have contributed to the
increased usage of conferencing over the last six years.
The Company believes that the demand for audioconferencing services has also
increased as a result of a wide range of trends, including globalization of
operations, increased workforce training requirements, the advent of
geographically dispersed work teams, shared decision-making, and the growing
role of strategic partnerships. Users of audioconferencing are able to replace
travel to existing meetings, with attendant savings of actual and opportunity
cost, and increase communication with parties with whom they would otherwise
not meet, thereby yielding greater organizational productivity. The Company
believes that the facilities, network and labor costs associated with
audioconferencing services, combined with a lack of expertise and a desire to
focus on their core businesses, have caused most organizations to outsource
audioconferencing.
Videoconferencing
Videoconferencing is similar to audioconferencing except that one or more
callers may be viewed on a video monitor by the other participants. The
Company believes that the broad adoption of videoconferencing as a meeting
tool has historically been constrained by several factors, including limited
access to video sites, expensive and proprietary equipment, limited and costly
network facilities, incompatibility of systems and poor video quality. The
adoption of industry standards, technological advances (which have brought
down the cost of equipment and required bandwidth) and increased processing
speed (which has improved quality) have all contributed to the development of
desktop videoconferencing applications. Interactive multipoint
videoconferencing also became feasible in 1995 with the introduction of more
cost-effective video technology and low-cost, PC-based video cameras and sound
cards. The rapid deployment of compatible hardware, reductions in cost,
increases in available bandwidth, and improvements in quality are all expected
to accelerate the growth of the market for multipoint videoconferencing.
Internet Conferencing
Internet conferencing services include web presentation sharing and audio
streaming services. Web presentation sharing, which enables multiple users to
conference and collaborate using both text and voice, is the most recent
advancement in conferencing. Audio streaming enables participants to listen to
an audioconference being "streamed" live over the Internet. Listen-only
participants can access the audioconference by logging on to a web site and
listening via a multimedia PC.
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The Company's Conferencing Services
Audioconferencing
VIALOG offers a broad range of audioconferencing and related services,
primarily to businesses in the financial, retail, professional services and
pharmaceutical industries, as well as to government agencies and trade
associations. The Company generates revenues from its infrastructure of
approximately 12,000 ports of capacity by charging on a per-line, per-minute
basis. The Company's audioconferencing services are divided into two major
service categories: operator-attended and operator-on-demand. Each category
offers standard services such as dialing out to late participants and
conducting a roll call at no additional cost, as well as enhanced services at
additional cost. For those conference calls requiring a reservation, the
Company's new Internet portal site, WebConferencing.com, may be used for
greater convenience.
There are three different types of operator-attended service: Meet-Me, Dial
Out and a combination of the two. Meet-Me audioconferences allow participants
to join a conference either by dialing a toll free number provided by the
Company or by using their own local or long distance service providers. For
Dial Out audioconferences, the Company's operators contact participants and
join them together in a conference. A combination of the two service types is
also available.
Participants may join an operator-on-demand conference either by dialing a
toll free number provided by the Company or by using their own local or long
distance service providers, then entering a passcode on their touch-tone
keypad. For additional security and to verify attendance, participants may be
required to enter a Personal Identification Number (PIN) after they enter the
conference passcode. While operators are not necessary for an operator-on-
demand audioconference, they can be reached for assistance by pressing "*0."
In November 1999, VIALOG launched a service that eliminates a reservation
and/or an operator to place a conference call between 40 or less parties. The
new product, Ready-to-MeetTM, offers instant audioconferencing through a toll
free dial-in number and access codes assigned by VIALOG. The Company sells
this product through its existing sales force, private label partnerships, and
directly through its Internet portal site, WebConferencing.com.
Consistent with its solutions selling approach, the Company offers
customization of audioconferences through the following enhanced services for
an extra charge:
Communication line. During a conference, the Company can keep a separate
line open with the conference host to verify participant attendance,
provide updates on the number of participants which have joined, and have
other discussions relative to the conference that may be inappropriate to
conduct in the conference.
Digital replay. The Company can digitally record a conference and make it
available for playback over the telephone or otherwise by parties who were
unable to attend the conference.
Electronic Q&A. Participants can join a queue to ask questions or speak
with the moderator by pressing codes on their touch-tone keypads.
Participant list. The Company can send a list of participants via fax or
email, either during or at the conclusion of the conference.
Participant notification. The Company can call or fax reminders to
participants in advance of the conference.
Polling/voting. Participants can respond to questions by pressing codes
on their touch-tone keypads. Tabulations and results are available
immediately or at the conclusion of the conference.
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Recording. The Company can record the conference on an audiocassette tape
or compact disc, and send recordings via regular, overnight or second-day
mail.
Transcription. The conference can be transcribed in its entirety and
provided in written format, on a 3 1/2" diskette or via e-mail.
Videoconferencing
In 1996, the Company began to offer videoconferencing services, which enable
remote sites equipped with industry standard compliant video equipment to
conduct interactive multipoint sharing of video images and audio among three
or more participants. Similar to audioconferencing, this service is charged on
a per-line, per-minute basis, with enhanced services charged on a fee basis.
Videoconferencing requires the use of a video bridge and telecommunications
facilities of greater bandwidth than that required for a standard
audioconference and is consequently billed at much higher rates. The Company
provides its video services from its Reston Center.
Videoconferences can be assembled in two ways: Meet-Me and Dial Out. Meet-Me
videoconferences are those in which participating sites dial in to the
Company's video bridge at a scheduled date and time, using an assigned
telephone number. Each site may be greeted by an operator or be connected
directly, without the operator's presence. Dial Out videoconferences are those
in which a Company operator dials out to participating sites prior to a
videoconference and connects them to the conference. As part of its "solutions
approach," the Company tests the standards of all participating sites to
assure compatability and quality standards.
The Company offers PC-based application sharing via the Company's
videoconferencing bridges. Multiple users can view and edit the same document
on their own PCs while participating in an audio or video conference, enabling
them to present, discuss and/or modify documents in real-time.
Internet Conferencing
VIALOG's management believes that Internet conferencing offers the Company
many opportunities in an evolving and rapidly expanding marketplace. To extend
its leadership position in the traditional conferencing industry into the
Internet arena, VIALOG launched its Internet portal site, WebConferencing.com,
in October 1999. This unique portal-site enables customers to customize all of
their conferencing needs through a convenient, easy-to-use customer interface.
An e-commerce section within the site allows new customers to immediately sign
up for and purchase VIALOG conferencing services. VIALOG has launched an
Internet affiliate program designed to partner with other Internet companies
to sell private-labeled access to VIALOG's WebConferencing.com website.
Additional Internet conferencing services include web presentation sharing
and audio streaming services. Web presentation sharing, which enables multiple
users to conference and collaborate using both text and voice is the most
recent advancement in conferencing. The Company has a Basic and Premier
version of its web presentation sharing services which differ in interactive
capabilities and media options. Audio streaming enables participants to listen
to an audioconference being "streamed" live over the Internet. Listen-only
participants can access the audioconference by logging on to a web site and
listening via a multimedia PC.
The adoption of industry standards for multimedia conferencing and new
Internet application services and software are expected to facilitate greater
adoption of Internet conferencing. The Company believes that Internet
conferencing services will likely be used in conjunction with
audioconferencing to allow simultaneous group discussions during display of
documents.
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Enhanced Teleservices
In customizing solutions for customers, the Company complements its audio,
video and Internet conferencing services with enhanced teleservices, such as
MessageCast, Interactive Voice Response, broadcast fax and fax on-demand.
MessageCast. The Company's MessageCast voicemail broadcast service
delivers a personalized message quickly to a large number of recipients via
the telephone. MessageCast delivers a custom voice message instantly to any
individual with a phone number, either live or to a voicemail box.
Interactive voice response ("IVR"). The Company's IVR service uses voice
and touch tone prompts to provide and/or retrieve important information via
a telephone. Applications for IVR include digital replay of an
audioconference; automated registration for events and programs; and test
administration whereby the Company's IVR system is used to generate a test
containing specific sets of questions or customized on a user-by-user basis
from a database of categorized questions.
Broadcast fax. This service enables customers to send faxes to a large
number of recipients simultaneously.
Fax on-demand. This service enables clients and employees to call a toll-
free number for 24-hour access to essential information. Information
requests can be fulfilled immediately via fax.
Competitive Strengths
The Company believes that several characteristics differentiate it from many
of its competitors including:
High growth segment of the telecommunications industry. The industry in
which the Company operates has been experiencing significant growth. The
Company intends to capitalize on this strong growth as it continues to expand
its national marketing and sales program. In addition to internal growth
generated by strong industry fundamentals and the Company's enhanced marketing
capabilities, the Company intends to increase its wholesale or outsourcing
business. Management believes that the broad trend among the service providers
in the North American telecommunications industry to outsource labor-intensive
activities such as teleconferencing will lead to new outsourcing contracts,
particularly as Regional Bell Operating Companies ("RBOCs") gain approval to
provide long distance service. Further, the Company's recently launched
innovations including WebConferencing.com and Ready-To-MeetTM target
previously untapped market segments, including the Internet.
New management team. During 1999, the Company hired three key
telecommunications and Internet industry veterans to provide the leadership
necessary to capitalize on the growth prospects in the conferencing industry.
Kim Mayyasi, the Company's President and CEO, has over twenty years of telecom
experience in the long distance, cellular and paging industries. Most
recently, Mr. Mayyasi founded the MSP Group, a marketing technology and
service company that was acquired by one of the nation's largest advertising
firms in 1995. Michael Savage, the Company's CFO, has a background in leading
high growth and publicly traded companies. Mr. Savage came to the Company from
Digital City, a subsidiary of America Online and the Internet's largest local
city resource and community guide. During his career, Mr. Savage has
successfully managed two IPOs and accomplished several major debt refinancings
for a variety of companies. Bob Saur the Company's Chief Information Officer
has more than twenty years of experience in building information and
telecommunications systems infrastructure for fast-growing companies in the
high tech, IT consulting and financial services industries. Prior to VIALOG,
Mr. Saur was Chief Information Officer at Cambridge Technology Partners, a
4,500 person management consulting and systems integration services firm.
Broad range of products and services. The Company offers one of the most
comprehensive portfolios of audio, video and Internet conferencing services in
the industry, providing it with significant marketing advantages. The Company
offers the features and pricing options to meet a wide variety of customer
needs. The Company intends to remain at the forefront of the conferencing
industry by continuing to augment its existing service offerings through the
development and introduction of additional enhanced services and customized
conferencing solutions.
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Internet portal site. WebConferencing.com uses the Internet to facilitate
remote meetings, presentations and group collaboration. WebConferencing.com's
e-commerce capability is an ideal opportunity for VIALOG's strategic partners
to private label its services and market them over the web.
Stable and diverse customer base. The Company estimates that approximately
90% of the Company's 1999 revenues and approximately 66% of revenue growth in
1999 was from repeat customers. In addition, no single customer represents
more than 4% of pro forma 1999 revenues, and the Company's top ten customers
represent less than 17% of 1999 revenues. The Company currently has a diverse
base of more than 6,000 customers.
Superior customer service capabilities. The Company has a core competency in
its customer service capabilities, which stresses operator training,
personalized service and customer needs. The Company has developed and refined
the technological capabilities, procedures and management information systems
necessary to provide superior customer service, a factor that is critical to
both customer retention and new business generation. The Company has spent
several years developing and revising this software and believes that no
competitor can currently match the flexibility of this system in meeting
customer needs.
Decreasing cost structure. Through the recent consolidation of its nine
operating centers into four operating centers, VIALOG expects to improve its
operating margins by reducing labor and overhead expenditures. Also, as VIALOG
grows through increased penetration, it also improves its cost structure based
on economies of scale. Long distance expenses represent VIALOG's second
largest cost, and VIALOG's recently announced contract with Qwest
Communications reduces its per minute long distance cost by approximately 52%.
Additionally, advances in bridge technology have reduced VIALOG's capital
requirements to accommodate growth in audioconferencing from approximately
$850 per port in 1999 to a current cost per port of approximately $650.
Unique industry position: scale with focus. The Company believes that it is
the largest company in the industry focusing solely on conferencing services.
The Company's largest competitors are long distance service providers for
which conferencing represents only a small fraction of their total revenues.
The Company can focus its capabilities and resources solely on conferencing,
including its information systems, capital equipment, hiring practices,
training and marketing. The Company believes that this focus offers
significant flexibility and competitive advantages in responding to the needs
of customers.
Operating Strategy
The Company provides a full array of conferencing services through its four
operating centers. The basic goals of the Company's operating strategy consist
of the following:
Focus exclusively on conferencing services. VIALOG believes that it is the
largest and most geographically diverse company focused solely on conferencing
services. The Company believes that its dedicated focus on conferencing
enables it to respond to the needs of its customers better than competitors
which do not focus on conferencing as a core business activity.
Deliver a broad range of services. VIALOG believes that it offers the most
comprehensive selection of audio, video and Internet conferencing services
among the independent conferencing service providers, providing the Company
with significant marketing advantages. The Company believes that it can
leverage the diverse service capabilities and industry expertise of individual
operating centers to provide the features and pricing options to meet a wide
variety of customer needs. The Company intends to remain at the forefront of
the conferencing industry by continuing to augment its existing service
offerings through the development and introduction of additional enhanced
services and customized communications solutions, especially using the
Internet.
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Maximize operational synergies. VIALOG is capitalizing on the benefits of
increased size, product range and diverse customer base afforded to it by the
acquisition of its operating centers. Since November 1997, VIALOG has
centralized several of its operations, including sales, marketing, human
resources, benefits administration, finance and cash management functions.
Additionally, the Company recently consolidated four of its operating centers,
which the Company believes will provide operational efficiencies and reduce
operating costs. The combination of the operating centers has enabled the
Company to improve operations by: (i) allowing it to handle calls involving a
larger number of participants than any of its operating centers had been able
to handle individually and (ii) increasing network efficiency by allocating
port capacity among the operating centers according to need, time of day,
personnel, type of service and other factors. Throughout 1999, the Company has
made progress in its efforts to centralize support activities, including
reservations, billing, purchasing and management information systems in order
to standardize its services, improve customer service and reduce operating
expenses. Furthermore, the Company believes that its increased size has
resulted in stronger bargaining power in areas such as long distance
telecommunications, equipment, employee benefits and marketing.
Retain customers and stimulate usage. Through the implementation of focused
selling strategies and cross-selling programs designed to stimulate use by its
existing customer base, the Company intends to expand sales to its diverse
base of customers, which numbered more than 6,000 in 1999. The Company
believes that customer loyalty for its services is fostered by its emphasis on
customer service and ability to design custom solutions. In addition, VIALOG
has developed a comprehensive marketing database to monitor account behavior
and, based on changes in behavior, trigger appropriate marketing and sales
responses to increase customer satisfaction, increase customer usage and
maintain customer relationships.
Growth Strategy
The Company's objective is to build upon its position as a leading
independent provider of conferencing services. The Company intends to achieve
this goal through a strategy focused on the following:
Maintain strong internal growth. The Company intends to capitalize on the
strong growth in the conferencing services industry. Industry sources project
that conferencing services revenues will grow at a compound annual growth rate
of 24% through 2003. The Company believes that the consolidation of the
operating centers created significant opportunities to enhance internal growth
by enabling it to develop a national brand identity, pursue cross-selling
opportunities, expand the Company's service offerings and leverage the
Company's increased capacity to handle larger contracts. In addition, the
Company has undertaken several marketing and sales initiatives, including
deployment of a national sales force to access new geographic areas and
national accounts, establishment of a coordinated telemarketing effort and
implementation of database marketing programs.
Pursue outsourced services opportunities. The Company has deployed a
wholesale sales organization which intends to capitalize on what the Company
believes to be significant opportunities to provide outsourced services to
Inter-Exchange Carriers ("IXCs"), Local Exchange Carriers ("LECs") and RBOCs
as these providers continue to reduce their dependence upon labor-intensive
activities. VIALOG currently has contracts to provide outsourced services to a
number of facilities-based and non-facilities-based telecommunications service
providers. As RBOCs obtain regulatory approval to provide long distance
service, the Company believes that some will desire to enter the market
quickly with complete packages of high quality telecommunications services,
including conferencing. As a result, some RBOCs and LECs may seek to outsource
their conferencing requirements in order to speed up their time to market. The
Company believes that it is well-positioned to compete for outsourced
conferencing business from the IXCs, LECs and RBOCs because it does not
compete with IXCs, LECs or RBOCs in their core businesses, it has the capacity
and resources to handle significant conferencing volume and it has experience
in providing services on an outsourced basis.
Leverage the Internet. The Company believes that the Internet provides a new
market for multimedia conferencing services. By aggressively developing new
services that leverage the power of the Internet to deliver content during
remote meetings, VIALOG can realize new revenues among its more than 32,000
corporate
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accounts. Further, using its Internet portal site, WebConferencing.com,
distribution of its services through the Internet can cost-effectively reach
smaller companies where direct sales are not economically feasible. The
Company has launched an affiliate program to enlist strategic Internet
partners to accelerate market penetration.
Sales and Marketing
VIALOG believes it is the first independent conferencing company to employ a
comprehensive marketing program to establish a national brand for conferencing
services. The Company's retail national sales organization offers a full range
of conferencing services to its customers. The Company's wholesale account
executives offer these same services to facilities-based carriers and non-
facilities-based telecommunications service providers who desire to offer
outsourced conferencing services to their customers under their own brands.
Establishing a national brand. The Company's marketing and sales strategy
centers on establishing VIALOG as the brand identified with high value and
expert delivery of conferencing services. The Company is implementing a
corporate marketing program focused on customers who have the potential for
high use. This marketing program will employ targeted database marketing
techniques based on the combined customer data of the operating centers,
emerging trends and other market segment information.
Retail sales. The Company employs a national retail sales strategy utilizing
both an outside and inside sales group. This new strategy has consolidated the
Company's existing sales force and at the same time provided new national
account coverage and presence in additional geographic markets. The sales
force leverages VIALOG's increased network capacity by cross-selling existing
accounts with new and enhanced services, expanding the Company's penetration
of key industries (for example, pharmaceutical companies) and targeting key
vertical industries and accounts. An outside sales group of approximately 35
professionals operates from four regional offices, and is primarily
responsible for origination of new business. An inside sales group of
approximately 25 professionals responds to inbound requests, assists customers
in implementing VIALOG's service offerings and supports the outside sales
force.
Wholesale sales. The Company has deployed a wholesale sales organization
which intends to capitalize on what the Company believes to be significant
opportunities for revenue growth by providing outsourced services to IXCs,
LECs, and RBOCs. While conferencing services make up a small portion of these
companies' overall business, they are an important part of a full-service
service provider's portfolio. The Company offers these companies the ability
to efficiently outsource all conferencing services and support. The Company
believes its wholesale sales initiative is justified by an increasing trend
among telecommunications companies to outsource non-core, labor intensive
services. The Company believes that this trend has been evidenced by existing
outsourcing of services, such as billing and telemarketing and downsizing of
personnel as these companies move away from labor-intensive activities. In
addition, potential opportunities exist as a result of the Telecommunications
Act of 1996 to provide services in new markets. The Company currently has
contracts to provide outsourced services to a number of facilities-based and
non-facilities-based telecommunications service providers. An important
element of the Company's marketing strategy will be to secure additional
outsourcing contracts and to expand net revenues from its existing customer
base. In order to capitalize on this market, the Company has hired a vice
president of wholesale sales and two senior telecom sales professionals who
have extensive experience in the industry.
E-commerce. The Company has embraced the Internet, and is using e-commerce
to extend VIALOG's sales distribution. Both through WebConferencing.com and
private-label offerings through Internet strategic partners, VIALOG's services
can be cost-effectively sold to customers too small to be targeted via direct
sales.
Customer Service
The Company believes that it has successfully obtained and retained
customers due to quality customer service provided by a highly skilled staff.
Reservationists and operators become the Company's primary contacts
10
<PAGE>
with its customers after the initial sales effort, thereby providing
opportunities to support the sales effort with personalized service. In some
cases, customers have become accustomed to working with a particular
reservationist or operator and insist upon continued assistance from these
specific individuals.
Reservationists assist the Company's customers in scheduling their
conferences. Reservationists access the conferencing system to determine time
and ports available and to confirm the conferences. Operators monitor calls
and provide the services requested in the reservation. Operators are also
trained to provide assistance to the moderator (usually the person initiating
the conference) to ensure a successful conference. Supervisors are available
to assist in the setup and execution of a conference. The Company's staff is
trained to facilitate effective conferences through a combination of
classroom, mentoring, teaming, and on-the-job supervision.
Customers
The Company provided services to over 6,000 customers in 1999. The customers
ranged in size from major multinational corporations and Fortune 500 companies
to small businesses, professional organizations, public institutions and
individuals. A breakdown of the Company's top 20 customers (based on 1999
consolidated net revenues), including both wholesale and retail customers, by
industry is as follows: financial services (six), telecommunications (five),
retail (four), high technology (three), professional services (two), and
pharmaceutical (one). No account represented more than 10% of the Company's
consolidated net revenues in 1999. The top 10 customers of the Company
represented approximately 22% of the Company's pro forma net revenues in 1998
and 16% of the Company's pro forma net revenues in 1999.
Competition
The conferencing service industry is highly competitive and subject to rapid
change. In the audioconferencing market, the Company currently competes, or
expects to compete in the near future, with the following categories of
companies: (i) IXCs, such as AT&T, MCI WorldCom, Sprint, Global Crossing and
Cable & Wireless, (ii) independent LECs, such as GTE, and (iii) other private
conference service bureaus ("PCSBs"). The IXCs generally do not market
conferencing services separately, but rather offer such services as part of a
"bundled" telecommunications offering. The IXCs have not emphasized enhanced
services or customized communications solutions to meet customer needs.
However, there can be no assurance that these competitors will not alter their
current strategies and begin to focus on services-specific selling, customized
solutions and operator-attended services, the occurrence of any of which could
increase competition. Under the Telecommunications Act of 1996, the RBOCs may
also be allowed to provide long distance services within the regions in which
they also provide local exchange services ("in-region long distance services")
upon the satisfaction of certain conditions, including the specific approval
of the Federal Communications Commission, the introduction of or a defined
potential for facilities-based local competition, the offering of local
services for resale, and compliance with access and interconnection
requirements for facilities-based competitors. Upon entrance into the long
distance market, the ability of an RBOC to gain immediate and significant
conferencing market share could be enhanced by its status as the incumbent
primary provider of local services to its customers.
In the videoconferencing and Internet conferencing markets, the Company
competes with existing providers of audio teleconferencing services, as well
as new competitors dedicated to video and/or Internet conferencing. The
Company believes that the principal competitive factors influencing the market
for its services are brand identity, quality of customer service, breadth of
service offerings, price and vendor reputation. There can be no assurance that
the Company will be able to compete successfully with respect to any of these
factors. Competition may result in significant price reductions, decreased
gross margins, loss of market share and reduced acceptance of the Company's
services.
The Company derived approximately 8% of its 1999 pro forma net revenues from
IXCs and LECs which outsource conferencing services provided to their
respective customers. These telecommunications companies
11
<PAGE>
have the financial capability and expertise to deliver such services
internally. There can be no assurance that the Company's current IXC and LEC
customers will not begin to provide the conferencing services now being
provided by the Company and pursue such market actively and in direct
competition with the Company, which could have a material adverse effect on
the Company's business, financial condition, results of operations and
prospects. Moreover, the Company believes that part of its growth will occur
from RBOCs which may enter the long distance market and outsource their
conferencing services. There can be no assurance that any telecommunications
company will be able to offer conferencing services legally, now or in the
future, will choose to do so or that those choosing to do so will outsource
their conferencing services or choose the Company as their provider in case
they do outsource conferencing.
The Company also believes that many of its current and prospective customers
have sufficient resources to purchase the equipment and hire the personnel
necessary to establish and maintain conferencing capabilities sufficient to
meet their own respective conferencing needs. If the manufacturers of PBXs
develop improved, cost-effective PBX capabilities for handling conferences
with the quality of existing bridges used in the conferencing business, the
Company's customers could choose to purchase such equipment and hire the
personnel necessary to service their conferencing needs through internal
telephone systems. The loss of such customers could have a material adverse
effect on the Company's business, financial condition, results of operations
and prospects. Additionally, if internet technology can be modified to
accommodate multipoint voice transmission comparable to existing bridges used
in the conferencing business, there could be a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
Many of the Company's current and potential competitors have substantially
greater financial, sales, marketing, managerial, operational and other
resources, as well as greater name recognition, than the Company and may be
able to respond more effectively than the Company to new or emerging
technologies and changes in customer requirements. In addition, such
competitors may be capable of initiating or withstanding significant price
decreases or devoting substantially greater resources than the Company to the
development, promotion and sale of new services. Because bridges are not
prohibitively expensive to purchase or maintain, companies previously not
involved in conferencing could choose to enter the marketplace and compete
with the Company. There can be no assurance that new competitors will not
enter the Company's markets or that consolidations or alliances among current
competitors will not create significant new competition. In order to remain
competitive, the Company will be required to provide superior customer service
and to respond effectively to the introduction of new and improved services
offered by its competitors. Any failure of the Company to accomplish these
tasks or otherwise to respond to competitive threats may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects.
Suppliers
The Company's services require two material components which it purchases
from outside suppliers:
Telecommunications Services. A significant portion of the Company's direct
costs are attributable to the purchase of local and long distance telephone
services. The operating centers have purchased telecommunications services
from a number of vendors, including AT&T, Sprint, MCI WorldCom, and Qwest
Communications International, Inc. The Company believes that multiple
suppliers will continue to compete for the Company's telecommunications
contracts. Since the minutes of use generated by the Company will be
substantially higher than the largest of the operating centers, the Company's
experience is that it has been able to to negotiate telecommunications
contracts with lower prices and improved service guarantees. In light of what
the Company believes to be increased competition among long distance service
providers, the Company has been entering into shorter-term contracts for long
distance services in order to obtain the benefit of anticipated reduced costs
over time. However, there can be no assurance that competition in the long
distance services market will continue to increase, that any increased
competition will reduce the cost of long distance services or that the
Company's purchasing strategy will result in cost savings. If the costs of
long distance services increase over time, the Company's current purchasing
strategy (which calls for shorter-term contracts) may place it at a
12
<PAGE>
competitive disadvantage with respect to competitors that have entered into
longer-term contracts for long distance services. There can be no assurance
that the Company's analysis of the future costs of long distance services will
be accurate, and the failure to predict future cost trends accurately could
have a material adverse effect on the Company's business, financial condition,
results of operations and prospects.
Bridging Hardware and Software Support Systems. The Company uses bridge
equipment produced by three different manufacturers. At present, the equipment
being utilized is not functionally identical, but is compatible with
substantially all network standards. As of December 31, 1999, approximately
58% of the operating centers' port capacity was manufactured by one vendor,
MultiLink, Inc., which was acquired by PictureTel Corporation in 1997.
However, a number of other vendors offer similar bridging equipment. In
December 1999, the Company entered into an eighteen month non-exclusive volume
purchase agreement with Octave Communications which provides for graduated
bridge price discounts based on the number of ports purchased by VIALOG during
the term of the agreement.
Employees
As of March 1, 2000, the Company had 619 employees, 332 of whom were
employed full time or part time as operators or reservationists. None of the
Company's employees are represented by unions. The Company has experienced no
work stoppages and believes its relationships with its employees are good.
Regulation
In general, the telecommunications industry is subject to extensive
regulation by federal, state and local governments. Although there is little
or no direct regulation in the United States of the core group communications
services offered by the Company, various government agencies, such as the FCC,
have jurisdiction over some of the Company's current and potential suppliers
of telecommunications services, and government regulation of those services
has a direct impact on the cost of the Company's group communications
services. There can be no assurance that the FCC or other government agencies
will not seek in the future to regulate the Company as a common carrier and
regulate the prices, conditions or other aspects of the group communications
services offered by the Company, that the FCC will not impose registration,
certification or other requirements on the provision of those services, or
that the Company would be able to comply with any such requirements.
Additionally, government regulations in countries other than the United States
vary widely and may restrict the Company's ability to offer its services in
those countries. The Company believes that it is currently in material
compliance with applicable communications laws and regulations.
Item 2. Properties.
The Company's corporate headquarters are currently located in approximately
11,900 square feet of office space in Andover, Massachusetts under a lease
expiring in June, 2004.
The operating centers are located in leased facilities in Virginia, Alabama,
Massachusetts and Minnesota. The Company believes all of its operating centers
are fully utilized except for its approximately 66,000 square foot facility in
Reston, Virginia which is approximately 80% utilized and its approximately
25,000 square foot facility in Chanhassen, Minnesota which is 60% utilized. As
a result of the closing of five operating centers in connection with the
consolidation of operations in 1999, the Company also currently holds leases
on an 8,219 square foot facility in Atlanta, Georgia, a 1,088 square foot
facility in Oradell, New Jersey, a 3,871 square foot facility in Danbury,
Connecticut and a 7,916 square foot facility in Houston, Texas, each of which
has been substantially or completely vacated. With the exception of the Palm
Springs, California facility, the lease for which expired in December 1999,
the Company intends to find tenants to sublease the vacated facilities through
the lease maturity dates or to negotiate terminations of these leases with the
respective landlords. The Company occupies the operating centers and other
facilities under leases which provide for a total of approximately 165,571
square feet at rates ranging from $9.00 to $28.00 per square foot with
expiration dates, excluding month-to-month leases, ranging from April 2000 to
May 2008. The Company's total lease expense related to its
13
<PAGE>
facilities was approximately $1.4 million and $2.3 million for the years ended
December 31, 1998 and 1999, respectively. The Company believes its properties
are adequate for its needs. The Company's facilities are located either within
one mile of central telephone switching locations or on a sonet fiberoptic
loop in metropolitan locations. Each facility has dual sources of power or
back-up generating capabilities. While the Company's telephone and power
requirements may preclude it from locating in some areas, the Company believes
alternative locations are available for its facilities at competitive prices.
In connection with the consolidation plan which commenced in 1999, the
Company is in the process of combining its corporate offices and its
Cambridge, Massachusetts operating center into a new leased facility located
in Bedford, Massachusetts. The corporate offices will remain staffed until
June 2000 and the Cambridge operating center will remain staffed until July
2000, after which time its traffic will be managed at the Bedford operating
center. The lease for the new Bedford corporate offices and operating center,
provides for a total of approximately 27,868 square feet at a base rate of
$24.00 per square foot (escalating to $25.00 per square foot in years four
through five of the lease) with an expiration date of May 15, 2005.
Item 3. Legal Proceedings.
The Company is not currently a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or in any other manner.
14
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
General
The Company's authorized capital stock as of December 31, 1999 consisted of
30,000,000 shares of common stock, $0.01 par value and 10,000,000 shares of
preferred stock, $0.01 par value. As of December 31, 1999, the Company had
outstanding 9,133,569 shares of common stock and no shares of preferred stock.
The Company has reserved an aggregate of 4,750,000 shares of common stock for
issuance pursuant to its stock plans. (See Item 11--Executive Compensation,
Stock Plans).
On February 10, 1999, the Company completed an initial public offering
("IPO") of its common stock. From February 8, 1999 to December 9, 1999, the
Company's common stock was quoted on the Nasdaq Stock Market's National Market
("Nasdaq") under the symbol "VLOG". Since December 10, 1999, the Company's
common stock has been quoted on the American Stock Exchange under the symbol
"VX". Prior to the IPO, there was no established public trading market for the
Company's common stock. The high and low last sale prices for the Company's
common stock for the period from February 8, 1999, the date the Company's
common stock was first quoted on Nasdaq, through March 24, 2000 are as
follows:
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1999
First Quarter (from February 8)................................ $6.19 $3.75
Second Quarter................................................. 6.00 3.50
Third Quarter.................................................. 4.50 2.63
Fourth Quarter................................................. 4.13 2.81
2000
First Quarter (through March 24, 2000)......................... 7.75 3.00
</TABLE>
As of March 13, 2000, the Company had outstanding 9,152,485 shares of common
stock held by approximately 213 shareholders of record.
Dividends
The Company did not declare any dividends on any class of equity during
1999, and does not intend to pay dividends in the foreseeable future.
Additionally, pursuant to the terms of the Indenture related to the Company's
November 1997 $75 million bond financing and the senior credit facility the
Company currently maintains with Coast Business Credit, the Company is
prohibited from declaring or paying any dividends or distributions other than
dividends or distributions payable solely in certain of the Company's
qualified capital stock.
Sales of Unregistered Securities
The Company issued or sold the following unregistered securities in 1999:
. An aggregate of 9,069 shares of common stock between January 1999 and
April 1999 at prices ranging from $0.025 to $5.75 per share to several
of the Company's employees and a consultant upon the exercise of stock
options held by those individuals and issued under the Company's 1996
Stock Plan;
. An aggregate of 99,696 shares of common stock in February and March 1999
at a price of $3.26 per share to four warrant holders upon the exercise
of warrants issued to those warrant holders as part of the Company's
February 1997 $500,000 debt financing; and
. An aggregate of 345,535 shares of common stock between March 1999 and
October 1999 at a price of $.01 per share to ten warrant holders upon
the exercise of warrants issued as part of the Company's November 1997
$75 million bond financing.
15
<PAGE>
Each of the sales described above were completed without registration under
the Securities Act in reliance on one or more of the following exemptions:
. Section 4(2) of the Securities Act of 1933 or Rule 506 of Regulation D
promulgated under the Securities Act of 1933 for transactions not
involving a public offering; and
. Rule 701 promulgated under the Securities Act of 1933 with respect to
certain of the options and shares of common stock issued to the
Company's employees and consultants.
Item 6. Selected Financial Data.
Contemporaneously with the closing of the November 1997 bond financing,
VIALOG consummated agreements to acquire six private conference service
bureaus, all of which became wholly-owned subsidiaries of VIALOG Corporation.
Prior to November 12, 1997, VIALOG did not conduct any operations, and all
activities conducted by it related to the acquisitions and the completion of
financing transactions to fund the acquisitions.
The following selected financial data of VIALOG for the years ended December
31, 1996, 1997, 1998 and 1999 have been derived from its audited consolidated
financial statements.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
(in thousands, except share
and per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues...................... $ -- $ 4,816 $ 46,820 $ 68,629
Cost of revenues, excluding
depreciation..................... -- 2,492 24,321 32,387
Selling, general and
administrative expenses.......... 1,308 7,178 15,196 23,442
Depreciation expense.............. 0 273 2,835 4,190
Amortization of goodwill and
intangibles...................... 0 306 2,490 4,060
Non-recurring charges............. 0 8,000 1,200 2,982
--------- --------- --------- ---------
Operating income (loss)........... (1,308) (13,433) 788 1,568
Interest income (expense), net.... 1 (1,866) (12,629) (13,524)
--------- --------- --------- ---------
Loss before income taxes.......... (1,307) (15,299) (11,851) (11,956)
Income tax benefit (expense)...... 522 (522) (26) (164)
--------- --------- --------- ---------
Net loss.......................... $ (785) $ (15,821) $ (11,877) $ (12,120)
========= ========= ========= =========
Net loss per share--basic and
diluted.......................... $ (0.38) $ (5.48) $ (3.27) $ (1.53)
========= ========= ========= =========
Weighted average shares
outstanding...................... 2,088,146 2,889,005 3,632,311 7,947,333
========= ========= ========= =========
Other Financial Data:
EBITDA(1)......................... $ (1,308) $ (4,854) $ 6,103 $ 9,818
Cash flows provided by (used in)
operating activities............. (178) (4,148) (5,418) 149
Cash flows used in investing
activities....................... (7) (53,762) (7,848) (37,455)
Cash flows provided by financing
activities....................... 522 67,140 3,931 37,621
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......... $ 337 $ 9,567 $ 232 $ 547
Working capital (deficit)......... (249) 7,259 (2,378) (3,923)
Total assets...................... 1,263 75,083 69,266 99,221
Total long-term debt, including
current portion(2)............... -- 71,936 75,654 78,159
Stockholders' equity (deficit).... 287 (4,882) (16,592) 5,043
</TABLE>
- --------
(1) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and
16
<PAGE>
should not be considered as an alternative to net income as a measure of
operating results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
(2) Net of unamortized original issue discount of $4.2 million, $3.1 million
and $2.0 million at December 31, 1997, 1998, and 1999, respectively.
Access and CSI Selected Financial Data
VIALOG reports operating results commencing with its inception on January 1,
1996. For the purpose of providing five full years of selected historical
financial data, as required under the Securities Act, the following historical
selected financial data is presented for the two largest acquired companies,
Telephone Business Meetings, Inc. ("Access") and Conference Source
International, Inc. ("CSI"). The selected data as of December 31, 1995 and
1996 and for the years ended December 31, 1995 and 1996 and the period January
1, 1997 to November 12, 1997, the date of their respective acquisitions, are
derived from, and should be read in conjunction with, Access' and CSI's
respective audited financial statements and the notes thereto appearing
elsewhere in this Report. The data presented below is neither comparable to
nor indicative of the Company's post-acquisition financial position or results
of operations.
<TABLE>
<CAPTION>
January 1,
Year Ended December 31, 1997 to
------------------------------ November 12,
1995 1996 1997
-------------- --------------- ---------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Access Statement of Op-
erations Data:
Net revenues............ $ 6,508 $ 9,073 $ 10,945
Cost of revenues, ex-
cluding depreciation... 3,021 3,564 4,791
Selling, general and ad-
ministrative expenses.. 2,484 3,332 4,124
Depreciation and amorti-
zation expense......... 496 630 823
------------- --------------- ------------
Operating income........ 507 1,547 1,207
Interest expense, net... 152 174 132
------------- --------------- ------------
Earnings before income
taxes.................. 355 1,373 1,075
Income tax expense
(benefit).............. (48) -- --
------------- --------------- ------------
Net income.............. $ 403 $ 1,373 $ 1,075
============= =============== ============
Net income per share--
basic and diluted...... $ 644.80 $ 2,746.00 $ 2,150.00
============= =============== ============
Weighted average shares
outstanding............ 625 500 500
============= =============== ============
Access Other Financial
Data:
EBITDA(1)............... $ 1,003 $ 2,177 $ 2,030
Cash flows provided by
operating activities... 821 2,048 2,932
Cash flows used in
investing activities... (1,432) (795) (1,704)
Cash flows provided by
(used in) financing
activities............. 771 (839) (1,549)
<CAPTION>
December 31,
------------------------------
1995 1996
-------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Access Balance Sheet
Data:
Cash and cash
equivalents............ $ 390 $ 804
Working capital......... 141 759
Total assets............ 3,672 4,605
Total long-term debt,
including current
portion................ 2,416 2,052
Stockholders' equity.... 872 1,770
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
January 1,
Year Ended December 31, 1997 to
---------------------------------- November 12,
1995 1996 1997
--------------- ----------------- ----------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
CSI Statement of
Operations Data:
Net revenues............. $ 3,808 $ 5,868 $ 5,579
Cost of revenues,
excluding depreciation.. 1,617 2,438 2,052
Selling, general and
administrative
expenses................ 905 998 831
Depreciation expense..... 292 393 356
--------------- ----------------- --------------
Operating income......... 994 2,039 2,340
Interest expense, net.... 160 165 120
--------------- ----------------- --------------
Net income............... $ 834 $ 1,874 $ 2,220
=============== ================= ==============
Net income per share--
basic and diluted....... $ 834.00 $ 1,874.00 $ 2,220.00
=============== ================= ==============
Weighted average shares
outstanding............. 1,000 1,000 1,000
=============== ================= ==============
CSI Other Financial Data:
EBITDA(1)................ $ 1,286 $ 2,432 $ 2,696
Cash flows provided by
operating activities.... 721 2,128 2,897
Cash flows used in
investing activities.... (225) (41) (311)
Cash flows provided by
(used in) financing
activities.............. (144) (2,144) (2,801)
<CAPTION>
December 31,
----------------------------------
1995 1996
--------------- -----------------
(In thousands)
<S> <C> <C> <C>
CSI Balance Sheet Data:
Cash and cash
equivalents............. $ 375 $ 318
Working capital
(deficit)............... (322) 445
Total assets............. 2,037 2,293
Total long-term debt,
including current
portion................. 1,446 1,405
Stockholders' equity
(deficit)............... 360 676
</TABLE>
- --------
(1) EBITDA represents income from continuing operations before income taxes,
depreciation and amortization. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of operating
results or as an alternative to cash flows as a better measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use. The Company believes that EBITDA is accepted by the
telecommunications industry as a generally recognized measure of
performance and is used by analysts to report publicly on the performance
of telecommunications companies.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
VIALOG Corporation was founded on January 1, 1996. On November 12, 1997,
VIALOG Corporation consummated agreements to acquire six private conference
service bureaus, all of which became wholly-owned subsidiaries of VIALOG
Corporation. Prior to the original acquisitions, VIALOG Corporation did not
conduct any operations, and all activities conducted by it were related to the
original acquisitions. On February 10, 1999 VIALOG Corporation completed an
initial public offering of its common stock and consummated agreements to
acquire three private conference service bureaus, all of which became wholly-
owned subsidiaries of VIALOG Corporation. The following Management's
Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the consolidated financial statements and
related notes thereto for the years ended December 31, 1997, 1998 and 1999 and
the financial statements and related notes thereto of certain operating
centers prior to their acquisition for the years ended December 31, 1995,
1996, 1997 and 1998 and "Selected Financial Data" appearing elsewhere in this
Report.
18
<PAGE>
Introduction
The Company's net revenues are derived primarily from fees charged to
customers for audioconferencing services as well as videoconferencing and
enhanced and customized communication services. Cost of revenues, excluding
depreciation, consists primarily of long distance telephone and network
charges, salaries and benefits for conference operators and reservationists
and maintenance of telephone bridging equipment. Selling, general and
administrative expenses consist primarily of compensation and benefits to
sales and marketing personnel, executive officers and general and
administrative employees, marketing expenses, occupancy costs and professional
fees.
Prior to the acquisitions, the operating centers were managed as independent
private companies, and, as such, their results of operations reflect different
tax structures (S corporations and C corporations) which have influenced,
among other things, their levels of historical compensation. Certain officers
and employees of the operating centers agreed to reductions in their
compensation and benefits in connection with the acquisitions. The difference
between the historical compensation and benefits of such individuals and the
compensation and benefits they agreed to accept subsequent to the acquisitions
is referred to as "Compensation Differential." This Compensation Differential
and the related income tax effect have been reflected as pro forma adjustments
in the Company's pro forma combined financial statements included elsewhere
herein.
The Company, which has only conducted operations since November 12, 1997
(other than in connection with certain financing transactions, the issuance of
senior notes and the acquisitions), has integrated several of its operations,
including sales, marketing, human resources, benefits administration,
accounting and finance, excluding billing. Within the next six months, the
Company plans to complete the migration of the reservations process to one
common reservation system. Additionally, the Company is in the process of
implementing a new, state of the art billing system and expects to complete
the implementation over the next 6 to 9 months. The Company estimates that the
cost to implement the new billing system will be approximately $1.0 million.
Once implemented, the system is expected to reduce costs through enhanced
billing efficiencies. Additional cost reduction opportunities exist with the
Company's long distance costs as a result of new agreements recently entered
into by the Company. It is anticipated that increased marketing costs will be
required to further establish the Company's brand name in the marketplace. As
a result of these various costs and cost-savings, comparisons of historical
operating results may not be meaningful, and such results may not be
indicative of future performance.
The Company's largest outsourcing customer acquired a competitor of the
Company in 1998. The customer, representing approximately 7% of the Company's
1998 consolidated net revenues and 2% of the Company's 1999 consolidated net
revenues, honored its outsourcing contract with the Company, which expired in
July 1999. Although the significant reduction in net revenues from this
customer has reduced the Company's net revenues and operating results in the
near term, the Company believes that the long term impact to net revenues and
results of operations will not be significant.
VIALOG Corporation
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenue. Net revenue for fiscal 1999 increased to $68.6 million as
compared to $46.8 million for fiscal year 1998, an increase of 47%. The
increase was primarily due to increased call volumes for audioconferencing and
videoconferencing services, as well as the acquisition of three private
conference service bureaus on February 10, 1999. The major components of the
increase were (i) an increase in the Reston operating centers' net revenues
from $18.4 million to $27.4 million, an increase of 49% (ii) and an increase
of $15.8 million related to the Chanhassen (formerly Chaska), Houston and Palm
Springs operating centers which were acquired on February 10, 1999 and
included in the Company's consolidated results beginning February 11, 1999.
These increases were partially offset by a revenue decrease of approximately
$3.3 million from the loss of two outsourcing customers that merged with
competitors of the Company.
19
<PAGE>
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, increased approximately $8.1 million, or 33%, from $24.3 million
in 1998 to $32.4 million in 1999, but decreased as a percentage of revenue
from 51.9%, in 1998 to 47.2% in 1999. The dollar increase was primarily due to
(i) an increase in the Reston Center's cost of revenues of $3.9 million
related to increased volume, and (ii) an increase of $5.9 million relating to
the Chanhassen, Houston and Palm Springs operating centers which were acquired
on February 10, 1999 and included in the Company's consolidated results
beginning February 11, 1999. These increases were offset by a cost of revenue
decrease of $1.2 million in the Montgomery operating center caused primarily
by the loss of two major customers that merged with competitors of the
Company. The decrease as a percentage of revenues was primarily due to an
overall reduction in telecommunications cost per minute resulting from the
negotiation of lower cost telecommunication contracts and the favorable impact
resulting from the acquisition of the three operating centers on February 10,
1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $8.2 million, or 54%, from $15.2 million in
1998 to $23.4 million in 1999. The increase primarily reflects the increases
in (i) personnel, commissions and related expenses associated with higher
sales volume, (ii) expansion of the Company's marketing, market research and
communications programs, (iii) investments in the Ready-to-Meet and
WebConferencing segments, (iv) increased staffing and outside services in the
general and administrative area and (v) $1.2 million of costs associated with
the departure of the former Chief Executive Officer and other management
staff.
Depreciation and amortization expense. Depreciation expense increased $1.4
million from $2.8 million in 1998 to $4.2 million in 1999. The increase was
primarily due to additions to property and equipment as well as the acquired
property and equipment related to the acquisition of the three operating
centers on February 10, 1999. In addition, amortization of goodwill and
intangibles increased $1.6 million from $2.5 million to $4.1 million which
represents amortization expense related to the three operating centers
acquired on February 10, 1999.
Non-recurring charges. The results for the year ended December 31, 1999
include a non-recurring charge of approximately $3.0 million, which was
incurred during the second quarter of 1999 and related to the consolidation of
four of the Company's operating centers. The operating centers affected
include Oradell, New Jersey and Danbury, Connecticut, which the Company closed
in the third quarter of 1999; and Houston, Texas, and Palm Springs,
California, which were closed in in the fourth quarter of 1999. In conjunction
with these closings, the Company expanded its other facilities to accommodate
the transitioned business. The Company anticipates that it will realize annual
cost savings beginning in 2000 of approximately $2.0 million as a result of
the consolidation. In addition, the Company plans to combine its corporate
offices and its Cambridge operating center by the end of the third quarter of
2000. The non-recurring charge includes (i) approximately $1.2 million
associated with facility lease costs from the exit dates through the lease
termination dates (net of estimated sublease income), (ii) $860,000 associated
with personnel reductions of approximately 130 conference coordinators,
customer service, technical support, and general and administrative positions,
(iii) $683,000 associated with the impairment of intangible assets, (iv)
$150,000 associated with legal fees and other exit costs, and (v) $114,000
associated with the write-off of leasehold improvements. During 1999, the
Company paid out approximately $546,000 related primarily to personnel
reductions and facility closings and wrote off approximately $246,000 of
intangible assets and leasehold improvements related to the Oradell and
Danbury operating centers. In December, the Company paid out approximately
$144,000 related primarily to personnel reductions and facility closings and
wrote off approximately $449,000 of intangible assets related to the Houston
and Palm Springs operating centers.
20
<PAGE>
Components of the non-recurring charge recorded in 1999 and amounts incurred
through December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Amount
1999 Incurred Balance
Charge 1999 12/31/99
------ -------- --------
($000's)
<S> <C> <C> <C>
People Related Costs................................. $ 860 $ 401 $ 459
Facility Related Costs............................... 1,175 139 1,036
Other Related Costs.................................. 150 150 --
Impairment of intangible assets and leasehold
improvements........................................ 797 695 102
------ ------ ------
Total.............................................. $2,982 $1,385 $1,597
====== ====== ======
</TABLE>
The results for the year ended December 31, 1998 include a non-recurring
charge of $1.2 million related to the consolidation of the Atlanta and
Montgomery operating centers. In accordance with the consolidation plan, the
Atlanta operating center remained staffed through January 1999, after which
time the Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery operating center as well as other operating
centers. During the twelve months ended December 31, 1999, the Company paid
out approximately $166,000 related to personnel reductions and the facility
closing.
Components of the non-recurring charge recorded in 1998, amounts incurred
through December 31, 1999, and adjustments to the charge are as follows:
<TABLE>
<CAPTION>
Amount Amount
1998 Incurred Balance Incurred Adjustments Balance
Charge 1998 12/31/98 1999 to Charge 12/31/99
------ -------- -------- -------- ----------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
People Related Costs.... $ 373 $315 $ 58 $ 4 $(54) $--
Facility Related Costs.. 400 -- 400 159 202 443
Other Related Costs..... 135 8 127 3 (124) --
Impairment of intangible
assets and leasehold
improvements........... 292 1 291 267 (24) --
------ ---- ---- ---- ---- ----
Totals................ $1,200 $324 $876 $433 $-- $443
====== ==== ==== ==== ==== ====
</TABLE>
Of the remaining balance from the 1998 and 1999 restructurings approximately
$964,000 is included in short-term liabilities at December 31, 1999.
Interest expense, net. Interest expense, net increased $895,000 from $12.6
million in 1998 to $13.5 million in 1999. The increase was primarily due to
$539,000 of interest expense related to borrowings from the Company's
revolving credit facility executed in the fourth quarter of 1998, $130,000 in
increased loan fees related to the credit facility and decreased interest
income of $230,000 related to reduced cash balances.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenues and cost of revenues, excluding depreciation. As VIALOG
Corporation did not conduct any operations prior to November 12, 1997, the
revenues and cost of revenues, excluding depreciation for the year ended
December 31, 1997 represent only activity for the period November 12, 1997
through December 31, 1997. Net revenues and cost of revenues, excluding
depreciation for the year ended December 31, 1998 represent the consolidated
results of the Company, including the original acquisitions for the full year.
Two of the Company's largest outsourcing customers have acquired or merged
with competitors of the Company. Collectively, these customers accounted for
approximately 12% of the Company's 1998 consolidated net revenues. One of
these customers, representing approximately 9% of the Company's 1998
consolidated net revenues, honored its outsourcing contract with the Company,
which expired in July 1999. The second customer, representing approximately 3%
of the Company's 1998 consolidated net revenues, moved its conferencing
business to a conferencing company it acquired.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $8.0 million, or 112%, from $7.2 million in
1997 to $15.2 million in 1998. The increase was primarily due to the fact that
selling, general and administrative expenses for the year ended December 31,
1997 represented only general and administrative expenses related to the
organization of VIALOG Corporation and the consummation of
21
<PAGE>
business combination agreements with the acquisitions of six private
conference service bureaus prior to November 12, 1997 and consolidated
selling, general and administrative expenses of the Company including the six
acquisitions for the period November 12, 1997 through December 31, 1997, while
the expenses for the year ended December 31, 1998 represent consolidated
selling, general and administrative expenses of the Company, including the six
acquisitions for the full year. Selling, general and administrative expenses
for the years ended December 31, 1997 and 1998 consisted primarily of the
following: (i) compensation, benefits and travel expenses of $3.0 million and
$10.4 million, respectively, (ii) certain marketing expenses, including
advertising, promotions, trade shows and consulting, of $490,000 and $1.5
million, respectively, (iii) professional services expenses of $3.4 million
and $721,000, respectively, (iv) occupancy costs of $216,000 and $851,000,
respectively, (v) materials, supplies and equipment related costs of $0 and
$755,000, respectively, (vi) taxes and insurance costs of $0 and $421,000,
respectively, and (vii) all other costs of $92,000 and $540,000, respectively.
Included in professional services expenses for the year ended December 31,
1997 is approximately $2.0 million related to an initial public offering which
was terminated in early 1997. Included in selling, general and administrative
expenses for the year ended December 31, 1998 is approximately $508,000 for
compensation and legal expenses related to severance agreements for two former
employees.
Depreciation and amortization expense. Depreciation and amortization expense
increased $4.7 million from $579,000 to $5.3 million for the years ended
December 31, 1997 and 1998, respectively. The increase was primarily due to
the fact that VIALOG Corporation did not conduct operations prior to November
12, 1997. Thus, depreciation and amortization expense in 1997 represents
consolidated depreciation and amortization expense of the Company including
the six acquisitions for the period November 12, 1997 through December 31,
1997, while depreciation and amortization expense in 1998 represents
consolidated depreciation and amortization expense of the Company, including
the six acquisitions for the full year.
Non-recurring charge. The results for the year ended December 31, 1998
include a non-recurring charge of $1.2 million related to the consolidation of
the Atlanta and Montgomery operating centers. In connection with the
consolidation plan being implemented by the Company, the Atlanta operating
center remained staffed through January 31, 1999, after which time its traffic
has been managed by operators in the Montgomery operating center as well as
other operating centers. The Company relocated its Montgomery operating center
into a new leased facility in May 1999. The Company believes that, over the
long term, the consolidation of the two operating centers will provide
operational efficiencies as well as reduce operating costs. During the period
that the Atlanta operating center remained staffed, the Company incurred a
modest amount of incremental costs associated with increased staffing in the
Montgomery operating center in anticipation of the additional conferencing
volume to be managed by the Montgomery operating center as a result of the
consolidation. The non-recurring charge includes (i) $373,000 associated with
personnel reductions of approximately 45 operator, customer service, technical
support and general and administrative positions in the Atlanta operating
center, (ii) $400,000 associated with lease costs for the Atlanta facility
from the exit date through the lease termination date (net of estimated
sublease income), (iii) $135,000 associated with legal fees and other exit
costs, (iv) $77,000 associated with the disposal of furniture and equipment in
both the Atlanta and Montgomery operating centers, and (v) $215,000 associated
with the impairment of intangible assets (assembled workforce) in the Atlanta
operating center. As of December 31, 1998, approximately $324,000 of such
costs had been paid.
Components of the non-recurring charge recorded in 1998, amounts incurred
through December 31, 1999, and adjustments to the charge are as follows:
<TABLE>
<CAPTION>
Amount Amount
1998 Incurred Balance Incurred Adjustments Balance
Charge 1998 12/31/98 1999 to Charge 12/31/99
------ -------- -------- -------- ----------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
People Related Costs.... $ 373 $315 $ 58 $ 4 $(54) $--
Facility Related Costs.. 400 -- 400 159 202 443
Other Related Costs..... 135 8 127 3 (124) --
Impairment of intangible
assets and leasehold
improvements........... 292 1 291 267 (24) --
------ ---- ---- ---- ---- ----
Totals................ $1,200 $324 $876 $433 $-- $443
====== ==== ==== ==== ==== ====
</TABLE>
22
<PAGE>
Interest expense, net. Interest expense, net increased $10.8 million for the
year ended December 31, 1998 compared to the year ended December 31, 1997. The
increase was primarily due to (i) approximately $8.3 million of increased
interest expense on the $75.0 million of senior notes issued on November 12,
1997 and (ii) approximately $2.4 million of increased non-cash interest
expense related to the amortization of deferred debt issuance costs and
original issue discount on the senior notes, both of which were partially
offset by increased interest income of approximately $177,000 due to increased
cash balances.
Liquidity and Capital Resources
The Company has funded its operations primarily through, a senior debt
offering in 1997, a credit facility initiated in 1998 and its initial public
stock offering in February 1999.
The Company generated positive cash flows from operating activities of
$149,000 in 1999 versus a negative $5.4 million in 1998 and a negative $4.1
million in 1997 primarily due to increased depreciation and amortization as
well as working capital improvements. Cash used in investing activities of
$37.5 million, $7.8 million and $53.8 million for the years ended December 31,
1999, 1998 and 1997, respectively, represent cash paid in connection with the
acquisitions of operating centers of $29.1 million, $0 and $53.3 million,
respectively, purchases of property, plant and equipment of $8.4 million, $7.4
million and $454,000, respectively, and $493,000 related to deferred
acquisition costs for the year ended December 31, 1998. Cash provided by
financing activities of $37.6 million, $3.9 million, and $67.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively, represent issuance
of common stock and long-term debt and net advances on the Company's line of
credit, offset by payments of previously issued debt and payments of
indebtedness of the original six acquired private conference service bureaus.
On November 12, 1997, VIALOG completed a private placement of $75.0 million
of senior notes. The senior notes bear interest at 12.75% per annum, payable
semi-annually on May 15 and November 15 of each year, commencing May 15, 1998.
The senior notes are guaranteed by the operating centers and mature on
November 15, 2001. The senior notes are redeemable in whole or in part at the
option of VIALOG on or after November 15, 1999 at 110% of the principal amount
thereof, and on or after November 15, 2000 at 105% of the principal amount
thereof until maturity, in each case together with accrued interest to the
date of redemption. In the event of a change in control, as defined in the
Indenture, the Company may be required to repurchase all of the outstanding
senior notes at 101% of the principal amount plus accrued interest and
additional interest, if any. The Indenture contains restrictive covenants with
respect to the Company that among other things, create limitations (subject to
certain exceptions) on (i) the incurrence of additional indebtedness, (ii) the
ability of the Company to purchase, redeem or otherwise acquire or retire any
common stock or warrants, rights or options to acquire common stock, to retire
any subordinated indebtedness prior to final maturity or to make investments
in any person, (iii) certain transactions with affiliates, (iv) the ability to
materially change the present method of conducting business, (v) the granting
of liens on property or assets, (vi) mergers, consolidations and the
disposition of assets, (vii) declaring and paying any dividends or making any
distribution on shares of common stock, and (viii) the issuance or sale of any
capital stock of the Company's subsidiaries. The Indenture does not require
VIALOG to maintain compliance with any financial ratios or tests, except with
respect to certain restrictive covenants noted above. At December 31, 1999 the
Company was in compliance with all covenants contained in the Indenture.
On October 6, 1998, the Company closed a two year, $15.0 million credit
facility with Coast Business Credit, a division of Southern Pacific Bank.
Subject to the meeting of certain conditions, the senior credit facility
provides for (i) a term loan in the principal amount of $1.5 million, (ii) a
term loan of up to 80% of the purchase price of new and used equipment, not to
exceed $4.0 million, and (iii) a revolving loan based on a percentage of
eligible accounts receivable. Loans under the senior credit facility bear
interest at the higher of 7% or the Prime Rate plus 1.5%, and interest is
based on a minimum outstanding principal balance of the greater of $5.0
million or 33% of the available senior credit facility. The senior credit
facility includes certain early termination fees. The senior credit facility
is secured by the assets of each of the operating centers and the assets of
VIALOG Corporation, excluding the ownership interest in each of the operating
centers. The Company is required to maintain
23
<PAGE>
compliance with certain financial ratios and tests, consisting of a debt
service coverage ratio of not less than 1.2:1 determined on a monthly basis
and a minimum net worth level of not less than $50.0 million determined on an
ongoing basis. As of December 31, 1999, the Company was in compliance with
such financial ratios and tests. As of December 31, 1999, the Company had
borrowed $875,000 on the term loan, $3.8 million on the equipment term loan,
and $4.8 million on the revolving loan.
On February 10, 1999, the Company completed an initial public offering for
the sale of 4,600,000 shares of common stock. The net proceeds from this
offering, after deducting underwriting discounts and commissions and estimated
offering expenses, were approximately $32.7 million. Of the net proceeds,
approximately $29.1 million was used on February 10, 1999 to complete the
acquisitions, in separate transactions, of all of the outstanding capital
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). ABCC, CPI
and ABCI. In addition, approximately $305,000 of indebtedness was paid to the
former stockholder of one of the acquisitions. The remaining net proceeds of
$3.3 million were used for working capital and general corporate purposes.
The Company anticipates that its cash flows from operations, supplemented by
borrowings under the senior credit facility, will meet or exceed its working
capital needs, debt service requirements and planned capital expenditures for
property and equipment for the next twelve months. The Company expects to meet
its longer term liquidity requirements including repayment of the senior
notes, through a combination of working capital, cash flow from operations,
borrowings and future issuances of debt and/or equity securities. However, no
assurances can be given that such funds will be available when required or on
terms favorable to the Company.
The Company filed a current report on Form 8-K, dated February 28, 2000,
indicating that the Company had received signed lock-up agreements from the
holders of approximately 80% of the aggregate principal amount of its 12 3/4%
Senior Notes due 2001 under which, subject to the Company's obtaining
favorable senior credit financing, such noteholders would exchange their
existing notes for cash and newly issued convertible preferred stock of the
Company. The Company has had substantial discussions with lenders to arrange
such favorable financing.
The Company is highly leveraged. This indebtedness requires the Company to
dedicate a significant portion of its cash flow from operations to service its
indebtedness and makes the Company more vulnerable to unfavorable changes in
general economic conditions.
Year 2000 Compliance
The Company has experienced no Year 2000 related outages or interruptions.
Operating centers conducted normal operations during the actual roll over and
continued to service customers with no Year 2000 related issues. Performance
testing during and after the roll over found no service or integrity issues.
All functional areas of the Company conducted normal business throughout the
rollover.
Costs: The Company's total expenditures for contingency planning and
staffing during the Year 2000 rollover was less than $200,000. The Company
experienced no material expenditures in connection with its Year 2000
remediation efforts. Remediation efforts were conducted as elements of systems
upgrades or replacements that had been planned for other business reasons. The
cost of purchasing, or developing, and deploying these new systems was not
considered Year 2000 costs as they were included in the Company's integration
plan and were not accelerated due to Year 2000 issues. Most of the expenses
incurred were related to the opportunity cost of time spent by employees of
the Company evaluating Year 2000 compliance matters.
Risks: The Company is aware of no further Year 2000 related risks
outstanding at this time. There are a number of additional date integrity
issues related to the identification of Year 2000 as a leap year that have
caused concern in the computer industry. The Company believes that based on
its testing and remediation efforts, these date integrity issues do not
present a concern. The Company will continue to monitor systems operations and
integrity during the remainder of Year 2000. No additional Year 2000 related
expenditures are anticipated.
24
<PAGE>
Combined Operating Centers and VIALOG Corporation
The combined operating centers' and VIALOG Corporation's Statements of
Operations data for the years ended December 31, 1997, 1998 and 1999 do not
purport to present the financial results or the financial condition of the
combined operating centers and VIALOG Corporation in accordance with generally
accepted accounting principles. Such data represents merely a summation of the
net revenues and cost of revenues, excluding depreciation of the individual
operating centers and VIALOG Corporation on an historical basis, and excludes
the effects of pro forma adjustments. This combined data prior to the
acquisitions will not be comparable to and may not be indicative of the
Company's post-combination results of operations because the operating centers
were not under common control or management.
Results of Operations--Combined Operating Centers and VIALOG Corporation
The following unaudited combined data of the operating centers and VIALOG
Corporation on an historical basis are derived from the respective audited and
unaudited financial statements. Such data excludes the effects of pro forma
adjustments and is set forth as a percentage of net revenues for the periods
presented:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1998 1999
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................... $45,583 100.0% $59,819 100.0% $70,539 100.0%
Cost of revenues, excluding
depreciation.................... 22,296 48.9% 29,096 48.6% 33,032 46.8%
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenues. Revenues from all operating centers reflect an increase from
$59.8 million in 1998 to $70.5 million in 1999, an increase of $10.7 million,
or 18%. Overall, the increase was primarily due to increased call volumes for
audio and video conferencing services. The major components of the increase
were (i) an increase in the Reston operating center's net revenues of $9.0
million, or 49.4%, from $18.4 million in 1998 to $27.4 million in 1999, (ii) a
decrease in the Montgomery operating center's net revenues of $1.9 million, or
11.4%, from $17.1 million in 1998 to $15.2 million in 1999, caused primarily
by the loss of two major customers who merged with competitors of the Company,
(iii) an increase in the Chanhassen operating center's net revenues of $2.8
million, or 37.7%, from $7.5 million in 1998 to $10.3 million in 1999, and
(iv) an increase in the Cambridge operating center's net revenues of $922,000,
or 15.5% from $5.9 million in 1998 to $6.9 million in 1999.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation for the year ended December 31, 1999 increased $3.9 million, or
13.6%, from $29.1 million in 1998 to $33.0 million in 1999, while decreasing
as a percent of revenues from 48.6% in 1998 to 46.8% in 1999. The dollar
increase was primarily attributable to (i) an increase in the Reston operating
center's cost of revenues, excluding depreciation, of $3.9 million, or 46.5%
from $8.5 million in 1998 to $12.4 million in 1999 resulting from increased
telecommunications costs and personnel and related costs associated with
increased call volumes, (ii) an increase in the Chanhassen operating center's
cost of revenues, excluding depreciation, of $994,000 or 41.8%, resulting from
increased telecommunications costs associated with increased call volumes as
well as increased operating costs due to increased staffing to support current
and projected revenue growth, and (iii) a decrease in the Montgomery operating
center's cost of revenues, excluding depreciation, of $1.3 million or 13.0%,
caused primarily by the loss of two major customers who merged with
competitors of the Company. The decrease as a percentage of revenues was
primarily due to an overall reduction in telecommunications cost per minute
resulting from the negotiation of lower cost telecommunication contracts and
the favorable impact resulting from the acquisition of the three operating
centers on February 10, 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenues. All operating centers reflected an increase in net revenues
for the year ended December 31, 1998 compared to the year ended December 31,
1997. Net revenues increased $14.2 million, or 31.2%, from net
25
<PAGE>
revenues of $45.6 million in 1997 to net revenues of $59.8 million in 1998.
Overall, the increase was primarily due to increased call volumes for audio
and video conferencing services. The major components of this increase were
(i) an increase in the Reston operating center's net revenues of $5.8 million,
or 46.0%, from $12.6 million in 1997 to $18.4 million in 1998, which consisted
of increased sales of conferencing services of approximately $3.9 million and
$1.9 million to existing and new customers, respectively, including the
introduction of video equipment sales in the first quarter of 1998, (ii) an
increase in the Cambridge operating center's net revenues of $1.8 million, or
44.1%, which was primarily attributable to increased audioconferencing
services to existing customers and new customers, (iii) an increase in the
Chanhassen operating center's net revenues of $1.8 million, or 31.1%, which
was primarily attributable to increased audioconferencing services to existing
customers and new customers, (iv) an increase in the Atlanta operating
center's net revenues of $1.2 million, or 18.1%, which was primarily due to
increased revenues from two significant customers, which represented 71.6% and
69.4% of the Atlanta operating center's net revenues for the years ended
December 31, 1997 and 1998, respectively, and (v) an increase in the
Montgomery operating center's net revenues of $1.6 million, or 19.6%, which
was primarily due to increased revenues for audioconferencing services to
existing retail and financial services customers.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation for the year ended December 31, 1998 increased $6.7 million, or
30.1%, from $22.3 million in 1997 to $29.0 million in 1998, and remained flat
as a percentage of revenue. The dollar increase was primarily attributable to
(i) an increase in the Reston operating center's cost of revenues, excluding
depreciation of $3.0 million, or 54.7%, resulting from increased
telecommunications costs and personnel and related costs associated with
increased call volumes, and equipment costs related to the introduction of
video equipment sales in the first quarter of 1998 (which generate a lower
gross margin than teleconferencing services), (ii) an increase in the Atlanta
operating center's cost of revenues, excluding depreciation of $863,000, or
36.5%, resulting from increased telecommunications costs associated with
increased call volumes as well as increased operating costs due to increased
staffing to support current and projected revenue growth, (iii) an increase in
the Montgomery operating center's cost of revenues, excluding depreciation of
$835,000, or 14.1%, resulting primarily from increased telecommunications
costs associated with increased call volumes and (iv) an increase in the
Cambridge operating center's cost of revenues, excluding depreciation of $1.1
million, or 55.4%, resulting from increased telecommunications costs
associated with increased call volumes as well as increased operating costs
due to increased staffing to support current and projected revenue growth.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use, and is effective for fiscal years beginning after December 31,
1998, with earlier application encouraged. The Company adopted SOP 98-1 on
January 1, 1999, the adoption of which did not have a material impact on the
Company's consolidated financial statements.
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company will adopt SFAS 133 in 2001, in accordance with SFAS No. 137 which
deferred the effective date of SFAS 133. The Company does not anticipate the
adoption of this standard will have a material impact on the Company's
consolidated financial statements.
Access and CSI
The selected historical financial information presented in the tables below
for the selected operating centers is derived from, and should be read in
conjunction with, the respective audited financial statements and related
26
<PAGE>
notes thereto of the individual operating centers included elsewhere herein
and "Access and CSI Selected Financial Data." The individual selected
financial information for Access and CSI is presented because Access and CSI
are the operating centers that are considered to represent a significant
percentage of the operating results of the Company. Specifically, Access and
CSI represented 29% and 57%, respectively, of the operating income of the
operating centers on a combined basis for the period from January 1, 1997 to
November 12, 1997. The selected historical financial information for all
operating centers on a combined basis, and VIALOG Corporation is included
elsewhere herein.
Access
Founded in 1987, Access specializes in providing conferencing services to
numerous organizations, including financial institutions, government agencies,
trade associations and professional service companies. Access is headquartered
and maintains its operations center in Reston, Virginia.
Results of Operations--Access
The following table sets forth certain historical financial data of Access
and such data as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
January 1, November 13,
Year Ended December 31, 1997 to 1997 to
-------------------------- November 12, December 31,
1995 1996 1997 1997
------------ ------------ ------------- ---------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $6,508 100.0% $9,073 100.0% $10,945 100.0% $ 1,620 100.0 %
Cost of revenues,
excluding
depreciation........... 3,021 46.4% 3,564 39.3% 4,791 43.8% 709 43.8 %
Selling, general and
administrative
expenses............... 2,484 38.2% 3,332 36.7% 4,124 37.7% 2,603 160.6 %
Depreciation and
amortization expense... 496 7.6% 630 6.9% 823 7.5% 183 11.3 %
------ ----- ------ ----- ------- ----- ------- ------
Operating income
(loss)................. $ 507 7.8% $1,547 17.1% $ 1,207 11.0% $(1,875) (115.7)%
====== ===== ====== ===== ======= ===== ======= ======
</TABLE>
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
compared to Year Ended December 31, 1996
Net revenues. Net revenues increased from $9.1 million for the year ended
December 31, 1996 to $10.9 million and $1.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
increase in net revenues consisted of additional sales of conferencing
services, due to increased call volumes, to existing and new customers. Sales
to new customers were approximately $1.1 million and $167,000 for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997,
respectively. These increases reflect a substantial increase in net revenues
from audio and enhanced conferencing services, as well as revenues of
$228,000, $53,000 and $13,000 for video conferencing services for the periods
January 1 to November 12, 1997 and November 13 to December 31, 1997 and the
year ended December 31, 1996, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased from $3.6 million for the year ended December 31, 1996
to $4.8 million and $709,000 for the periods January 1 to November 12, 1997
and November 13 to December 31, 1997, respectively. As a percentage of net
revenues, cost of revenues increased 4.5 percentage points, from 39.3% for the
year ended December 31, 1996 to 43.8% for each of the periods January 1 to
November 12, 1997 and November 13 to December 31, 1997. The percentage
increase is primarily the result of the substantial investment in personnel
and related costs made in video conferencing during the periods January 1 to
November 12, 1997 and November 13 to December 31, 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $3.3 million for the year ended
December 31, 1996 to $4.1 million and $2.6 million for the periods January 1
to November 12, 1997 and November 13 to December 31, 1997, respectively. The
dollar increase was primarily the result of (I) a $2.2 million write-off of
in-process research and development costs during the period
27
<PAGE>
November 13 to December 31, 1997, relating to the acquisition of Access by
VIALOG Corporation, (ii) a $481,000 charge related to acquisition consulting
services provided to the former stockholders of Access in connection with the
sale of Access to VIALOG Corporation and the write-off of a consulting
agreement and an agreement not to compete which were determined by Access to
have no future value as of November 12, 1997, and (iii) additional operating
expenses consistent with the increase in net revenues experienced by Access.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $630,000 for the year ended December 31, 1996 to $823,000 and
$183,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The dollar increase is the result of
additional property and equipment of $1.7 million and $380,000 acquired during
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively, to support the growth in net revenues and the amortization
of goodwill and intangible assets since November 12, 1997, related to the
acquisition of Access by VIALOG Corporation.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.6 million, or 39.4%, from $6.5
million for the year ended December 31, 1995 to $9.1 million for the year
ended December 31, 1996. The increase in net revenues consisted of additional
sales of audioconferencing services, due to increased call volumes, of $1.4
million and $1.2 million to existing and new customers, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $543,000, or 18.0%, from $3.0 million for the year
ended December 31, 1995 to $3.6 million for the year ended December 31, 1996.
The dollar increase was primarily attributable to increased telecommunications
costs related to increased call volume and occupancy costs and the salaries
and benefits for 16 additional operators. As a percentage of net revenues,
cost of revenues, excluding depreciation decreased 7.1 percentage points, from
46.4% for the year ended December 31, 1995 to 39.3% for the year ended
December 31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $848,000, or 34.1%, from $2.5 million for
the year ended December 31, 1995 to $3.3 million for the year ended December
31, 1996. The dollar increase was primarily the result of increased occupancy
costs, non-recurring executive compensation and bad debt expense. As a
percentage of net revenues, selling, general and administrative expenses
decreased 1.5 percentage points from 38.2% for the year ended December 31,
1995 to 36.7% for the year ended December 31, 1996.
Depreciation and amortization expense. Depreciation and amortization expense
increased $134,000, or 27.0% from $496,000 for the year ended December 31,
1995 to $630,000 for the year ended December 31, 1996. The dollar increase is
the result of additional property and equipment of $783,000 acquired during
1996 to support the growth experienced in net revenues. As a percentage of net
revenues, depreciation expense decreased 0.7 percentage points from 7.6% for
the year ended December 31, 1995 to 6.9% for the year ended December 31, 1996.
Liquidity and Capital Resources--Access
The following table sets forth selected financial information from Access'
statements of cash flows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------- January 1, 1997 to
1995 1996 November 12, 1997
------------ ----------- ------------------
(In thousands)
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities.......... $ 821 $ 2,048 $ 2,932
Investing activities.......... (1,432) (795) (1,704)
Financing activities.......... 771 (839) (1,549)
------------ ----------- -------
Net increase (decrease) in cash
and cash equivalents........... $ 160 $ 414 $ (321)
============ =========== =======
</TABLE>
28
<PAGE>
Access had positive cash flow from operations in each year ended December
31, 1995 and 1996 and the period January 1, 1997 to November 12, 1997. Cash
used in investing activities related primarily to the acquisition of property
and equipment. Net cash provided by financing activities was primarily the
result of borrowings on notes payable to finance the acquisition of property
and equipment. Net cash used in financing activities consisted of the
repayment of notes payable, principal payments under capital lease
obligations, payments to a former stockholder and distributions to
stockholders. Distributions to stockholders totaled $0, $475,000 and
$1,284,000 for the years ended December 31, 1995 and 1996 and the period
January 1, 1997 to November 12, 1997, respectively.
CSI
Founded in 1992, CSI specialized in providing audioconferencing services and
enhanced services to certain facilities-based and non-facilities-based
telecommunications providers. CSI maintained its operations center in Atlanta,
Georgia until January 1999, after which time the Atlanta facility was vacated
and its traffic managed by conference coordinators in the Montgomery operating
center as well as other operating centers.
Results of Operations--CSI
The following table sets forth certain historical financial data of CSI and
such data as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
January 1, November 13,
Year Ended December 31, 1997 to 1997 to
-------------------------- November 12, December 31,
1995 1996 1997 1997
------------ ------------ ------------ ---------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $3,808 100.0% $5,868 100.0% $5,579 100.0% $ 854 100.0 %
Cost of revenues,
excluding
depreciation........... 1,617 42.5% 2,438 41.6% 2,052 36.8% 322 37.7 %
Selling, general and
administrative
expenses............... 905 23.8% 998 17.0% 831 14.9% 3,493 409.0 %
Depreciation and
amortization expense... 292 7.6% 393 6.7% 356 6.4% 168 19.7 %
------ ----- ------ ----- ------ ----- ------- ------
Operating income
(loss)................. $ 994 26.1% $2,039 34.7% $2,340 41.9% $(3,129) (366.4)%
====== ===== ====== ===== ====== ===== ======= ======
</TABLE>
Periods January 1 to November 12, 1997 and November 13 to December 31, 1997
Compared to Year Ended December 31, 1996
Net revenues. Net revenues increased from $5.9 million in 1996 to $5.6
million and $854,000 for the periods January 1 to November 12, 1997 and
November 13 to December 31, 1997, respectively. The increase is primarily due
to increased revenues from CSI's two significant customers. Net revenues from
such customers represented 70.0% of CSI's net revenues for the year ended
December 31, 1996 and approximately 71.6% and 71.4% of CSI's net revenues for
the periods January 1 to November 12, 1997 and November 13 to December 31,
1997, respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation decreased slightly from $2.4 million in 1996 to $2.1 million and
$322,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The decrease in cost of revenues, excluding
depreciation on increased call volumes was primarily the result of lower
telecommunications rates included in a contract which became effective in
November, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $998,000 in 1996 to $831,000 and $3.5
million for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The increase was primarily the result of a
$3.4 million write- off of in-process research and development costs relating
to the acquisition of CSI by VIALOG Corporation.
29
<PAGE>
Depreciation and amortization expense. Depreciation and amortization expense
increased from $393,000 for the year ended December 31, 1996 to $356,000 and
$168,000 for the periods January 1 to November 12, 1997 and November 13 to
December 31, 1997, respectively. The increase was the result of additional
property and equipment acquired to support the growth in net revenues and the
amortization of goodwill and intangible assets since November 12, 1997,
related to the acquisition of CSI by VIALOG Corporation.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues increased $2.1 million, or 54.1%, from $3.8
million in 1995 to $5.9 million in 1996. Virtually all of this increase was
the result of a $2.2 million increase in net revenues from two significant
customers of CSI. Net revenues from such customers represented 54.0% and 70.0%
of CSI's net revenues for the years ended December 31, 1995 and 1996,
respectively.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation increased $821,000, or 50.8%, from $1.6 million in 1995 to $2.4
million in 1996. As a percentage of net revenues, cost of revenues, excluding
depreciation decreased 0.9 percentage points from 42.5% in 1995 to 41.6% in
1996. The dollar increase was primarily attributable to increased
telecommunications expenses associated with increased call volumes and costs
associated with the addition of nine operators.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $93,000, or 10.3%, from $905,000 in 1995 to
$998,000 in 1996. As a percentage of net revenues, selling, general and
administrative expenses decreased 6.8 percentage points from 23.8% in 1995 to
17.0% in 1996. This percentage decrease was primarily attributable to
spreading fixed costs over a larger revenue base.
Depreciation and amortization expense. Depreciation and amortization expense
increased $101,000, or 34.6%, from $292,000 for the year ended December 31,
1995 to $393,000 for the year ended December 31, 1996. The increase was the
result of additional property and equipment acquired to support the growth in
net revenues.
Liquidity and Capital Resources--CSI
The following table sets forth selected financial information from CSI's
statements of cash flows:
<TABLE>
<CAPTION>
Year Ended
December 31, January 1, 1997
-------------- to
1995 1996 November 12, 1997
------ ------- -----------------
(In thousands)
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities...................... $ 721 $ 2,128 $2,897
Investing activities...................... (225) (41) (311)
Financing activities...................... (144) (2,144) (2,801)
----- ------- ------
Net increase (decrease) in cash and cash
equivalents................................ $ 352 $ (57) $ (215)
===== ======= ======
</TABLE>
CSI had a positive cash flow from operations in each year ended December 31,
1995, 1996 and the period January 1, 1997 to November 12, 1997. Cash used in
investing activities in 1995, 1996 and the period January 1, 1997 to November
12, 1997 related solely to the acquisition of property and equipment. Cash
provided by financing activities consisted of the proceeds of borrowings on
long-term debt and from the refinancing of capital lease obligations. Cash
used in financing activities consisted of repayments of long-term debt and
capital lease obligations and distributions to stockholders. Stockholder
distributions totaled $1.6 million and $2.6 million for the year ended
December 31, 1996 and the period January 1, 1997 through November 12, 1997,
respectively. There were no stockholder distributions in 1995. As of November
12, 1997, CSI had a working capital deficit of $23,000.
Safe Harbor for Forward Looking Statements
The Company is including the following cautionary statements to make
applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking
30
<PAGE>
statements made by, or on behalf of, the Company in this Annual Report on Form
10-K. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. Such forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects," "intends,"
"plans," "predicts," "projects," and similar expressions. From time to time,
the Company may publish or otherwise make available forward-looking statements
of this nature. All such forward-looking statements, whether written or oral,
and whether made by or on behalf of the Company, are expressly qualified by
these cautionary statements and any other cautionary statements which may
accompany the forward-looking statements. In addition, the Company disclaims
any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
Forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs or projections will result
or be achieved or accomplished. In addition to other factors and matters
discussed elsewhere herein, some of the important factors that, in the view of
the Company, could cause actual results to differ materially from those
discussed in the forward-looking statements include the following:
Absence of consolidated operating history. VIALOG Corporation was founded on
January 1, 1996 and has only conducted operations and generated revenues since
November 12, 1997, the date the Company acquired its original six private
conference service bureaus. Prior to that time, the operating centers each
operated as separate, independent businesses. In addition, the Company used
the purchase method of accounting to record the acquisitions and consequently,
the pro forma and consolidated financial information contained in this Report
may not be indicative of the Company's future operating results and financial
condition.
Substantial leverage and ability to service debt. The Company is highly
leveraged, with substantial debt service in addition to operating expenses and
planned capital expenditures. At December 31, 1999, the total indebtedness of
the Company was approximately $78.2 million, net of unamortized original issue
discount of $2.0 million. In October 1998, the Company closed a senior credit
facility for a principal amount of up to $15.0 million. As of December 31,
1999, the Company had approximately $9.4 million of borrowings outstanding
under its senior credit facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's level of indebtedness will have several important effects on
its future operations, including, without limitation, (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest and principal on its indebtedness, (ii) covenants
contained in the Indenture and the senior credit facility require the Company
to meet certain financial tests, and other restrictions contained in the
Indenture and the senior credit facility limit its ability to borrow
additional funds or to dispose of assets, and may affect the Company's
flexibility in planning for, and reacting to, changes in its business,
including possible acquisition activities, (iii) the Company's leveraged
position has substantially increased its vulnerability to adverse changes in
general economic, industry and competitive conditions, and (iv) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic, industry and
competitive conditions. There can be no assurance that the Company's business
will continue to generate cash flow at or above current levels. If the Company
is unable to generate sufficient cash flow from operations in the future to
service its debt, it may be required, among other things, to seek additional
financing in the debt or equity markets, to refinance or restructure all or a
portion of its indebtedness, to sell selected assets, or to reduce or delay
planned capital expenditures. There can be no assurance that any such measures
would be sufficient to enable the Company to service its debt, or that any of
these measures could be effected on satisfactory terms, if at all.
31
<PAGE>
Restrictions imposed by lenders. The Indenture and the senior credit
facility contain a number of covenants that restrict the ability of the
Company to dispose of assets, merge or consolidate with another entity, incur
additional indebtedness, create liens, make capital expenditures or other
investments or acquisitions and otherwise restrict corporate activities. The
ability of the Company to comply with such provisions may be affected by
events that are beyond the Company's control. The breach of any of these
covenants could result in a default under the Indenture or the senior credit
facility, which would permit the holders of the senior notes and/or the lender
under the senior credit facility to declare all amounts borrowed thereunder to
be due and payable, together with accrued and unpaid interest. If the Company
were unable to repay its indebtedness to the lender under the senior credit
facility, such lender could proceed against any and all collateral securing
such indebtedness. In addition, as a result of these covenants, the ability of
the Company to respond to changing business and economic conditions and to
secure additional financing, if needed, may be significantly restricted, and
the Company may be prevented from engaging in transactions that might
otherwise be considered beneficial to the Company. Any of such events could
adversely impact the market for the Company's senior notes and common stock.
See "Substantial Leverage and Ability to Service Debt."
Competition. Several of the Company's current and potential competitors have
substantially greater financial, sales, marketing, managerial, operational and
other resources, as well as greater name recognition, than the Company. As a
result, competitors may be able to respond more effectively than the Company
to new or emerging technologies and changes in customer requirements, to
initiate or withstand significant price decreases or to devote substantially
greater resources than the Company in order to develop and promote new
services. Because Multipoint Control Units ("MCUs"), the equipment commonly
used to provide teleconferencing services, are not prohibitively expensive to
purchase or maintain, companies previously not involved in teleconferencing
could choose to enter the marketplace and compete with the Company. There can
be no assurance that new competitors will not enter the Company's markets or
that consolidations or alliances among current competitors will not create
significant new competition. In order to remain competitive, the Company will
be required to provide superior customer service and to respond effectively to
the introduction of new and improved services including Internet-based
services offered by its competitors. Any failure of the Company to accomplish
these tasks or otherwise to respond to competitive threats could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock.
The Company derived approximately 8% of its 1999 pro forma net revenues from
IXCs and LECs which outsource teleconferencing services provided to their
respective customers. These telecommunications companies have the financial
capability and expertise to deliver such services internally. There can be no
assurance that the Company's current IXC and LEC customers will not begin to
provide the teleconferencing services currently provided by the Company and
pursue such market actively and in direct competition with the Company.
Moreover, the Company expects to derive a portion of its future revenues from
RBOCs that enter the long distance market and outsource their teleconferencing
services. There can be no assurance that the RBOCs will be able to enter the
long distance market on a timely basis, if at all; that any RBOC entering the
long distance market will offer teleconferencing services; or that any IXC,
LEC or RBOC offering such services will outsource services or choose the
Company as the provider of such outsourced teleconferencing services. The
failure of any such event to occur could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects
and could adversely impact the market for the Company's common stock.
Teleconferencing insourcing. Many of the Company's current and prospective
customers have sufficient resources to purchase the equipment and hire the
personnel necessary to establish and maintain teleconferencing capabilities
sufficient to meet their own respective teleconferencing needs. Moreover,
technological improvements will further enhance the ability of these customers
to establish internal teleconferencing facilities. There can be no assurance
that any of the Company's customers will not establish internal
teleconferencing facilities or expand existing facilities, then cease to use
the Company's services. The loss of any one or more of such customers could
cause a significant and immediate decline in net revenues, which could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock. See "Business--Customers" and "Business--
Competition."
32
<PAGE>
Recent entry into internet conferencing markets. Only two of the operating
centers offered Internet conferencing services in 1999, and to date no
material revenues have been generated from Internet conferencing services.
Sales people, reservationists, operators and technical support people are
involved in ongoing training programs. There can be no assurance that the
Company will be able to obtain significant business from Internet conferencing
services or, if obtained, that the Company has the ability to service such
business. See "Business--The Company's Conferencing Services."
Technological considerations. The Company currently derives a substantial
portion of its net revenues from the sale of audio teleconferencing services.
If the manufacturers of private branch exchanges ("PBXs"), the equipment used
by most businesses and institutions to handle their internal telephone
requirements, develop improved, cost-effective PBX capabilities for handling
teleconferencing calls with the quality and functionality of existing MCUs
used in the teleconferencing business, the Company's customers could choose to
purchase such equipment and hire the personnel necessary to service their
teleconferencing needs through internal telephone systems. The loss of such
customers could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. Additionally, if
internet technology can be modified to accommodate multipoint voice
transmission with audio quality comparable to that of MCUs used in the
teleconferencing business, the availability of such technology could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock. See "Business--Competition".
Long Distance Services Contracts. A significant portion of the Company's
direct costs are attributable to the purchase of local and long distance
telephone services. It has been management's experience that the costs of long
distance services have been decreasing over the past several years. If,
however, the costs of long distance services increase over time, the Company's
current purchasing strategy, which calls for shorter-term contracts, may place
it at a competitive disadvantage with respect to competitors that have entered
into longer-term contracts for long distance services. There can be no
assurance that competition in the long distance services market will continue
to increase, that any increased competition will reduce the cost of long
distance services or that the Company's purchasing strategy will result in
cost savings. In addition, if the Company experiences a shortfall in projected
volume, it may be required to pay a penalty under one or more of its
contracts. There can be no assurance that the Company's analysis of the future
costs of long distance services will be accurate, and the failure to predict
future cost trends accurately could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects
and could adversely impact the market for the Company's common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Suppliers."
Regulation. In general, the telecommunications industry is subject to
extensive regulation by federal, state and local governments. Although there
is little or no direct regulation in the United States of the core
conferencing services offered by the Company, various government agencies,
such as the Federal Communications Commission (the "FCC"), have jurisdiction
over some of the Company's current and potential suppliers of
telecommunications services, and government regulation of those services may
have a direct impact on the cost of the Company's conferencing services. There
can be no assurance that the FCC or other government agencies will not seek in
the future to regulate the Company as a common carrier and regulate the
prices, conditions or other aspects of the conferencing services offered by
the Company, that the FCC will not impose registration, certification or other
requirements on the provision of those services, or that the Company would be
able to comply with any such requirements. Additionally, changes in the
current federal, state or local legislation or regulation could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects and could adversely impact the market for
the Company's common stock. Moreover, government regulations in countries
other than the United States vary widely and may restrict the Company's
ability to offer its services in those countries. See "Business--Regulation."
Change of control. In the event of certain events causing a change of
control of the Company (as defined in the Indenture) the Company may be
required to repurchase all of the outstanding senior notes at 101% of the
principal amount, as the case may be, of the senior notes plus any accrued and
unpaid interest thereon, and
33
<PAGE>
additional interest (as defined in the Indenture), if any, to the date of
repurchase. The exercise by the holders of the senior notes of their rights to
require the Company to offer to purchase senior notes upon a change of control
could also cause a default under other indebtedness of the Company, even if
the change of control itself does not, because of the financial effect of such
repurchase on the Company. There can be no assurance that in the event of a
change of control, the Company will have, or will have access to, sufficient
funds, or will be contractually permitted under the terms of outstanding
indebtedness, to pay the required purchase price for any senior notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Potential fluctuation in quarterly results. Quarterly net revenues are
difficult to forecast because the market for the Company's services is
competitive and subject to variation. In addition, the consolidation of the
operating centers may result in unanticipated operational difficulties. The
Company's expenses are based, in part, on its expectations as to future net
revenues. If net revenues are below expectations, the Company may be unable or
unwilling to reduce expenses, and the failure to do so may have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects. As a result, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance and could
adversely impact the market for the Company's common stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk primarily from interest rates on its
$15.0 million credit facility with Coast Business Credit, a division of
Southern Pacific Bank. The credit facility provides for (i) a term loan in the
principal amount of $1.5 million, (ii) a term loan of up to 80% of the
purchase price of new and used equipment, not to exceed $4.0 million, and
(iii) a revolving loan based on a percentage of eligible accounts receivable.
Loans under the credit facility bear interest at the higher of 7% or the prime
rate plus 1 1/2%, and interest is based on a minimum outstanding principal
balance of the greater of $5.0 million or 33% of the available credit
facility.
The sensitivity analysis below, which hypothetically illustrates our
potential market risk exposure, estimates the effects of hypothetical sudden
and sustained changes in the applicable market conditions on 2000 earnings.
The sensitivity analysis presented does not consider any additional actions
the Company may take to mitigate its exposure to such changes. The market
changes, assumed to occur as of December 31, 1999, include a 50 basis point
and a 100 basis point change in market interest rates. The hypothetical
changes and assumptions may be different from what actually occurs in the
future.
As of December 31, 1999, the Company had no derivative financial instruments
to manage interest rate risk. As such, the Company is exposed to earnings and
fair value risk due to changes in interest rates with respect to its revolving
line of credit and its long-term obligations. As of December 31, 1999,
approximately 11.4% of the Company's credit facility and long-term obligations
were floating rate obligations. The deterimental effect on the Company's
earnings of the hypothetical 50 basis point and 100 basis point increase in
interest rates described above would be approximately $32,000 and $65,000,
respectively, before income taxes.
The Company does not have any other material market risk exposure.
34
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Set forth below is a listing of the Consolidated Financial Statements of the
Company with reference to the page numbers in this Form 10-K at which such
Statements are disclosed.
<TABLE>
<CAPTION>
Page
Numbers
-------
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
VIALOG Corporation
Report of Management.................................................. 36
Independent Auditors' Report.......................................... 39
Consolidated Balance Sheets........................................... 40
Consolidated Statements of Operations................................. 41
Consolidated Statements of Stockholders' Equity (Deficit)............. 42
Consolidated Statements of Cash Flows................................. 43
Notes to Consolidated Financial Statements............................ 44
Telephone Business Meetings, Inc. ("Access")--The Reston Center
Independent Auditors' Report.......................................... 63
Balance Sheets........................................................ 64
Statements of Operations.............................................. 65
Statements of Stockholders' Equity.................................... 66
Statements of Cash Flows.............................................. 67
Notes to Financial Statements......................................... 68
Conference Source International, Inc. ("CSI")--The Atlanta Center
Independent Auditors' Report.......................................... 73
Balance Sheets........................................................ 74
Statements of Operations.............................................. 75
Statements of Stockholders' Equity.................................... 76
Statements of Cash Flows.............................................. 77
Notes to Financial Statements......................................... 78
A Business Conference Call, Inc. ("ABCC")--The Chanhassen (formerly
Chaska) Center
Independent Auditors' Report.......................................... 83
Balance Sheets........................................................ 84
Statements of Income and Retained Earnings............................ 85
Statements of Cash Flows.............................................. 86
Notes to Financial Statements......................................... 87
</TABLE>
35
<PAGE>
REPORT OF MANAGEMENT
The accompanying consolidated financial statements and related information
of VIALOG Corporation and subsidiaries (the "Company") have been prepared by
management, which is responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include some amounts based on management's best
estimates and judgments.
Management is also responsible for maintaining a system of internal controls
as a fundamental requirement for the operational and financial integrity of
results. The Company has established and maintains a system of internal
controls designed to provide reasonable assurance that the books and records
reflect the transactions of the Company and that its established policies and
procedures are carefully followed. The Company's internal control system is
based upon standard procedures, policies and guidelines and organizational
structures that provide an appropriate division of responsibility and the
careful selection and training of qualified personnel.
The Company's accompanying consolidated financial statements have been
audited by KPMG LLP, independent certified public accountants, whose audit was
made in accordance with generally accepted auditing standards. Management has
made available to KPMG LLP all of the Company's financial records and related
data, as well as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to KPMG LLP
during its audit were valid and appropriate. The Report of Independent
Auditors appears below.
Kim A. Mayyasi Michael E. Savage
Chief Executive Officer Senior Vice President and CFO
and President
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
VIALOG Corporation:
We have audited the accompanying consolidated balance sheets of VIALOG
Corporation and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VIALOG
Corporation and subsidiaries as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
February 29, 2000
37
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 232 $ 547
Accounts receivable, net of allowance for doubtful
accounts of $164 and $579, respectively........... 7,391 11,637
Prepaid expenses................................... 425 435
Deferred offering costs............................ 596 --
Other current assets............................... 165 310
-------- --------
Total current assets............................. 8,809 12,929
Property and equipment, net.......................... 11,987 17,814
Deferred debt issuance costs......................... 5,429 3,801
Goodwill and intangible assets, net.................. 41,679 64,094
Other assets......................................... 1,362 583
-------- --------
Total assets..................................... $ 69,266 $ 99,221
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit........................... $ 2,057 $ 4,770
Current portion of long-term debt.................. 1,465 2,332
Accounts payable................................... 3,064 5,216
Accrued interest expense........................... 1,215 1,215
Accrued expenses and other liabilities............. 3,386 3,319
-------- --------
Total current liabilities........................ 11,187 16,852
Long-term debt, less current portion................. 74,189 75,827
Other long-term liabilities.......................... 482 1,499
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; none issued or outstanding............ -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; issued: 3,693,672 and 9,144,200
shares, respectively; outstanding: 3,693,672 and
9,133,569 shares, respectively.................... 37 91
Additional paid-in capital......................... 11,854 45,602
Accumulated deficit................................ (28,483) (40,603)
Treasury stock, at cost; 0 and 10,631 shares,
respectively...................................... -- (47)
-------- --------
Total stockholders' equity (deficit)............. (16,592) 5,043
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 69,266 $ 99,221
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net revenues.................................. $ 4,816 $ 46,820 $ 68,629
Cost of revenues, excluding depreciation...... 2,492 24,321 32,387
Selling, general and administrative expense... 7,178 15,196 23,442
Depreciation expense.......................... 273 2,835 4,190
Amortization of goodwill and intangibles...... 306 2,490 4,060
Non-recurring charge.......................... 8,000 1,200 2,982
--------- --------- ---------
Operating income (loss)..................... (13,433) 778 1,568
Interest expense, net......................... (1,866) (12,629) (13,524)
--------- --------- ---------
Loss before income tax expense.............. (15,299) (11,851) (11,956)
Income tax expense............................ (522) (26) (164)
--------- --------- ---------
Net loss.................................... $(15,821) $(11,877) $(12,120)
========= ========= =========
Net loss per share--basic and diluted......... $ (5.48) $ (3.27) $ (1.53)
========= ========= =========
Weighted average shares outstanding........... 2,889,005 3,632,311 7,947,333
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
------------------- Paid-in Accumulated Treasury Equity
Shares Par Value Capital Deficit Stock (Deficit)
--------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 2,695,300 $ 28 $ 1,044 $ (785) $-- $ 287
Options exercised....... 104,000 -- 2 -- -- 2
Conversion of 10%
Subordinated
Convertible Notes
Payable................ 127,750 1 254 -- -- 255
Issuance of common stock
in connection with
acquisitions........... 559,330 6 3,211 -- -- 3,217
Warrants related to 8%
Notes Payable dated
February 24, 1997...... -- -- 129 -- -- 129
Warrants related to 12
3/4% Senior Notes
Payable dated November
12, 1997............... -- -- 6,091 -- -- 6,091
Options granted to
consultants............ -- -- 180 -- -- 180
Options granted to
employees.............. -- -- 778 -- -- 778
Net loss................ -- -- -- (15,821) -- (15,821)
--------- ---- ------- -------- ---- --------
Balance at December 31,
1997................... 3,486,380 35 11,689 (16,606) -- (4,882)
Options exercised....... 204,792 2 104 -- -- 106
Options granted to
employees.............. -- -- 47 -- -- 47
Issuance of common
stock.................. 2,500 -- 14 -- -- 14
Net loss................ -- -- -- (11,877) -- (11,877)
--------- ---- ------- -------- ---- --------
Balance at December 31,
1998................... 3,693,672 37 11,854 (28,483) -- (16,592)
Options exercised....... 405,297 3 329 -- (47) 285
Options granted to
employees.............. -- -- 511 -- -- 511
Warrants related to 8%
Notes Payable dated
February 24, 1997...... 99,696 1 324 -- -- 325
Warrants related to 12
3/4% Senior Notes due
2001................... 345,535 4 -- -- -- 4
Issuance of common stock
in connection with
initial public
offering, net of
offering costs......... 4,600,000 46 32,584 -- -- 32,630
Net loss................ -- -- -- (12,120) -- (12,120)
--------- ---- ------- -------- ---- --------
Balance at December 31,
1999................... 9,144,200 $ 91 $45,602 $(40,603) $(47) $ 5,043
========= ==== ======= ======== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(15,821) $(11,877) $(12,120)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................... 273 2,835 4,190
Amortization of goodwill and intangibles........ 306 2,490 4,060
Amortization of debt issuance costs and debt
discount....................................... 545 2,994 3,170
Provision for doubtful accounts................. 32 216 413
Deferred income taxes........................... 522 -- --
Write-off of deferred offering costs............ 377 -- --
Compensation expense for issuance of common
stock and options.............................. 958 47 52
Non-cash portion of non-recurring charges....... 8,000 292 797
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Accounts receivable............................. (576) (1,921) (3,014)
Prepaid expenses and other current assets....... (68) (333) (80)
Other assets.................................... (64) (293) 1,599
Accounts payable................................ (351) 949 1,613
Accrued expenses................................ 1,716 (1,124) (373)
Other long-term liabilities..................... 3 307 (158)
-------- -------- --------
Cash flows provided by (used in) operating
activities..................................... (4,148) (5,418) 149
-------- -------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired....................................... (53,308) -- (29,095)
Additions to property and equipment............. (454) (7,355) (8,360)
Deferred acquisition costs...................... -- (493) --
-------- -------- --------
Cash flows used in investing activities......... (53,762) (7,848) (37,455)
-------- -------- --------
Cash flows from financing activities:
Advances on line of credit, net................. -- 2,057 2,713
Proceeds from issuance of long-term debt and
warrants....................................... 75,755 3,306 2,806
Payments of long-term debt...................... (2,772) (676) (2,021)
Proceeds from issuance of common stock.......... 2 106 34,299
Deferred offering costs......................... -- (596) --
Deferred debt issuance costs.................... (5,845) (266) (176)
-------- -------- --------
Cash flows provided by financing activities..... 67,140 3,931 37,621
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 9,230 (9,335) 315
Cash and cash equivalents at beginning of
period.......................................... 337 9,567 232
-------- -------- --------
Cash and cash equivalents at end of period....... $ 9,567 $ 232 $ 547
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest........................................ $ 72 $ 9,917 $ 10,369
======== ======== ========
Taxes........................................... $ 1 $ 8 $ 4
======== ======== ========
Non-cash investing and financing transactions:
Conversion of 10% Subordinated Convertible Notes
Payable........................................ $ 256 $ -- $ --
======== ======== ========
Issuance of common stock in connection with
acquisitions................................... $ 3,217 $ -- $ --
======== ======== ========
Issuance of warrants to the initial purchaser of
the Senior Notes and included in deferred debt
issuance costs................................. $ 1,740 $ -- $ --
======== ======== ========
Acquisitions of businesses:
Assets acquired................................. $ 66,523 $ -- $ 31,041
Liabilities assumed and issued.................. (9,096) -- (1,855)
Common stock issued............................. (3,217) -- --
======== ======== ========
Cash paid....................................... 54,210 -- 29,186
Less cash acquired.............................. (902) -- (91)
======== ======== ========
Net cash paid for acquisitions of businesses.... $ 53,308 $ -- $ 29,095
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
VIALOG Corporation ("the Company") was incorporated in Massachusetts on
January 1, 1996. In January 1997, the Company changed its name to VIALOG
Corporation. For purposes of these Notes to Consolidated Financial Statements,
"the Company" means VIALOG Corporation on a stand alone basis prior to
November 12, 1997 and VIALOG Corporation and its consolidated subsidiaries on
and after November 12, 1997. The Company was formed to create a national
provider of conferencing services, consisting primarily of operator-attended
and operator-on-demand audioconferencing, as well as video and Internet
conference services. On November 12, 1997, the Company closed a private
placement of $75.0 million in Senior Notes due 2001 (the "Private Placement").
Contemporaneously with the closing of the Private Placement, the Company
acquired six private conference service bureaus located in the United States
(See Note 2 "Acquisitions"). On February 10, 1999, the Company completed an
initial public offering of its common stock and consummated agreements to
acquire three private conference service bureaus located in the United States
(See Note 2 "Acquisitions").
Prior to November 12, 1997, the Company did not conduct any operations, and
all activities conducted by it related to the acquisitions and the completion
of financing transactions to fund the acquisitions.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of VIALOG and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Management Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(d) Revenue Recognition
Revenue from conference calls is recognized upon completion of the call.
Revenue from all other services is recognized upon performance of the service.
(e) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives
of the respective assets. The estimated useful lives are as follows: three to
ten years for office furniture, fixtures and equipment, five to ten years for
conferencing equipment, and three to five years for computer equipment.
Capitalized lease equipment and leasehold improvements are amortized over the
lives of the leases, ranging from three to ten years.
42
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
The Company capitalizes costs related to software obtained for internal use.
These costs are included in computer equipment and amortized accordingly.
During 1997, 1998 and 1999, these costs were not significant.
(g) Goodwill and Intangible Assets
Goodwill and identifiable intangible assets, which consisted of assembled
workforce, developed technology, non-compete agreements and computer software
result from the excess of the purchase price over the net assets of businesses
acquired. Goodwill and intangibles are being amortized on a straight-line
basis over the following periods: 6 years for developed technology, 8 years
for assembled workforce, 3 years for computer software and 20 years for
goodwill, which represent their estimated useful lives. The non-compete
agreements are being amortized over their specified terms of 3 years. The
Company measures impairment of goodwill and intangible assets by considering a
number of factors as of each balance sheet date including (i) current
operating results of the applicable Acquired Companies, (ii) projected future
operating results of the applicable Acquired Companies, and (iii) any other
material event or circumstance that indicates the carrying amount of the
assets may not be recoverable. Recoverability of goodwill and intangible
assets is measured by a comparison of the carrying amount of the asset to
future undiscounted net cash flows expected to be generated by the Acquired
Company. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
(i) Research and Development
The Company maintains technical support and engineering departments that, in
part, develop features and products for group communications. In accordance
with SFAS No. 2, "Accounting for Research and Development Costs", the Company
charges to expense when incurred (included in cost of revenues) that portion
of the department costs which relate to research and development activities.
The remaining costs of these departments are charged to expense as incurred
and are included in cost of revenues and selling, general and administrative
expense. Prior to the acquisition of the businesses described in Note 2
"Acquisitions", the Company did not conduct any research and development
activities. Research and development costs for the period ended December 31,
1997 reflect the activities of the acquired businesses from November 12, 1997
through December 31, 1997 and were not significant. Research and development
costs for the years ended December 31, 1998 and 1999 were approximately
$961,000 and $1.5 million.
(j) Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", the Company has
elected to continue to account for stock options at intrinsic value under
Accounting Principles Board Opinion No. 25 with disclosure of the effects of
fair value accounting on net income on a pro forma basis (See Note 14
"Employee Benefit Plans").
43
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) Loss Per Share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS 128 requires the
presentation of basic earnings per share and diluted earnings per share for
all periods presented. As the Company has been in a net loss position for the
years ended December 31, 1997, 1998 and 1999, common stock equivalents of
896,900, 1,994,209 and 1,332,327 for the years ended December 31, 1997, 1998
and 1999, respectively, were excluded from the diluted loss per share
calculation as they would be antidilutive. As a result, diluted loss per share
is the same as basic loss per share, and has not been presented separately.
(2) ACQUISITIONS
On November 12, 1997, the Company acquired all of the issued and outstanding
stock of Telephone Business Meetings, Inc. ("Access"), Conference Source
International, Inc. ("CSI"), Kendall Square Teleconferencing, Inc. ("TCC"),
American Conferencing Company, Inc. ("Americo") and Communication Development
Corporation ("CDC"), and substantially all of the net assets of Call Points,
Inc. ("Call Points") (together, the "Acquired Companies"). These acquisitions
occurred contemporaneously with the closing of the Private Placement of a
total of $75.0 million in Senior Notes due 2001 (See Note 8 "Long-Term Debt").
The acquisitions were accounted for using the purchase method.
The following table sets forth for each Acquired Company the consideration
paid its common stockholders in cash and in shares of common stock of the
Company.
<TABLE>
<CAPTION>
Cash(1) Shares of
($000's) Common Stock
-------- ------------
<S> <C> <C>
Access................................................. $19,000 --
CSI.................................................... 18,675 --
Call Points............................................ 8,000 21,000
TCC.................................................... 3,645 166,156
Americo................................................ 1,260 267,826
CDC.................................................... 2,400 104,348
------- -------
Total Consideration.................................... $52,980 559,330
======= =======
</TABLE>
- --------
(1) Excludes tax reimbursements of approximately $925,000 to certain
stockholders of certain of the Acquired Companies.
44
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
The total purchase price of the Acquired Companies was $57.6 million and
consisted of approximately $53.0 million in cash paid to the stockholders of
the Acquired Companies (the "Sellers"), $500,000 of acquisition costs, the
issuance of 559,330 shares of common stock to the Sellers and approximately
$925,000 related to tax reimbursements. The shares of common stock were valued
at $5.75 per share which represents the estimated fair market value based on
arms-length negotiations with the former stockholders of the Acquired
Companies. The total purchase price was allocated as follows (in thousands):
<TABLE>
<CAPTION>
($000's)
--------
<S> <C>
Working capital deficit............................................... $ (618)
Property and equipment, net........................................... 7,356
Goodwill and intangible assets........................................ 44,697
Purchased in-process research and development......................... 8,000
Other assets.......................................................... 200
Long-term liabilities................................................. (2,014)
-------
$57,621
=======
</TABLE>
The purchase price exceeded the fair value of the net assets acquired by
$52.7 million. The excess was allocated to goodwill and other intangibles
which are being amortized over periods from 6 to 20 years. In addition, at the
time of the acquisitions, the Company repaid $2.2 million of long-term debt of
the Acquired Companies.
In connection with the acquisitions, the Company recorded a non-recurring
charge of $8.0 million related to the fair value of purchased in-process
research and development. The $8.0 million write-off of purchased research and
development noted above represents the amount of the purchase price of the
acquisitions allocated to incomplete research and development projects. This
allocation represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete products. The acquired in-process research and
development represents engineering and test activities associated with the
introduction of new enhanced services and information systems. At the time of
acquisition, the Acquired Companies were working on projects that were
essential to offering high quality, secure and reliable products including
unattended audioconferencing, video and Internet conferencing, integrated
voice response and broadcast fax services. Since these had not yet reached
technological feasibility and had no alternative future uses, there could be
no guarantee as to the achievability of the projects or the ascribed values.
Accordingly, these costs were expensed as of the date of the acquisition.
On February 10, 1999, the Company acquired all of the issued and outstanding
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). These
acquisitions occurred contemporaneously with the closing of the initial public
offering of the Company's common stock. Each of the acquisitions (together
with the Original Acquisitions, each an "Operating Center"; collectively, the
"Operating Centers") is a wholly-owned subsidiary of the Company. The
acquisitions were accounted for using the purchase method of accounting.
The total purchase price of the acquired companies was $29.1 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $400,000 of acquisition costs and approximately
$300,000 related to tax reimbursements. The total purchase price was allocated
as follows (in thousands):
<TABLE>
<CAPTION>
($000's)
--------
<S> <C>
Working capital....................................................... $ 967
Property and equipment, net........................................... 1,657
Goodwill and intangible assets........................................ 27,422
Other assets.......................................................... 78
Long-term liabilities................................................. (1,010)
-------
$29,114
=======
</TABLE>
45
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
The purchase price exceeded the fair value of the net assets by an estimated
$27.4 million. The excess was allocated to goodwill and other intangibles and
is being amortized over periods from 3 to 20 years. In addition, the Company
repaid $305,000 of long-term debt of the acquired companies.
The results of all the acquired companies have been included in the
Consolidated Statements of Operations from their date of acquisition. The
unaudited pro forma consolidated historical results for the years ended
December 31, 1997, 1998 and 1999 below assume the original acquisitions
occurred at the beginning of fiscal 1997 and the additional acquisitions
occurred at the beginning of fiscal 1998.
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- --------
(Dollars in thousands
except per share data)
<S> <C> <C> <C>
Net revenues....................................... $ 35,917 $59,819 $ 70,539
Net loss........................................... $(15,752) $(9,300) $(11,511)
Net loss per share................................. $ (4.68) $ (1.13) $ (1.33)
</TABLE>
The pro forma results include amortization of the goodwill and intangible
assets described above, interest expense on debt assumed issued to finance the
acquisitions and reductions to selling, general and administrative expenses
related to certain royalties, compensation and benefits that were eliminated
or reduced as a result of the acquisitions. The pro forma results do not
include the write-off of in-process research and development expenses at the
date of acquisition. The pro forma results are not necessarily indicative of
the results that would have been obtained had these events actually occurred
at the beginning of the periods presented, nor are they necessarily indicative
of future consolidated results.
(3) CASH, CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
The Company classifies all investments with an original maturity of less
than ninety days as cash equivalents and values them at cost which
approximates market. The Company's policy is to invest cash primarily in
income producing short-term instruments and to keep uninvested cash balances
at minimum levels.
The Company's financial instruments consist of cash, cash equivalents,
accounts receivable, accounts payable, other accrued liabilities and long-term
debt. Except for long-term debt, the carrying amounts of such financial
instruments approximate fair value due to their short maturities. The fair
value of the Company's long- term debt at December 31, 1999 is based on quoted
market values. The fair value of the senior notes included in long term debt
at March 29, 2000 is estimated at 75% of face value. The estimated fair value
has been determined by the Company using available market information. This
estimate is not necessarily indicative of the amounts that the Company would
realize in the event of debt retirement.
(4) ACCOUNTS RECEIVABLE--ALLOWANCE FOR DOUBTFUL ACCOUNTS
Prior to the acquisitions discussed in Note 2 "Acquisitions", the Company
had no accounts receivable. At acquisition, the accounts receivable of the
Acquired Companies were recorded at fair market value. The allowance for
doubtful accounts at December 31, 1997 represents the provision charged to
operations for the period November 12, 1997 through December 31, 1997.
The Company's financial instruments consist of cash, cash equivalents,
accounts receivable, accounts payable, other accrued liabilities and long-term
debt. Except for long-term debt, the carrying amounts of such financial
instruments approximate fair value due to their short maturities. The fair
value of the Company's long-term debt at December 31, 1999 is based on quoted
market values. The fair value of long-term debt was not materially different
from its carrying amount.
46
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
(4) ACCOUNTS RECEIVABLE--ALLOWANCE FOR DOUBTFUL ACCOUNTS
Prior to the acquisitions discussed in Note 2 "Acquisitions", the Company
had no accounts receivable. At acquisition, the accounts receivable of the
Acquired Companies were recorded at fair market value. The allowance for
doubtful accounts at December 31, 1997 represents the provision charged to
operations for the period November 12, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
Balance Net Increase/
at Provision Deductions Balance
Beginning Charged to from at End
of Period Operations Allowance of Period
--------- ---------- ------------- ---------
($000's)
<S> <C> <C> <C> <C>
Year Ended December 31,
1999................... $ 164 $ 413 $ 2 $ 579
Year Ended December 31,
1998................... $ 32 $ 216 $ (84) $ 164
Year Ended December 31,
1997................... $ -- $ 32 $ -- $ 32
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
($000's)
<S> <C> <C>
Office furniture and equipment............................. $ 1,392 $ 2,680
Conferencing equipment..................................... 9,926 13,913
Computer equipment......................................... 2,672 4,263
Capitalized lease equipment................................ 747 825
Leasehold improvements..................................... 343 1,613
------- -------
15,080 23,294
Less: accumulated depreciation............................. (3,093) (5,480)
------- -------
$11,987 $17,814
======= =======
</TABLE>
(6) GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
($000's)
<S> <C> <C>
Goodwill................................................... $41,457 $66,833
Developed technology....................................... 1,930 1,930
Assembled workforce........................................ 1,088 870
Non-compete agreements..................................... -- 1,173
Computer software.......................................... -- 144
------- -------
44,475 70,950
Less: accumulated amortization............................. (2,796) (6,856)
------- -------
$41,679 $64,094
======= =======
</TABLE>
47
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
(7) REVOLVING LINE OF CREDIT
On October 6, 1998, the Company executed a two year, $15.0 million credit
facility (the "Credit Facility") with Coast Business Credit, a division of
Southern Pacific Bank. The Credit Facility provides for (i) a term loan in the
principal amount of $1.5 million, (ii) a term loan of up to 80% of the
purchase price of new and used equipment, not to exceed $4.0 million, and
(iii) a revolving loan based on a percentage of eligible accounts receivable.
Loans under the Credit Facility bear interest at the higher of 7% or the Prime
Rate plus 1 1/2%, and interest is based on a minimum outstanding principal
balance of the greater of $5.0 million or 33% of the available Credit
Facility. The Credit Facility includes certain early termination fees. The
Credit Facility is secured by the assets of each of the Acquired Companies and
the assets of VIALOG Corporation, excluding the ownership interest in each of
the Acquired Companies. The Company is required to maintain compliance with
certain financial ratios and tests, including a debt service coverage ratio
and minimum net worth level. The Company is in compliance with all covenants
contained in the Credit Facility at December 31, 1999.
The average amount of short-term borrowings outstanding during 1999 was
approximately $3.3 million with a maximum outstanding of approximately $4.8
million. The weighted average interest rate on December 31, 1999 and for the
year then ended was 9.52%.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
($000's)
<S> <C> <C>
12 3/4% Senior Notes Payable, due November 15,
2001, net of unamortized discount of $3,115 and
$2,027, respectively............................. $71,885 $72,973
Term loans........................................ 3,030 4,655
Capitalized lease obligations..................... 669 525
Other long-term debt.............................. 70 6
------- -------
Total long-term debt.............................. 75,654 78,159
Less current portion.............................. 1,465 2,332
------- -------
Total long-term debt, less current portion........ $74,189 $75,827
======= =======
</TABLE>
Notes Payable
On February 24, 1997, VIALOG issued $500,000 of 8% promissory notes due on
the earlier of (a) ten days following the closing of an initial public
offering or (b) one year from their issue date. Warrants to purchase 111,118
common shares at an exercise price of $4.50 were issued in conjunction with
the promissory notes. The value of the warrants was determined using the
minimum value method. The value of the warrants at the date of issuance
totaled $129,000 and was amortized as interest expense. The warrants may be
exercised between November 1997 and February 1999. In November 1997, the
promissory notes were repaid, including accrued interest, from the proceeds of
the Private Placement, which was completed on November 12, 1997. In
conjunction with the Private Placement, the warrants issued to the note
holders were increased to a total of 153,378 in accordance with anti-dilution
provisions contained in the promissory notes. An aggregate of 99,696 shares of
common stock were issued in February and March 1999 at a price of $3.26 per
share upon the exercise of warrants by note holders.
48
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
Convertible Bridge Facility
In October, 1997, the Company completed a private placement to certain of
its existing investors of $255,500 of 10% subordinated convertible promissory
notes due on the earlier of (a) five days after the closing of a sale of the
Company's equity securities or debt securities for an aggregate price of $50.0
million or more, or (b) January 1, 1998. The notes were convertible at the
option of the holders at any time prior to and including the due date into
such number of shares of the Company's common stock as determined by dividing
the aggregate unpaid principal amount of the notes by the conversion price of
$2.00 per share, subject to adjustment pursuant to the terms of the notes. The
conversion price of $2.00 per share was equal to the estimated fair market
value of the Company's common stock on the date of issuance. In November 1997,
the notes were converted into 127,750 shares of the Company's common stock.
Senior Notes Payable
On November 12, 1997, VIALOG completed a Private Placement of $75.0 million
of Senior Notes, Series A. The Senior Notes bear interest at 12 3/4% per
annum, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998. The Senior Notes are guaranteed by the Acquired
Companies (see Note 18) and mature on November 15, 2001 and are redeemable in
whole or in part at the option of VIALOG on or after November 15, 1999 at 110%
of the principal amount thereof, and on or after November 15, 2000 at 105% of
the principal amount thereof, in each case together with accrued interest to
the date of redemption. In addition, there are certain other early redemption
options available to VIALOG at any time on or prior to November 15, 1999 at
certain premiums, as specified in the indenture pursuant to which the Senior
Notes were issued (the "Indenture"). In the event of a change in control, as
defined in the Indenture, the Company may be required to repurchase all of the
outstanding Senior Notes at 101% of the principal amount plus accrued interest
and additional interest, if any. The Indenture contains restrictive covenants
with respect to the Company that among other things, create limitations
(subject to certain exceptions) on (i) the incurrence of additional
indebtedness, (ii) the ability of VIALOG to purchase, redeem or otherwise
acquire or retire any VIALOG common stock or warrants, rights or options to
acquire VIALOG common stock, to retire any subordinated indebtedness prior to
final maturity or to make investments in any person, (iii) certain
transactions with affiliates, (iv) the ability to materially change the
present method of conducting business, (v) the granting of liens on property
or assets, (vi) mergers, consolidations and the disposition of assets, (vii)
declaring and paying any dividends or making any distribution on shares of
common stock, and (viii) the issuance or sale of any capital stock of the
Company's subsidiaries. The Indenture does not require VIALOG to maintain
compliance with any financial ratios or tests, except with respect to certain
restrictive covenants noted above. The Company is in compliance with all
covenants contained in the Indenture at December 31, 1999. Warrants to
purchase 1,059,303 common shares at an exercise price of $.01 per share were
issued in conjunction with the Senior Notes. Of the total issued, 756,645
warrants were attached to the Senior Notes and 302,658 were issued to
Jefferies and Company, Inc., the initial purchaser of the Senior Notes, as
part of its compensation for services rendered in connection with such
offering. The value of the warrants attached to the Senior Notes was $4.4
million and was recorded as debt discount and additional paid-in capital. The
value of the warrants issued, which represented additional consideration to
the initial purchaser of the Senior Notes, was $1.7 million and was recorded
as deferred debt issuance costs. In addition, the Company incurred commissions
of $3.8 million and legal and other costs of $2.1 million. The deferred debt
issuance costs are being amortized over the life of the Senior Notes. The
warrants may be exercised between November 1997 and November 2001. The
proceeds from the Senior Notes were used to complete the acquisitions (see
Note 2 "Acquisitions"), repay outstanding indebtedness and fund working
capital requirements. On February 12, 1998, VIALOG offered to exchange (the
"Exchange Offer") Senior Notes, Series B for Senior Notes, Series A. The form
and terms of the Senior Notes, Series B are identical in all material respects
to the form and terms of the Senior Notes, Series A except for certain
transfer restrictions and
49
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
registration rights relating to the Senior Notes, Series A. The Exchange Offer
terminated on March 26, 1998 with all of the Senior Notes, Series A being
exchanged by investors for Senior Notes, Series B.
Interest Income (Expense), Net
Interest income (expense), net consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
($000's)
<S> <C> <C> <C>
Interest income................................ $ 56 $ 233 $ 69
Interest expense............................... (1,922) (12,862) (13,593)
------- -------- --------
Interest income (expense), net............... $(1,866) $(12,629) $(13,524)
======= ======== ========
</TABLE>
(9) ACCRUED EXPENSES
Accrued expenses consist primarily of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
($000's)
<S> <C> <C>
Accrued payroll and related costs................ 692 913
Accrued acquisition and financing related costs.. 1,122 --
Accrued restructuring and severance related
costs........................................... -- 964
Accrued other.................................... 1,572 1,442
------ ------
$3,386 $3,319
====== ======
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company conducts its operations primarily in leased facilities under
operating lease arrangements expiring on various dates through May 2008.
Certain long-term capital leases have been included in property and equipment
and long-term debt in the accompanying consolidated balance sheets.
Future minimum lease payments under capital and operating leases with
initial terms of one year or more are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Capital Leases Operating Leases
------------------------ -------------- ----------------
($000's)
<S> <C> <C>
2000....................................... $428 $ 2,716
2001....................................... 140 2,490
2002....................................... 1 2,353
2003....................................... -- 2,215
2004....................................... -- 2,073
Thereafter................................. -- 1,549
---- -------
Total minimum lease payments............... 569 $13,396
=======
Less: Amount representing interest on
capital leases............................ (44)
----
Present value of minimum lease payments at
December 31, 1999......................... $525
====
</TABLE>
50
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
Total operating lease rental expense for VIALOG for the years ended December
31, 1997, 1998 and 1999 were $198,000, $1.5 million, and $2.2 million
respectively.
(b) Subsequent Event (Unaudited)
The Company is in the process of combining its corporate offices and its
Cambridge, Massachusetts operating center into a new leased facility located
in Bedford, Massachusetts. The Company anticipates relocating into the new
leased facility during the second and third quarters of 2000. The lease for
the Bedford facility, which was signed on March 3, 2000, provides for a total
of approximately 27,868 square feet at a base rate of $24.00 per square foot
(escalating to $25.00 per square foot in years four through five of the lease)
with an expiration date of May 15, 2005. The effect of this lease will be to
increase the annual lease payments as follows:
<TABLE>
<CAPTION>
Year
Ending
December
31, ($000's)
-------- --------
<S> <C>
2000 $ 501
2001 669
2002 669
2003 690
2004 697
Thereafter 174
------
$3,400
======
</TABLE>
(11) NON-RECURRING CHARGES
The results for the year ended December 31, 1998 include a non-recurring
charge of $1.2 million related to the consolidation of the Atlanta and
Montgomery Operating Centers. In accordance with the consolidation plan, the
Atlanta Operating Center remained staffed through January 1999, after which
time the Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery Center as well as other Operating Centers. The
non-recurring charge includes (i) $373,000 associated with personnel
reductions of approximately 45 operator, customer service, technical support
and general and administrative positions in the Atlanta Center, (ii) $400,000
associated with lease costs for the Atlanta facility from the exit date
through the lease termination date (net of estimated sublease income), (iii)
$135,000 associated with legal fees and other exit costs, (iv) $77,000
associated with the disposal of furniture and equipment in both the Atlanta
and Montgomery Centers, and (v) $215,000 associated with the impairment of
intangible assets (assembled workforce) in the Atlanta Center. During the
years ended December 31, 1998 and 1999, the Company paid out approximately
$324,000 and $166,000, respectively. At December 31, 1999, approximately
$443,000 of the original accrual for the non-recurring charge was remaining
for estimated costs still to be incurred related to the consolidation.
Components of the non-recurring charge recorded in 1998, amounts incurred
through December 31, 1999, and adjustments to the charge are as follows:
<TABLE>
<CAPTION>
Amount Amount
1998 Incurred Balance Incurred Adjustments Balance
Charge 1998 12/31/98 1999 to Charge 12/31/99
------ -------- -------- -------- ----------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
People Related Costs.... $ 373 $315 $ 58 $ 4 $(54) $--
Facility Related Costs.. 400 -- 400 159 202 443
Other Related Costs..... 135 8 127 3 (124) --
Impairment of intangible
assets and leasehold
improvements........... 292 1 291 267 (24) --
------ ---- ---- ---- ---- ----
Totals................ $1,200 $324 $876 $433 $-- $443
====== ==== ==== ==== ==== ====
</TABLE>
51
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
The results for the year ended December 31, 1999 include a $3.0 million non-
recurring charge related to the consolidation of four of the Company's
Operating Centers. The Operating Centers affected include Oradell, New Jersey
and Danbury, Connecticut, which the Company closed in the third quarter of
1999; and Houston, Texas, and Palm Springs, California, which the Company
closed in the fourth quarter of 1999. In conjunction with these closings, the
Company expanded its other facilities to accommodate the transitioned
business. In addition, the Company plans to combine its Corporate offices and
its Cambridge Center in the first half of 2000. The non-recurring charge
includes (i) approximately $1.2 million associated with facility lease costs
from the exit dates through the lease termination dates (net of estimated
sublease income), (ii) $860,000 associated with personnel reductions of
approximately 130 conference coordinators, customer service, technical
support, and general and administrative positions, (iii) $683,000 associated
with the impairment of intangible assets, (iv) $150,000 associated with legal
fees and other exit costs, and (v) $114,000 associated with the write-off of
leasehold improvements. During the year ended December 31, 1999, the Company
paid out approximately $690,000 related primarily to personnel reductions and
facility closings, and wrote off approximately $695,000 of intangible assets
and leasehold improvements related to the closed Operating Centers. At
December 31, 1999, approximately $1.6 million of the original accrual for the
non-recurring charge was remaining for estimated costs still to be incurred
related to the consolidation.
Components of the non-recurring charge recorded in 1999 and amounts incurred
through December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Amount
1999 Incurred Balance
Charge 1999 12/31/99
------ -------- --------
(000's)
<S> <C> <C> <C>
People Related Costs................................. $ 860 $ 401 $ 459
Facility Related Costs............................... 1,175 139 1,036
Other Related Costs.................................. 150 150 --
Impairment of intangible assets and leasehold
improvements........................................ 797 695 102
------ ------ ------
Total.............................................. $2,982 $1,385 $1,597
====== ====== ======
</TABLE>
Of the remaining balance from the 1998 and 1999 restructurings,
approximately $964,000 is included in short-term liabilities at December 31,
1999.
(12) PROVISION FOR INCOME TAXES
Income tax (expense) benefit for the years ended December 31, 1997, 1998 and
1999 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
(000's)
<S> <C> <C> <C>
December 31, 1997
Federal............................................ $ -- $(398) $(398)
State.............................................. -- (124) (124)
----- ----- -----
$ -- $(522) $(522)
===== ===== =====
December 31, 1998
Federal............................................ $ -- $ -- $ --
State.............................................. (125) 99 (26)
----- ----- -----
$(125) $ 99 $ (26)
===== ===== =====
December 31, 1999
Federal............................................ $ -- $ -- $ --
State.............................................. (53) (111) (164)
----- ----- -----
$ (53) $(111) $(164)
===== ===== =====
</TABLE>
52
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
Income tax (expense) benefit differed from the amounts computed by applying
the U.S. statutory federal income tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
($000's)
<S> <C> <C> <C>
Computed "expected" tax benefit................. $ 5,202 $ 4,029 $ 4,065
State and local income taxes, net of federal tax
benefit........................................ 918 754 (102)
Nondeductible amounts and other differences..... (167) (186) (338)
Change in valuation allowance for deferred taxes
allocated to Federal income tax expense........ (6,469) (4,772) (3,789)
Other........................................... (6) 149 --
------- ------- -------
Tax (expense) benefit......................... $ (522) $ (26) $ (164)
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portion of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
($000's)
<S> <C> <C>
Deferred tax assets (liabilities)
Organizational expenditures and start-up costs....... $ 1,795 $ 1,280
Accrual to cash accounting adjustment................ (126) (115)
Purchased in-process R&D and other intangibles
amortized for tax purposes over 15 years............ 3,031 2,236
Federal and state net operating loss carryforwards... 6,198 11,215
Capital loss and charitable contribution
carryforwards....................................... 3 5
Property and equipment............................... (441) (1,231)
Bad debts............................................ 66 375
Original issue discount amortization................. 96 126
Non-recurring charge................................. 246 92
Deferred compensation................................ 409 274
Other................................................ 63 1,398
Valuation allowance.................................. (11,241) (15,606)
-------- --------
Net deferred tax asset............................. $ 99 $ 49
======== ========
</TABLE>
VIALOG had net operating loss carryforwards of $28.8 million at December 31,
1999, of which $3.9 million expires in 2013 and $24.9 million expires between
2018 and 2020. Utilization of the net operating losses may be subject to an
annual limitation provided by change in ownership provisions of Section 382 of
the Internal Revenue Code of 1986 and similar state provisions.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Based on management's projections for future
taxable income, a valuation allowance has been established for the deferred
tax assets.
In accordance with FAS 109, the accounting for the tax benefits of acquired
deductible temporary differences, which are not recognized at the acquisition
date because a valuation allowance is established, and are recognized
subsequent to the Acquisitions will be applied first to reduce to zero any
goodwill and other noncurrent intangible assets related to the acquisitions.
Any remaining benefits would be recognized as a reduction of income tax
expense. As of December 31, 1999, $144,000 of the Company's net operating loss
carryforward deferred tax asset of $11.2 million pertains to the Acquired
Companies and $2,000 of the
53
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
Company's $5,000 capital loss and charitable contribution carryforward
deferred tax asset pertains to the Acquired Companies, the future benefit of
which will be applied first to reduce to zero any goodwill and other
noncurrent intangible assets related to the acquisitions prior to reducing the
Company's income tax expense.
(13) STOCKHOLDERS' EQUITY
(a) Common Stock Split
On October 16, 1997, the Board of Directors approved a 2-for-1 stock split
of VIALOG's common stock. All prior periods have been restated to reflect this
stock split effected as a recapitalization.
(b) Preferred Stock
On February 14, 1997, the stockholders voted to authorize 10,000,000 shares
of preferred stock. No shares of preferred stock are issued and outstanding.
(c) Warrants
During 1997, VIALOG issued warrants to purchase common stock in connection
with certain financing transactions (see Note 8 "Long-Term Debt").
(14) EMPLOYEE BENEFIT PLANS
(a) The 1999 Stock Plan
On April 29, 1999 and July 29, 1999, the Board of Directors and VIALOG's
stockholders, respectively, approved VIALOG's 1999 Stock Plan (the "1999
Plan"). The purpose of the 1999 Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives
by increasing their ownership interests in VIALOG. Individual awards under the
plan may take the form of one or more of: (i) incentive stock options
("ISOs"); (ii) non-qualified stock options ("NQSOs"); (iii) stock appreciation
rights ("SARs"); and (iv) stock purchases or awards.
The Compensation Committee administers the 1999 Plan and generally selects
the individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may
not exceed 1,500,000 shares as of December 31, 1999. Shares of common stock
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The 1999 Plan will remain in effect until April 29, 2009 unless terminated
earlier by the Board of Directors. The Plan may be amended by the Board of
Directors without the consent of the stockholders of VIALOG, except that any
amendment, although effective when made, will be subject to stockholder
approval if required by any Federal or state law or regulation by the rules of
any stock exchange or automated quotation system on which the common stock may
then be listed or quoted.
(b) The 1996 Stock Plan
On February 14, 1996, the Board of Directors and VIALOG's stockholders
approved VIALOG's 1996 Stock Plan (the "1996 Plan"). The purpose of the 1996
Plan is to provide directors, officers, key employees, consultants and other
service providers with additional incentives by increasing their ownership
interests in VIALOG. Individual awards under the plan may take the form of one
or more of: (i) incentive stock options ("ISOs"); (ii) non-qualified stock
options ("NQSOs"); (iii) stock appreciation rights ("SARs"); and
(iv) restricted stock.
54
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may
not exceed 3,250,000 shares as of December 31, 1998 and 1999. Shares of common
stock attributable to awards which have expired, terminated or been canceled
or forfeited are available for issuance or use in connection with future
awards.
The 1996 Plan will remain in effect until February 14, 2006 unless
terminated earlier by the Board of Directors. The Plan may be amended by the
Board of Directors without the consent of the stockholders of VIALOG, except
that any amendment, although effective when made, will be subject to
stockholder approval if required by any Federal or state law or regulation by
the rules of any stock exchange or automated quotation system on which the
common stock may then be listed or quoted.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1996......... 1,095,132 $0.45
Granted........................................ 763,849 4.14
Exercised...................................... (104,000) 0.03
Cancelled...................................... (412,580) 1.06
--------- -----
Options outstanding at December 31, 1997......... 1,342,401 2.40
Granted........................................ 823,175 6.60
Exercised...................................... (215,334) 0.98
Cancelled...................................... (354,680) 4.96
--------- -----
Options outstanding at December 31, 1998......... 1,595,562 4.19
Granted........................................ 1,440,878 5.49
Exercised...................................... (410,240) 1.00
Cancelled...................................... (678,658) 6.03
--------- -----
Options outstanding at December 31, 1999......... 1,947,542 $5.18
========= =====
</TABLE>
The options generally vest in equal quarterly installments over 3 years and
have a 10 year term. At December 31, 1997, 1998 and 1999, 467,771, 551,704,
and 747,100 options, respectively, were exercisable at weighted average
exercise prices of $1.03, $1.79, and $5.17 per share, respectively. At
December 31, 1999, there were 1,754,048 additional shares available for grant
under the Plans.
The following is a summary of options outstanding and exercisable at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range of Number Weighted Average Number
Exercise Outstanding Weighted Average Remaining Exercisable Weighted Average
Prices At 12/31/99 Exercise Price Contractual Life At 12/31/99 Exercise Price
-------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.025-$2.00 221,000 $ 1.88 7.1 years 192,588 $1.86
$3.11-$3.56 582,288 3.39 9.6 43,578 3.33
$4.03-$4.63 166,250 4.08 9.3 22,500 4.03
$5.75 748,538 5.75 8.5 332,305 5.75
$7.00-$10.00 450,504 8.38 9.0 156,129 8.69
--------- -------
1,947,542 5.18 8.8 747,100 5.17
========= =======
</TABLE>
In 1997, modifications were made to the vesting and expiration periods of
certain outstanding options. Compensation expense of $958,000 has been
recorded in 1997 in connection with these modifications.
55
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
VIALOG applies APB Opinion No. 25 accounting for stock issued to employees
in accounting for its Plan and, accordingly, compensation cost is only
recognized in the financial statements for stock options granted to employees
when the fair value on the grant date exceeds the exercise price. Had VIALOG
determined compensation cost based on the fair value at grant date for its
stock options under SFAS No. 123, its net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
($000's except per share
data)
<S> <C> <C> <C>
Net loss
As reported.................................. $(15,821) $(11,877) $(12,120)
Pro forma.................................... $(15,901) $(12,588) $(13,078)
Loss per share
As reported.................................. $ (5.48) $ (3.27) $ (1.53)
Pro forma.................................... $ (5.50) $ (3.47) $ (1.65)
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1998 and 1999, respectively, were $1.00, $4.40, and $3.69 for ISOs and
$1.30, $6.42 and $4.78 for NQSOs on the date of grant. The pro forma amounts
were determined using the Black-Scholes Valuation Model with the following key
assumptions; (i) a 75% volatility factor for 1997 and 1998 based on comparable
companies and 93% for 1999 based on the Company's average trading price since
the IPO; (ii) no dividend yield; (iii) a discount rate equal to the rates
available on U.S. Treasury Strip (zero coupon) bonds on the grant dates of
5.88%, 4.45% and 5.08% in 1997, 1998 and 1999, respectively, and (iv) an
average option life of five years for all periods.
(c) VIALOG Retirement Plan
VIALOG maintains a defined contribution retirement plan (the "VIALOG Plan")
under Section 401(k) of the Internal Revenue Code which is available to all
eligible employees. The VIALOG Plan provides various alternative investment
funds in which the employee may elect to contribute pre-tax savings on a tax
deferred basis. Employee contributions to the VIALOG Plan vest with the
employee immediately.
(d) Employment Agreements
Certain of the executive officers of VIALOG have entered into employment
agreements with VIALOG which provide for severance payments in the event their
employment is terminated prior to the expiration of their employment terms.
The severance terms range from six months to three years, depending on the
timing and circumstances of the termination.
(15) RELATED PARTY TRANSACTIONS
The following summarizes the significant related party transactions:
(a) During 1997, 1998 and 1999, VIALOG paid approximately $1.8 million,
$845,000 and $692,000, respectively, for legal fees to a firm having a
member who is also a director of VIALOG.
(b) For certain months during the years ended December 31, 1997, 1998,
and 1999 one of VIALOG's stockholders provided consulting services to
VIALOG for a monthly fee of $10,000.
(c) In 1999, TCC generated revenues of $178,184 for teleconferencing
services provided to customers of a company owned by the spouse of a
stockholder of VIALOG.
56
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
(d) VIALOG has implemented a policy whereby neither VIALOG nor any
subsidiary (which includes the Acquired Companies) will enter into
contracts or business arrangements with persons or entities owned in whole
or in part by officers or directors of VIALOG or any subsidiary except on
an arms-length basis and with the approval of VIALOG's Board of Directors.
VIALOG's bylaws require that any approval must be by a majority of the
independent directors then in office who have no interest in such contract
or transaction.
(16) SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal
amount of $75.0 million, are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's subsidiaries. Each of the
guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below as of and
for the years ended December 31, 1997, 1998 and 1999. Separate financial
statements and other disclosures concerning the guarantor subsidiaries are not
presented because management has determined that they are not material to
investors.
57
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
<TABLE>
<CAPTION>
VIALOG Call
Corp. Access CSI Points TCC Americo CDC Eliminations Consolidated
------- ------- ------- ------- ------ ------- ------ ------------ ------------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as of
December 31, 1997
Total current assets.... $11,799 $ 725 $ 431 $ 1,506 $ 556 $ 5 $ 488 $ -- $ 15,510
Property and equipment,
net..................... 70 3,306 961 1,617 883 611 96 -- 7,544
Goodwill and intangible
assets, net............. -- 15,899 15,202 3,872 3,945 2,970 2,503 44,391
Other assets............ 7,430 34 86 -- 12 73 3 -- 7,638
------- ------- ------- ------- ------ ------ ------ -------- --------
Total assets........... $76,420 $19,964 $16,680 $ 6,995 $5,396 $3,659 $3,090 $(57,121) $ 75,083
======= ======= ======= ======= ====== ====== ====== ======== ========
Current liabilities..... $ 3,145 $ 1,976 $ 471 $ 824 $ 680 $1,038 $ 117 $ -- $ 8,251
Long-term debt.......... 70,797 24 449 -- 195 74 -- -- 71,539
Other liabilities....... -- 155 -- -- -- -- 20 -- 175
Stockholders' equity
(deficit)............... 2,478 17,809 15,760 6,171 4,521 2,547 2,953 (57,121) (4,882)
------- ------- ------- ------- ------ ------ ------ -------- --------
Total liabilities and
stockholders' equity
(deficit).............. $76,420 $19,964 $16,680 $ 6,995 $5,396 $3,659 $3,090 $(57,121) $ 75,083
======= ======= ======= ======= ====== ====== ====== ======== ========
Statement of Operations
Information for the Year
Ended December 31,
1997(1)
Net revenues............ $ -- $ 1,620 $ 854 $ 1,142 $ 567 $ 290 $ 353 $ (10) $ 4,816
Cost of revenues,
excluding Depreciation.. -- 709 322 806 279 212 174 (10) 2,492
Selling, general and
administrative
Expenses................ 6,117 403 93 159 190 134 82 -- 7,178
Depreciation expense.... 10 80 60 79 27 9 8 -- 273
Amortization of goodwill
and Intangibles......... -- 103 108 33 26 20 16 -- 306
Write-off of in-process
research and
Development............. -- 2,200 3,400 2,000 120 160 120 -- 8,000
------- ------- ------- ------- ------ ------ ------ -------- --------
Operating loss......... (6,127) (1,875) (3,129) (1,935) (75) (245) (47) -- (13,433)
Interest income
(expense), net.......... (1,828) (16) (12) 2 (4) (8) -- -- (1,866)
------- ------- ------- ------- ------ ------ ------ -------- --------
Loss before taxes...... (7,955) (1,891) (3,141) (1,933) (79) (253) (47) -- (15,299)
Income tax expense...... (522) -- -- -- -- -- -- -- (522)
------- ------- ------- ------- ------ ------ ------ -------- --------
Net loss............... $(8,477) $(1,891) $(3,141) $(1,933) $ (79) $ (253) $ (47) $ -- $(15,821)
======= ======= ======= ======= ====== ====== ====== ======== ========
Cash Flow Information
for the Year Ended
December 31, 1997(1)
Cash flows provided by
(used in) operating
activities.............. $(7,072) $ 1,663 $ 407 $ 320 $ 65 $ 264 $ 205 $ -- $ (4,148)
Cash flows provided by
(used in) investing
activities.............. (54,281) 192 90 169 56 (8) 20 -- (53,762)
Cash flows provided by
(used in) financing
activities.............. 69,412 (1,415) (546) 7 (75) (189) (47) -- 67,140
------- ------- ------- ------- ------ ------ ------ -------- --------
Net increase in cash and
cash Equivalents........ 8,059 440 (49) 489 46 67 178 -- 9,230
Cash and cash
equivalents at the
beginning of year....... 337 -- -- -- -- -- -- -- 337
------- ------- ------- ------- ------ ------ ------ -------- --------
Cash and cash
equivalents at the end
of Year................. $ 8,396 $ 440 $ (49) $ 489 $ 46 $ 67 $ 178 $ -- $ 9,567
======= ======= ======= ======= ====== ====== ====== ======== ========
</TABLE>
- -----
(1) Represents operating results of the Acquired Companies from the date of
Acquisition on November 12, 1997.
58
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
<TABLE>
<CAPTION>
VIALOG Call
Corp. Access CSI Points TCC Americo CDC Eliminations Consolidated
-------- ------- ------- ------- ------ ------- ------ ------------ ------------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as of
December 31, 1998
Total current assets.... $ (3,873) $ 4,845 $ 2,492 $ 3,843 $1,620 $ (746) $ 628 $ -- $ 8,809
Property and equipment,
net..................... 561 5,914 1,642 2,054 994 605 217 -- 11,987
Investment in
subsidiaries............ 57,121 -- -- -- -- -- -- (57,121) --
Goodwill and intangible
assets, net............. -- 15,021 14,120 3,617 3,738 2,812 2,371 -- 41,679
Other assets............ 6,351 260 79 -- 27 66 8 -- 6,791
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total assets........... $ 60,160 $26,040 $18,333 $ 9,514 $6,379 $2,737 $3,224 $(57,121) $ 69,266
======== ======= ======= ======= ====== ====== ====== ======== ========
Current liabilities..... $ 5,695 $ 2,052 $ 1,055 $ 1,416 $ 550 $ 337 $ 82 $ -- $ 11,187
Long-term debt,
excluding current
portion................. 73,814 8 209 -- 88 70 -- -- 74,189
Other liabilities....... -- 187 264 -- -- -- 31 -- 482
Stockholders' equity
(deficit)............... (19,349) 23,793 16,805 8,098 5,741 2,330 3,111 (57,121) (16,592)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Total liabilities and
stockholders' equity
(deficit).............. $ 60,160 $26,040 $18,333 $ 9,514 $6,379 $2,737 $3,224 $(57,121) $ 69,266
======== ======= ======= ======= ====== ====== ====== ======== ========
Statement of Operations
Information for the Year
Ended December 31, 1998
Net revenues............ $ -- $18,361 $ 7,594 $10,144 $5,936 $2,824 $2,682 $ (721) $ 46,820
Cost of revenues,
excluding
depreciation............ 3 8,506 3,225 6,749 3,189 1,712 1,658 (721) 24,321
Selling, general and
administrative
expenses................ 9,972 1,318 679 626 967 1,001 633 -- 15,196
Depreciation expense.... 81 1,458 413 450 252 115 66 -- 2,835
Amortization of goodwill
and intangibles......... -- 881 865 253 204 156 131 -- 2,490
Non-recurring charge.... -- -- 1,200 -- -- -- -- -- 1,200
-------- ------- ------- ------- ------ ------ ------ -------- --------
Operating income
(loss)................. (10,056) 6,198 1,212 2,066 1,324 (160) 194 -- 778
Interest income
(expense), net.......... (12,521) 8 (63) -- (35) (25) 7 -- (12,629)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Loss before income tax
expense................ (22,577) 6,206 1,149 2,066 1,289 (185) 201 -- (11,851)
Income tax expense...... -- (26) -- -- -- -- -- -- (26)
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net income (loss)...... $(22,577) $ 6,180 $ 1,149 $ 2,066 $1,289 $ (185) $ 201 $ -- $(11,877)
======== ======= ======= ======= ====== ====== ====== ======== ========
Cash Flow Information
for the Year Ended
December 31, 1998
Cash flows provided by
(used in) operating
activities.............. $(11,980) $ 3,992 $ 1,525 $ 459 $ 459 $ 98 $ 29 $ -- $ (5,418)
Cash flows used in
investing activities.... (1,065) (4,066) (1,171) (887) (363) (109) (187) -- (7,848)
Cash flows provided by
(used in) financing
activities.............. 4,739 (366) (244) -- (142) (56) -- -- 3,931
-------- ------- ------- ------- ------ ------ ------ -------- --------
Net increase (decrease)
in cash and cash
equivalents............. (8,306) (440) 110 (428) (46) (67) (158) -- (9,335)
Cash and cash
equivalents at the
beginning of period..... 8,396 440 (49) 489 46 67 178 -- 9,567
-------- ------- ------- ------- ------ ------ ------ -------- --------
Cash and cash
equivalents at the end
of period............... $ 90 $ -- $ 61 $ 61 $ -- $ -- $ 20 $ -- $ 232
======== ======= ======= ======= ====== ====== ====== ======== ========
</TABLE>
59
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999--(Continued)
<TABLE>
<CAPTION>
VIALOG Call Elimin- Consol-
Corp. Access CSI(1) Points TCC Americo CDC ABCC CPI ABCI ations idated
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as of
December 31, 1999
Total current
assets........... $(17,906) $13,891 $ -- $ 8,026 $3,739 $(1,072) $ 327 $ 4,222 $ 765 $1,078 $ (141) $ 12,929
Property and
equipment, net... 904 7,774 -- 4,541 981 526 119 2,235 371 363 -- 17,814
Investment in
subsidiaries..... 85,696 -- -- -- -- -- -- -- -- -- (85,696) --
Goodwill and
intangible
assets, net...... -- 13,881 -- 16,635 3,532 2,513 2,156 14,409 5,556 5,412 -- 64,094
Other assets..... 4,841 134 -- 64 10 65 6 -- -- 25 (761) 4,384
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Total assets.... $ 73,535 $35,680 $ -- $29,266 $8,262 $ 2,032 $2,608 $20,866 $6,692 $6,878 $(86,598) $ 99,221
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
Current
liabilities...... $ 10,571 $ 1,721 $ -- $ 854 $ 434 $ (1) $ 9 $ 574 $ 164 $ 150 $ 2,376 $ 16,852
Long-term debt,
excluding current
portion.......... 77,628 -- -- 57 29 45 -- -- -- 127 (2,059) 75,827
Other
liabilities...... 525 -- -- 419 -- 589 222 -- 735 49 (1,040) 1,499
Stockholders'
equity
(deficit)........ (15,189) 33,959 -- 27,936 7,799 1,399 2,377 20,292 5,793 6,552 (85,875) 5,043
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Total
liabilities and
stockholders'
equity
(deficit)....... $ 73,535 $35,680 $ -- $29,266 $8,262 $ 2,032 $2,608 $20,866 $6,692 $6,878 $(86,598) $ 99,221
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ======== ===
Statement of
Operations
Information for
the Year Ended
December 31, 1999
Net revenues..... $ -- $27,425 $ 374 $15,178 $6,858 $ 1,385 $2,124 $ 9,248 $3,207 $3,350 $ (520) $ 68,629
Cost of revenues,
excluding
depreciation..... -- 12,480 236 8,435 3,326 857 1,635 3,079 1,580 1,279 (520) 32,387
Selling, general
and
administrative
expenses......... 15,075 2,060 26 1,520 988 261 359 1,440 782 931 -- 23,442
Depreciation
expense.......... 202 1,761 40 1,125 263 120 168 229 136 146 -- 4,190
Amortization of
goodwill and
intangibles...... -- 875 72 1,033 204 150 129 852 374 371 -- 4,060
Non-recurring
charge........... 454 -- -- -- -- 911 567 -- 721 329 -- 2,982
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Operating income
(loss).......... (15,731) 10,249 -- 3,065 2,077 (914) (734) 3,648 (386) 294 -- 1,568
Interest income
(expense), net... (13,426) 3 (4) (30) (20) (13) -- -- 8 (42) -- (13,524)
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Loss before
income tax
expense......... (29,157) 10,252 (4) 3,035 2,057 (927) (734) 3,648 (378) 252 -- (11,956)
Income tax
expense.......... -- (164) -- -- -- -- -- -- -- -- -- (164)
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Net income
(loss).......... $(29,157) $10,088 $ (4) $ 3,035 $2,057 $ (927) $ (734) $ 3,648 $ (378) $ 252 $ -- $(12,120)
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
Cash Flow
Information for
the Year Ended
December 31, 1999
Cash flows
provided by (used
in) operating
activities....... $ (8,433) $ 3,580 $(1,454) $ 3,673 $ 291 $ (4) $ 132 $ 1,715 $ 103 $ 546 $ -- $ 149
Cash flows used
in investing
activities....... (29,641) (3,621) 1,602 (3,612) (250) (41) (70) (1,701) (70) (51) -- $(37,455)
Cash flows
provided by (used
in) financing
activities....... 38,370 (8) (209) (31) (41) 45 -- -- -- (505) -- 37,621
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Net increase
(decrease) in
cash and cash
equivalents...... 296 (49) (61) 30 -- -- 62 14 33 (10) -- 315
Cash and cash
equivalents at
the beginning of
period........... 90 -- 61 61 -- -- 20 -- -- -- -- 232
-------- ------- ------- ------- ------ ------- ------ ------- ------ ------ -------- --------
Cash and cash
equivalents at
the end of
period........... $ 386 $ (49) $ -- $ 91 $ -- $ -- $ 82 $ 14 $ 33 $ (10) $ -- $ 547
======== ======= ======= ======= ====== ======= ====== ======= ====== ====== ======== ========
</TABLE>
- ----
(1) On January 31, 1999 this operating center was closed and merged into Call
Points. The Statement of Operations and Cash Flow data for this operating
center represents activity from January 1, 1999 through January 31, 1999.
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Telephone Business Meetings, Inc.:
We have audited the accompanying balance sheets of Telephone Business
Meetings, Inc. ("Access") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1994, the period January 1, 1995 to April 9, 1995, the
period April 10, 1995 to December 31, 1995, the year ended December 31, 1996
and for the period January 1, 1997 to November 12, 1997. These financial
statements are the responsibility of Access' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telephone Business
Meetings, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the year ended December 31, 1994, the period
January 1, 1995 to April 9, 1995, the period April 10, 1995 to December 31,
1995, the year ended December 31, 1996 and the period January 1, 1997 to
November 12, 1997, in conformity with generally accepted accounting
principles.
As discussed in note 4 to the financial statements, effective April 10,
1995, Access repurchased all of the common stock of one of Access' founding
stockholders, representing a 50% interest in Access. As a result of the change
in control, the financial information for the periods after the change in
control is presented on a different cost basis than that for the periods
before the change in control and, therefore, is not comparable.
KPMG LLP
Washington, D.C.
July 2, 1998
61
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C> <C>
ASSETS (note 3)
Current assets:
Cash and cash equivalents.................................. $ 390 $ 804
Trade accounts receivable, less allowance for doubtful
accounts of $33 and $206 at December 31, 1995 and December
31, 1996, respectively.................................... 802 1,103
Prepaid expenses and other current assets.................. 108 161
------ ------
Total current assets..................................... 1,300 2,068
Property and equipment, net (note 2)......................... 2,032 2,201
Restricted cash.............................................. 105 110
Excess of purchase price over the fair value of the interest
in net assets of the former stockholders, net of accumulated
amortization of $12 and $28 at December 31, 1995 and
December 31, 1996 (note 4).................................. 231 215
Other assets................................................. 4 11
------ ------ ---
Total assets............................................. $3,672 $4,605
====== ====== ===
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3)............ $ 732 $ 654
Current installments of note payable to former stockholder
(note 4).................................................. 109 116
Current installments of obligations under capital leases
(note 7).................................................. 28 32
Accounts payable........................................... 4 141
Accrued expenses (note 6).................................. 276 366
Income taxes payable....................................... 10 --
------ ------
Total current liabilities................................ 1,159 1,309
Long-term debt, excluding current installments (note 3)...... 1,029 880
Note payable to former stockholder, excluding current
installments (note 4)....................................... 439 323
Obligations under capital leases, excluding current
installments (note 7)....................................... 79 47
Deferred rent................................................ 94 128
------ ------
Total liabilities........................................ 2,800 2,687
Common stock issued to employees with redemption option,
15.464 shares at liquidation value (note 5)................. -- 148
Stockholders' equity (notes 4 and 5):
Common stock, $.01 par value. Authorized and issued 1,000
shares; 500 shares outstanding............................ -- --
Additional paid-in capital................................. 660 660
Retained earnings.......................................... 212 1,110
Total stockholders' equity............................... 872 1,770
------ ------
Commitments and contingencies (notes 7 and 8)
Total liabilities and stockholders' equity............... $3,672 $4,605
====== ======
</TABLE>
See accompanying notes to financial statements.
62
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Period from
Period Period January 1,
Year Ended January 1, April 10, to Year Ended 1997 to
December 31, to April 9, December 31, December 31, November 12,
1994 1995 1995 1996 1997
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 5,114 $ 1,590 $ 4,918 $ 9,073 $ 10,945
Cost of revenues,
excluding
depreciation........... 2,608 760 2,261 3,564 4,791
Selling, general and
administrative
expenses............... 1,691 498 1,986 3,332 4,124
Depreciation and
amortization expense... 269 121 375 630 823
------- ------- ------- --------- ---------
Income from
operations........... 546 211 296 1,547 1,207
Interest expense, net... 49 12 140 174 132
------- ------- ------- --------- ---------
Income before income
tax expense
(benefit)............ 497 199 156 1,373 1,075
Income tax expense
(benefit).............. 52 8 (56) -- --
------- ------- ------- --------- ---------
Net income............ $ 445 $ 191 $ 212 $ 1,373 $ 1,075
======= ======= ======= ========= =========
Net income per share--
basic and diluted.... $445.00 $191.00 $424.00 $2,746.00 $2,150.00
======= ======= ======= ========= =========
Weighted average
shares outstanding... 1,000 1,000 500 500 500
======= ======= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
63
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common stock
------------------- Additional Total
Number of Paid in Retained Stockholders'
Shares Par Value Capital Earnings Equity
--------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,000 $-- $ 4 $ 715 $ 719
Disbursements........... -- -- -- (39) (39)
Net income.............. -- -- -- 445 445
----- ---- ---- ------ ------
Balance at December 31,
1994................... 1,000 -- 4 1,121 1,125
Net income.............. -- -- -- 191 191
----- ---- ---- ------ ------
Balance at April 9,
1995................... 1,000 $-- $ 4 $1,312 $1,316
===== ==== ==== ====== ======
Balance subsequent to
repurchase of 50%
interest (note 4)...... 500 $-- $660 $ -- $ 660
Net income.............. -- -- -- 212 212
----- ---- ---- ------ ------
Balance at December 31,
1995................... 500 -- 660 212 872
Distributions........... -- -- -- (475) (475)
Net income.............. -- -- -- 1,373 1,373
----- ---- ---- ------ ------
Balance at December 31,
1996................... 500 -- 660 1,110 1,770
Distributions........... -- -- -- (1,284) (1,284)
Net income.............. -- -- -- 1,075 1,075
----- ---- ---- ------ ------
Balance at November 12,
1997................... 500 $-- $660 $ 901 $1,561
===== ==== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
64
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period from
Period Period January 1,
Year Ended January 1, April 10, 1995 Year Ended 1997 to
December 31, to April 9, to December 31, December 31, November 12,
1994 1995 1995 1996 1997
------------ ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $445 $ 191 $ 212 $1,373 $1,075
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 269 121 375 630 823
Deferred income
taxes................ 24 -- (62) -- --
Compensation expense
for issuance of
common stock......... -- -- -- 148 402
Changes in operating
assets and
liabilities:
Trade accounts
receivable, net..... (71) (170) (108) (301) (589)
Prepaid expenses and
other current
assets.............. (58) 62 (5) (53) 146
Accounts payable and
accrued expenses.... (17) 90 22 227 711
Income taxes
payable............. -- -- -- (10) --
Deferred rent........ -- -- 93 34 --
Other non current
liabilities......... -- -- -- -- 364
---- ------ ------ ------ ------
Net cash provided by
operating
activities......... 592 294 527 2,048 2,932
---- ------ ------ ------ ------
Cash flows from
investing activities:
Additions to property
and equipment........ (560) (123) (1,227) (783) (1,704)
Restricted cash....... -- -- (105) (5) --
Other assets.......... 3 (40) 63 (7) --
---- ------ ------ ------ ------
Net cash used in
investing
activities......... (557) (163) (1,269) (795) (1,704)
---- ------ ------ ------ ------
Cash flows from
financing activities:
Proceeds from long-
term debt............ 484 2,149 -- 587 (765)
Principal repayments
of long-term debt.... (338) (626) (389) (814)
Principal repayments
of notes payable to
stockholders......... (85) -- (51) (109) 500
Principal payments
under capital lease
obligations.......... -- -- (12) (28) --
Cash portion of
consideration paid to
former stockholder... -- -- (300) -- --
Distributions to
stockholders......... (39) -- -- (475) (1,284)
---- ------ ------ ------ ------
Net cash provided by
(used in) financing
activities......... 22 1,523 (752) (839) (1,549)
---- ------ ------ ------ ------
Net increase
(decrease) in cash
and cash
equivalents.......... 57 1,654 (1,494) 414 (321)
Cash and cash
equivalents at
beginning of period.. 173 230 1,884 390 804
---- ------ ------ ------ ------
Cash and cash
equivalents at end of
period............... $230 $1,884 $ 390 $ 804 $ 483
==== ====== ====== ====== ======
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for:
Interest............. $ 49 $ 18 $ 169 $ 191 $ 108
==== ====== ====== ====== ======
Income taxes......... $ 22 $ -- $ -- $ 10 $ --
==== ====== ====== ====== ======
Supplemental disclosure
of noncash investing
and financing
activities:
Capital lease
obligations.......... $-- $ -- $ 120 $ -- $ --
==== ====== ====== ====== ======
Issuance of note
payable in partial
consideration to
former stockholder... $-- $ -- $ 599 $ -- $ --
==== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
65
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Telephone Business Meetings, Inc. ("Access"), which operates under the names
ACCESS Conference Call Service and ACCESS Teleconferencing International,
provides telephone and video group communications services to a broad spectrum
of individuals and businesses throughout the United States. Access' operations
center is located in Reston, Virginia.
On November 12, 1997, VIALOG Corporation acquired all of the outstanding
stock of Access for cash, and Access became a wholly-owned subsidiary of
VIALOG Corporation. The acquisition of Access was accounted for by the
purchase method. Accordingly, all of the identified tangible and intangible
assets and liabilities were recorded at their current fair market value and
the excess of the purchase price over the fair value of the net assets
acquired were recorded as intangible assets, which are being amortized over
periods up to 20 years. Under the terms of the acquisition agreement, the
stockholders of Access agreed to make an election under Section 338(h)(10) of
the Internal Revenue Code in order for the acquisition to be treated as an
asset purchase for tax purposes.
At the time of the acquisition, the tax election of Access under the
provisions of the Internal Revenue Code was changed from an S corporation to a
C Corporation. As a result, Access will be subject to corporate income taxes
subsequent to the date of the acquisition.
(b) Use of Estimates
Management of Access has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
(d) Restricted Cash
Restricted cash consists of a certificate of deposit which is security for
Access' commitment under its office lease and is classified as long-term in
the accompanying balance sheets.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided on the straight-line basis over the estimated useful
lives of the respective assets. The estimated useful lives are as follows:
five to seven years for office furniture and equipment; seven years for
conferencing equipment; and three to five years for computer equipment.
Capitalized lease equipment and leasehold improvements are amortized over the
lives of the leases, ranging from three to ten years.
(f) Intangible Assets
Access monitors its excess of purchase price over the fair value of interest
in net assets of the former stockholders (goodwill) to determine whether any
impairment of goodwill has occurred. In making such determination with respect
to goodwill, Access evaluates the performance, on an undiscounted basis, of
the underlying business which gave rise to such amount. Amortization of
goodwill is recorded on a straight-line basis over the estimated useful life
of 15 years.
66
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(g) Research and Development
Access maintains a technical support and engineering department that, in
part, develops features and products for group communications. In accordance
with SFAS No. 2, Accounting for Research and Development Costs, Access charges
to expense (included in cost of revenues) that portion of this department's
costs which are related to research and development activities. Access'
research and development expenses for the years ended December 31, 1994, 1995,
1996 and the period January 1, 1997 to November 12, 1997 were $128,000,
$207,000, $288,000 and $253,000 respectively.
(h) Income Taxes
Access has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, Access does not pay income
taxes on its taxable income. Instead, stockholders of Access are liable for
individual federal income taxes for their respective shares of Access' taxable
income. Notwithstanding the federal Subchapter S election, franchise income
taxes were payable through May of 1995 to the District of Columbia, which does
not recognize the Subchapter S election. As of June 1995, Access moved all of
its property and office facilities to the State of Virginia.
(i) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Access adopted the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on
Access' financial position, results of operations, or liquidity.
(k) Earnings Per Share
Access adopted the provisions of SFAS No. 128, Earnings per Share, during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the period January 1, 1997 to
November 12, 1997, basic earnings per share were calculated based on weighted
average common shares outstanding. There were no common stock equivalents
outstanding for any of the periods presented; accordingly, basic and fully
diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Office furniture and equipment................................ $ 66 $ 88
Conferencing equipment........................................ 1,982 2,632
Computer equipment............................................ 456 567
Capitalized lease equipment................................... 120 120
Leasehold improvements........................................ 234 234
------ ------
2,858 3,641
Less: accumulated depreciation and amortization............... 826 1,440
------ ------
Property and equipment, net................................. $2,032 $2,201
====== ======
</TABLE>
67
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Note payable to a bank, interest at the prime rate plus 0.75%
(9.25% at September 30, 1997), monthly principal payments of
13,890 plus interest, balance due in May 2000............... $ -- $ --
Note payable to a bank, interest only at 9.33% payable
monthly through October 1995 and then monthly principal
payments of $38,095 plus interest until February 1999, with
the balance due in March 1999............................... 1,486 1,029
Note payable to a bank, interest at the prime rate plus 0.75%
(9.25% at September 30, 1997), monthly principal payments of
$7,000 plus interest, balance due in March 1999............. -- 187
Note payable to a bank, interest at 9.5%, monthly principal
payments of $9,400 plus interest, balance due in October
1999........................................................ -- 318
Note payable to a bank, interest at 9.33%, repaid in full in
September 1996.............................................. 275 --
------- ------
Total long-term debt....................................... 1,761 1,534
Less current installments.................................... 732 654
------- ------
Long-term debt, excluding current installments............. $ 1,029 $ 880
======= ======
</TABLE>
All of Access' assets are collateral for the bank notes. In addition,
Access' majority stockholder is a guarantor of each of the bank notes. The
terms of each of the bank notes include certain financial and other covenants.
As of December 31, 1996, as a result of the stock awards discussed in note 5,
Access was not in compliance with a covenant which limits the amount of the
annual increase in executive compensation. Subsequent to December 31, 1996,
Access obtained a waiver of the noncompliance from the lender.
The aggregate maturities of all notes payable, including the note payable to
the former stockholder (see note 4), are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 770
1998................................................................ 777
1999................................................................ 357
2000................................................................ 69
------
$1,973
======
</TABLE>
In November 1997, all of the bank notes were repaid in full. On November 12,
1997, Access became a joint and several guarantor of VIALOG's $75.0 million
Senior Notes.
(4) RELATED PARTY TRANSACTIONS
On April 10, 1995, under a Share Purchase Agreement, as amended, all of the
common stock, 500 shares, of one of Access' founding stockholders
(representing a 50 percent interest in Access) was repurchased by Access for
total consideration of $899,000. The consideration consisted of $300,000 of
cash paid at closing and a note payable of $599,000 due May 2000, bearing
interest at 6%, with equal quarterly principal and interest payments. As of
the date of the repurchase, Access experienced a change in control and,
accordingly, the acquired 50% interest in the net assets of Access was
recognized at fair market value, which approximated book value. The excess
consideration paid over the fair market value of the interest in the net
assets of the former stockholder was approximately $240,000.
68
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concurrent with the repurchase of the shares, Access and the former
stockholder entered into an agreement for consulting services and an agreement
not to compete for a five-year period in exchange for total consideration of
$625,000 payable in equal quarterly payments by Access of $31,000 commencing
with the first quarter subsequent to the closing and continuing through April
2000.
As of December 31, 1995, and December 31, 1996, $548,000, and $439,000
respectively, were due under the note payable to the former stockholder, of
which $109,000, and $116,000 respectively, were current. During the period
from April 10, 1995 to December 31, 1995, the year ended December 31, 1996,
and the period January 1, 1997 to November 12, 1997 Access paid the former
stockholder $62,000, $125,000 and $433,000, respectively, under the agreements
for consulting services and not to compete.
As stipulated in the business combination agreement between Access and
VIALOG, $662,000 of the purchase price was paid directly to the related party
to retire the note and to pay the remaining obligation under the agreement for
consulting services and an agreement not to compete.
During the period from January 1, 1997 to November 12, 1997 Access expensed
$340,000 of the $662,000 of the purchase price paid to the related party by
VIALOG.
(5) EMPLOYEE BENEFITS
Stock Awards
During 1996, Access awarded 7.732 shares of common stock to each of two
executive officers of Access. The shares are fully vested but are restricted
as to transfer by each of the executive officers. In the event of termination
of the executive officers' employment with Access, Access has the right at its
sole option to require the executives to sell their shares back to Access and
the executives have the right to require Access to repurchase their shares,
all at the then determined fair market value. In the event of a public
offering of Access' shares or the sale of Access, all such restrictions,
rights, and options terminate.
As a result of the executive officers' right to require Access to repurchase
the shares upon termination of employment, the awards have been accounted for
using variable plan accounting, whereby compensation expense is recognized
each period for the increase, if any, in the estimated fair market value of
Access' common stock. During the year ended December 31, 1996 and the period
January 1, 1997 to November 12, 1997, Access recognized a total of $148,000
and $402,000, respectively, of compensation expense relating to the stock
awards. Further, the liquidation value of the shares has been reflected
between total liabilities and stockholders' equity in the accompanying balance
sheets.
In connection with the acquisition by VIALOG, as described in note 1, these
shares were acquired by VIALOG.
Retirement Plan
Access maintains a defined contribution retirement plan (the "Plan") under
Section 401(k) of the Internal Revenue Code which covers all eligible
employees. Employee contributions are voluntary and vest with the employee
immediately. The Plan provides for matching contributions by Access of 50
percent of employee contributions, up to certain limits as defined in the
Plan. Access' matching contributions vest over the employee's period of
service. Contributions by Access to the Plan were approximately $27,000,
$7,000, $20,000, $42,000 and $43,000 for the year ended December 31, 1994, the
period January 1, 1995 to April 9, 1995, the period April 10, 1995 to December
31, 1995, the year ended December 31, 1996, and the period January 1, 1997 to
November 12, 1997, respectively.
69
<PAGE>
TELEPHONE BUSINESS MEETINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Accrued salaries, wages and benefits........................ $ 86 $ 215
Accrued fees and other expenses............................. 190 151
------ ------
$ 276 $ 366
====== ======
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
Operating Lease
Access leases office space for its teleconferencing facility under a
noncancelable operating lease in Reston, Virginia. The lease is for a total of
ten years expiring May 31, 2005.
Future minimum payments under this lease are approximately as follows (in
thousands):
<TABLE>
<S> <C>
1997................................................................ $ 362
1998................................................................ 373
1999................................................................ 384
2000................................................................ 396
2001................................................................ 407
Thereafter.......................................................... 1,485
------
$3,407
======
</TABLE>
Total rent expense was approximately $185,000, $51,000, $287,000, $396,000
and $363,000 for the year ended December 31, 1994, the period from January 1,
1995 to April 9, 1995, the period from April 10, 1995 to December 31, 1995,
the year ended December 31, 1996 and the period January 1, 1997 to November
12, 1997, respectively.
As of December 31, 1996, Access had an outstanding letter of credit in the
amount of $100,000 with a commercial bank which secures Access' obligations
under the office lease.
Capital Leases
Access has entered into noncancelable capital leases for various computer
equipment. The leases, which expire between June 1998 and June 2000, consist
of two 36 month leases and one 60 month lease. Interest rates range from 9.07%
to 10.31%.
Future minimum payments under the leases are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................................................. $38
1998.................................................................. 28
1999.................................................................. 17
2000.................................................................. 8
---
91
Less: imputed interest................................................ 12
---
Net present value of future lease obligations......................... 79
Less: current portion................................................. 32
---
Obligations under capital leases, net of current portion.............. $47
</TABLE>
70
<PAGE>
<TABLE>
<S> <C>
===
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Conference Source International, Inc.
We have audited the accompanying balance sheets of Conference Source
International, Inc. ("CSI") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996 and for the period
January 1, 1997 to November 12, 1997. These financial statements are the
responsibility of CSI's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conference Source
International, Inc. as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, and the period January 1, 1997 to November 12, 1997
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 2, 1998
71
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C>
ASSETS (note 3)
Current assets:
Cash and cash equivalents...................................... $ 375 $ 318
Trade account receivables, less allowance for doubtful accounts
of $5 and $10 at December 31, 1995 and December 31, 1996,
respectively (note 6)......................................... 692 801
Due from stockholder (note 4).................................. 72 --
Prepaid expenses and other current assets...................... -- 24
------ ------
Total current assets......................................... 1,139 1,143
------ ------
Property and equipment, net (notes 2 and 5)...................... 866 1,059
Other assets..................................................... 32 91
------ ------
Total assets................................................. $2,037 $2,293
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 3)................ $1,089 $ 111
Current installments of obligations under capital leases (note
5)............................................................ 141 375
Accounts payable............................................... 201 121
Accrued expenses............................................... 30 91
------ ------
Total current liabilities.................................... 1,461 698
------ ------
Long-term debt, excluding current installments (note 3).......... 43 219
Obligations under capital leases, excluding current installments
(note 5)........................................................ 173 700
------ ------
Total liabilities............................................ 1,677 1,617
------ ------
Stockholders' equity:
Common stock, $1.00 par value. Authorized 100,000 shares;
issued and outstanding 1,000 shares........................... 1 1
Additional paid-in capital..................................... 349 349
Retained earnings.............................................. 10 326
------ ------
Total stockholders' equity................................... 360 676
------ ------
Commitments and contingencies (notes 5 and 7)
Total liabilities and stockholders' equity................... $2,037 $2,293
====== ======
</TABLE>
See accompanying notes to financial statements.
72
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Period from
January 1,
Year Ended December 31, 1997 to
------------------------ November 12,
1994 1995 1996 1997
------ ------- --------- ------------
<S> <C> <C> <C> <C>
Net revenues (note 6)................... $2,331 $ 3,808 $ 5,868 $ 5,579
Cost of revenues, excluding
depreciation........................... 1,256 1,617 2,438 2,052
Selling, general and administrative
expenses............................... 707 905 998 831
Depreciation expense.................... 235 292 393 356
------ ------- --------- ---------
Income from operations................ 133 994 2,039 2,340
Interest expense, net................... 124 160 165 120
------ ------- --------- ---------
Net income............................ $ 9 $ 834 $ 1,874 $ 2,220
====== ======= ========= =========
Net income per share - basic and
diluted.............................. $ 9.00 $834.00 $1,874.00 $2,220.00
====== ======= ========= =========
Weighted average shares outstanding... 1,000 1,000 1,000 1,000
====== ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
------------
Number Additional Total
of Par Paid-in Retained Stockholders'
Shares Value Capital Earnings Equity
------ ----- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993... 1,000 $ 1 $349 $ (833) $ (483)
Net income................... -- -- -- 9 9
----- --- ---- ------- -------
Balance at December 31, 1994... 1,000 1 349 (824) (474)
Net income................... -- -- -- 834 834
----- --- ---- ------- -------
Balance at December 31, 1995... 1,000 1 349 10 360
Net income................... -- -- -- 1,874 1,874
Distributions................ -- -- -- (1,558) (1,558)
----- --- ---- ------- -------
Balance at December 31, 1996... 1,000 1 349 326 676
Net income................... -- -- -- 2,220 2,220
Distributions................ -- -- -- (2,636) (2,636)
----- --- ---- ------- -------
Balance at November 12, 1997... 1,000 $ 1 $349 $ (90) $ 260
===== === ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
74
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Period from
December 31, January 1, 1997
--------------------- to November 12,
1994 1995 1996 1997
----- ----- ------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 9 $ 834 $ 1,874 $ 2,220
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss on sale of property and
equipment........................... -- -- -- 5
Depreciation and amortization........ 235 292 393 356
Changes in operating assets and
liabilities:
Trade accounts receivable, net...... (205) (312) (109) 5
Due from stockholder................ (6) (66) 72 --
Prepaid expenses and other assets... (35) 4 (83) 36
Accounts payable and accrued
expenses........................... 55 (31) (19) 275
----- ----- ------- -------
Net cash provided by operating
activities........................ 53 721 2,128 2,897
----- ----- ------- -------
Cash flows from investing activities:
Additions to property and equipment.... (476) (225) (41) (317)
Cash proceeds from disposal of property
and equipment......................... -- -- -- 6
----- ----- ------- -------
Net cash used in investing activities.. (476) (225) (41) (311)
----- ----- ------- -------
Cash flows from financing activities:
Proceeds from borrowings on long-term
debt.................................. 652 201 -- 573
Principal repayment of long-term debt.. (100) (197) (438) (400)
Proceeds from refinancing of
obligations under capital leases...... -- -- 142 --
Principal repayment of obligations
under capital leases.................. (126) (148) (290) (338)
Distributions to stockholder........... -- -- (1,558) (2,636)
----- ----- ------- -------
Net cash provided by (used in)
financing activities............... 426 (144) (2,144) (2,801)
----- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ 3 352 (57) (215)
Cash and cash equivalents at beginning
of period.............................. 20 23 375 318
----- ----- ------- -------
Cash and cash equivalents at end of
period................................. $ 23 $ 375 $ 318 $ 103
===== ===== ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ 119 $ 162 $ 169 $ 127
===== ===== ======= =======
Noncash transaction:
Equipment purchased under capital
lease obligations................... $ 296 $ -- $ 545 $ --
===== ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
75
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Conference Source International, Inc. ("CSI") is a provider of group
communications to a variety of customers located primarily in the United
States. CSI was incorporated in February, 1992, and is headquartered in
Atlanta, Georgia.
(b) Sale of Business
On November 12, 1997, VIALOG Corporation acquired all of the outstanding
stock of CSI for cash, and CSI became a wholly-owned subsidiary of VIALOG
Corporation. The acquisition of CSI was accounted for by the purchase method.
Accordingly, all of the identified tangible and intangible assets and
liabilities were recorded at their current fair market value and the excess of
the purchase price over the fair value of the net assets acquired were
recorded as intangible assets, which are being amortized over periods up to 20
years. Under the terms of the acquisition agreement, the stockholders of CSI
agreed to make an election under Section 338(h) (10) of the Internal Revenue
Code in order for the acquisition to be treated as an asset purchase for tax
purposes.
At the time of the acquisition, the tax election of CSI under the provisions
of the Internal Revenue Code was changed from an S corporation to a C
corporation. As a result, CSI will be subject to corporate income taxes
subsequent to the date of the acquisition.
In November 1997, the remaining balance of long-term debt described in note
3 was repaid in full, plus accrued interest.
(c) Use of Estimates
Management of CSI has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(d) Cash and Cash Equivalents
CSI considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. At December 31, 1995 and December
31, 1996, certain cash deposits with financial institutions are in excess of
the $100,000 Federal Depository Insurance Corporation (FDIC) guarantee.
(e) Property and Equipment
Property and equipment is stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments. Depreciation is
calculated using accelerated methods over the estimated useful lives of the
respective assets. Estimated useful lives are as follows: five years for
vehicles; five to seven years for office equipment; five to seven years for
bridge equipment; and five years for computer software. Equipment under
capital leases is amortized using accelerated methods over the shorter of the
lease term or the estimated useful life of the asset, ranging from five to
seven years.
(f) Income Taxes
CSI has elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, CSI does not pay corporate income taxes on its taxable income.
Instead, the stockholders are liable for individual income taxes on CSI's
taxable income. Accordingly, these financial statements do not contain a
provision for income taxes.
76
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(g) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(h) Research and Development
CSI maintains a technical support and engineering department that, in part,
develops features and products for group communications. In accordance with
SFAS No. 2, Accounting for Research and Development Costs, CSI charges to
expense (included in cost of revenues) that portion of this department's costs
which are related to research and development activities. CSI's research and
development expenses for the years ended December 31, 1994, 1995 and 1996 were
$179,000, $209,000 and $218,000, respectively. CSI's research and development
expenses for the period from January 1, 1997 to November 12, 1997 were
$139,000.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
CSI adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1996.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement did not have a material impact on
CSI's financial position, results of operations, or liquidity.
(j) Earnings Per Share
CSI adopted the provisions of SFAS No. 128 "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For the years ended
December 31, 1994, 1995 and 1996, and for the period January 1, 1997, to
November 12, 1997, basic earnings per share were calculated based on weighted
average common shares outstanding. There were no common stock equivalents
outstanding for any of the periods presented; accordingly, basic and fully
diluted earnings per share are the same.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Vehicles........................................................ $ 27 $ 27
Office equipment................................................ 123 148
Bridge equipment................................................ 1,313 1,874
Computer software............................................... 62 62
------ ------
1,525 2,111
Less: accumulated depreciation and amortization................ 659 1,052
------ ------
Property, and equipment, net................................. $ 866 $1,059
====== ======
</TABLE>
77
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1995 1996
-------- -------
(in thousands)
<S> <C> <C>
Note payable to bank in monthly installments of $18,412,
including interest at 9.5%, matures May 2000; collateralized
by equipment and cash surrender value of life insurance and
personal guarantee of stockholder............................. $ -- $ --
Note payable to bank in monthly installments of $10,597,
including interest at 10.25%, matures August 1999;
collateralized by accounts receivable and cash surrender value
of life insurance and personal guarantee of stockholders...... 634 286
Note payable to bank in monthly installments of $1,029,
including interest at 10.5%, matures October 1999;
collateralized by equipment, accounts receivable, and cash
surrender value of life insurance and personal guarantee of
stockholders.................................................. 39 30
Notes payable for bridge equipment purchases; balances were
converted to a capital lease obligation during 1996........... 437 --
Note payable to bank in monthly installments of $846, including
interest at 9.20%, matures May 1998; collateralized by
vehicles...................................................... 22 14
-------- ------
Total long-term debt........................................... 1,132 330
Less: current installments..................................... 1,089 111
-------- ------
Long-term debt, excluding current installments................. $ 43 $ 219
======== ======
</TABLE>
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................................................. $111
1998.................................................................. 127
1999.................................................................. 92
----
$330
====
</TABLE>
On November 12, 1997, CSI became a joint and several guarantor of VIALOG's
$75.0 million Senior Notes.
(4) RELATED PARTY TRANSACTIONS
(a) Advance to Stockholder
CSI loaned one of the stockholders a total of $72,000 during 1994 and 1995.
The note had no set repayment schedule and was interest free. The amount was
repaid in full during 1996.
(b) Lease Transactions
CSI paid monthly lease payments to a stockholder for use of certain
equipment. Total payments under these arrangements during the years ended
December 31, 1994, 1995 and 1996 were approximately $53,000 per year and for
the period January 1, 1997 to November 12, 1997 were approximately $9,000. The
leases expired during May 1997.
78
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
CSI is obligated under noncancelable operating leases covering its office
facilities and certain equipment. Rent expense amounted to $261,000, $205,000
and $192,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $87,000 for the period January 1, 1997 to November 12, 1997,
respectively. Future minimum lease payments under noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
November 13 to December 31, 1997....................................... $183
1998................................................................... 164
1999................................................................... 158
2000................................................................... 152
2001................................................................... 152
2002 and thereafter.................................................... 139
----
Total minimum operating lease payments............................... $948
====
</TABLE>
CSI is also obligated under various capital leases for equipment that are
guaranteed by one of the owners. The gross amounts of equipment and related
accumulated amortization recorded under capital leases were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Equipment..................................................... $1,243 $1,788
Less: accumulated amortization................................ 521 852
------ ------
$ 722 $ 936
====== ======
</TABLE>
Future minimum payments under capital leases are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 482
1998................................................................ 312
1999................................................................ 287
2000................................................................ 157
2001................................................................ 69
------
Total minimum capital lease payments.............................. 1,307
Less: amounts representing interest (at rates ranging from 10% to
18%)............................................................... 232
------
Present value of minimum capital lease payments................... 1,075
Less: current installments of obligations under capital leases...... 375
------
Obligations under capital leases, excluding current installments.. $ 700
======
</TABLE>
(b) Purchase Agreements
CSI has entered into purchase agreements with two long distance telephone
service providers. CSI is committed to minimum monthly purchases under the
agreements which amount to $48,000 in 1997 and 1998, and $23,000 in 1999.
79
<PAGE>
CONFERENCE SOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(c) Consulting Agreement
CSI has entered into a consulting agreement with a stockholder and former
officer of CSI. Total payments under the agreement amount to $120,000, payable
in equal monthly payments through December 1997.
(6) SIGNIFICANT CUSTOMERS
Two customers accounted for the following percentages of revenues and
accounts receivable:
<TABLE>
<CAPTION>
Percentage of
Accounts
Percentage of Net Revenues Receivable
--------------------------- -------------- ---
Period
Year Ended January 1,
December 31, 1997 to December 31,
-------------- November 12, --------------
1994 1995 1996 1997 1995 1996
---- ---- ---- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Customer A........................ 14% 30% 49% 47% 47% 58%
Customer B........................ 14% 24% 21% 25% 26% 26%
</TABLE>
80
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
A Business Conference-Call, Inc.:
We have audited the accompanying balance sheets of A Business Conference-
Call, Inc. ("ABCC") as of December 31, 1997 and 1998, and the related
statements of income and retained earnings and cash flows for each of the
years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of ABCC's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A Business Conference-
Call, Inc. as of December 31, 1997 and 1998 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 26, 1999
81
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 71 $ 153
Trade accounts receivable, less allowance for
doubtful accounts of $15 and $65, respectively.... 577 740
Prepaid expenses................................... 75 184
------ ------
Total current assets............................. 723 1,077
Property and equipment, net (notes 1 and 2).......... 538 864
Other assets......................................... 6 3
------ ------
Total assets..................................... $1,267 $1,944
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 55 $ 152
Accrued compensation and benefits.................. 231 290
Accrued expenses and other liabilities............. 3 12
Capital lease obligations-current.................. -- 6
------ ------
Total current liabilities........................ 289 460
Capital lease obligations, less current
installments........................................ -- 11
Stockholders' equity
Common stock, $0.01 par value; 100,000 shares
authorized; 1,000 shares issued and outstanding... -- --
Additional paid-in capital......................... 10 10
Retained earnings.................................. 968 1,463
------ ------
Total stockholders' equity....................... 978 1,473
------ ------
Total liabilities and stockholders' equity....... $1,267 $1,944
====== ======
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net revenues.................................... $ 5,305 $ 5,709 $ 7,485
Cost of revenues, excluding depreciation........ 1,935 2,086 2,379
Selling, general and administrative expenses.... 1,120 1,231 1,816
Depreciation expense............................ 143 148 154
--------- --------- ---------
Operating income.............................. 2,107 2,244 3,136
Interest income, net............................ 14 8 3
Other, net.................................... (17) 7 6
--------- --------- ---------
Net Income...................................... 2,104 2,259 3,145
Retained earnings at beginning of year.......... 1,303 1,247 968
Less stockholder distributions.................. 2,160 2,538 2,650
--------- --------- ---------
Retained earnings at end of year................ $ 1,247 $ 968 $ 1,463
========= ========= =========
Net income per share--basic and diluted......... $2,104.00 $2,259.00 $3,145.00
========= ========= =========
Weighted average shares outstanding............. 1,000 1,000 1,000
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $2,104 $2,259 $3,145
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 143 148 154
Loss on disposal of equipment........................ 17 -- --
Changes in operating assets and liabilities
Trade accounts receivable........................... 93 (153) (163)
Prepaid expenses.................................... (191) 233 (109)
Accounts payable and accrued expenses............... (149) 145 165
------ ------ ------
Net cash flows provided by operating activities.... 2,017 2,632 3,192
------ ------ ------
Cash flows from investing activities:
Additions to property and equipment................... (245) (49) (461)
Proceeds from sale of property and equipment.......... 15 -- --
Decrease (Increase) in other assets................... (2) (1) 3
------ ------ ------
Net cash flows used in investing activities........ (232) (50) (458)
------ ------ ------
Cash flows from financing activities:
Payments of obligations under capital leases.......... -- -- (2)
Distribution to stockholders.......................... (2,160) (2,537) (2,650)
------ ------ ------
Net cash flows used in financing activities........ (2,160) (2,537) (2,652)
------ ------ ------
Net increase (decrease) in cash and cash equivalents... (375) 45 82
Cash and cash equivalents at beginning of period....... 401 26 71
------ ------ ------
Cash and cash equivalents at end of period............. $ 26 $ 71 $ 153
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
84
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
A Business Conference-Call, Inc. ("ABCC") is a provider of group
communications to a variety of customers located primarily in the United
States. ABCC was incorporated in 1988 and is headquartered in Chaska,
Minnesota.
(b) Use of Estimates
Management of ABCC has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents includes deposits and short-term investments with
original maturities of three months or less.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets.
Estimated useful lives are as follows: five to seven years for office
furniture and equipment: seven years for conferencing equipment; three years
for computer software; and five years for vehicles.
(e) Income Taxes
ABCC has elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, ABCC does not pay corporate income taxes on its taxable income.
Instead, the stockholders are liable for individual taxes on ABCC's taxable
income. Accordingly, these financial statements do not contain a provision for
income taxes.
(f) Revenue Recognition
Revenue for conference calls is recognized upon completion of the call.
Revenue for services is recognized upon performance of the service.
(g) Fair Value of Financial Statements
All financial statements are carried at amounts that approximate estimated
fair value.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
ABCC adopted the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, during 1997.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of the statement did not have a material impact on
ABCC's financial position, results of operations, or liquidity.
(i) Earnings Per Share
ABCC adopted the provisions of SFAS No. 128, "Earnings per Share," during
1997. This statement requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. For
85
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the years ended December 31, 1996, 1997, and 1998, basic earnings per share
were calculated based on weighted average common shares outstanding. There
were no common stock equivalents outstanding for any periods presented;
accordingly, basic and fully diluted earnings per share are the same.
(j) Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1997 1998
---- ----- -----
<S> <C> <C> <C>
Office furniture and equipment............................... $179 $ 182 $ 246
Conferencing equipment....................................... 779 811 1,170
Purchased software........................................... 7 21 21
Vehicles..................................................... 34 34 69
---- ----- -----
999 1,048 1,506
Less: accumulated depreciation and amortization............ 361 (510) (642)
---- ----- -----
Property and equipment, net.............................. $638 $ 538 $ 864
==== ===== =====
</TABLE>
(3) 401(k) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan which is available to employees
meeting certain service requirements. The plan qualifies under section 401(k)
of the Internal Revenue Code (the Code) and allows eligible employees to
contribute up to 5% of their compensation, up to limits established by the
Code. The Company is entitled to make discretionary contributions to the plan.
ABCC's expense related to the plan was $126,366, $138,803, and $160,000 in
1996, 1997, and 1998, respectively.
(4) CONCENTRATION OF SOURCE OF SUPPLY
The company purchases a significant portion of its long distance telephone
service from a single long distance service provider. Although there are
limited number of such providers, management believes that other providers
could provide similar services on comparable terms.
(5) LEASES
(a) Operating Leases
The Company leases office space under a noncancelable operating lease. The
lease provides for monthly rental payments including real estate taxes and
other operating costs. In addition, the Company leases certain equipment under
various operating leases. Total rent expense amounted to approximately
$73,000, $95,000, and $99,000 for the years December 31 1996, 1997, and 1998,
respectively. Future minimum lease payments under noncancelable operating
leases are as follows:
<TABLE>
<S> <C>
1999................................................................. $60,700
2000................................................................. 22,900
2001................................................................. 1,900
2002................................................................. 400
</TABLE>
86
<PAGE>
A BUSINESS CONFERENCE-CALL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(b) Capital Leases
During 1998, the Company entered into a capital lease for certain
conferencing equipment. The following is a summary of the leased property as
of December 31, 1998:
<TABLE>
<S> <C>
Conference Equipment................................................ $18,603
Less accumulated amortization....................................... (886)
-------
$17,717
=======
</TABLE>
The following is a schedule of future minimum lease payments under capital
leases and the present value of the minimum lease payments as of December 31,
1998:
<TABLE>
<S> <C>
1999................................................................ $ 7,046
2000................................................................ 7,046
2001................................................................ 5,028
Total minimum lease payments........................................ 19,120
Less amount representing interest at 7.5%........................... (2,210)
-------
Present value of minimum lease payments............................. 16,910
Less current installments........................................... (5,758)
-------
$11,152
=======
</TABLE>
(6) STOCK PURCHASE AGREEMENT
The Company has an agreement with its two stockholders which requires the
Company to acquire the stockholders shares upon the event of death, permanent
disability, or termination of employment. This agreement can be funded by life
insurance policies on each stockholder. The Company and the stockholders also
have an agreement whereby the remaining stockholders have the first option to
purchase the Company's stock upon the occurrence of any of the above events.
The purchase price is determined annually by a formula defined in the
agreement.
(7) COMMITMENTS AND CONTINGENCIES
(a) Purchase Agreement
In February, 1998, the Company entered into an agreement with a long
distance telephone provider. Under the terms of the agreement, ABCC is
committed to minimum monthly purchases of $25,000 for a term of two years.
(b) Service Agreement
During 1998, ABCC entered into service agreements for its digital network.
The total expense under these agreements during 1998 was $18,000. Future
payments under these noncancelable agreements are as follows:
<TABLE>
<S> <C>
1999................................................................. $34,900
2000................................................................. 34,900
2001................................................................. 16,600
</TABLE>
(8) SUBSEQUENT EVENT--MERGER
In May 1998, ABCC entered into an agreement and plan of reorganization with
VIALOG Corporation and ABC Acquisition Corporation, a wholly-owned subsidiary
of VIALOG Corporation, whereby VIALOG Corporation's subsidiary will merge with
and into ABCC, contingent upon completion of certain items defined in the
merger agreement, with ABCC surviving as a wholly-owned subsidiary of VIALOG
Corporation. Effective February 10, 1999, the merger transaction was completed
and ABCC became a wholly-owned subsidiary of VIALOG Corporation.
87
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Directors and Executive Officers
The following table sets forth certain information with regard to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Kim A. Mayyasi(1)........ 43 President, Chief Executive Officer, and Director
Senior Vice President and Chief Financial
Michael E. Savage........ 41 Officer
Robert F. Saur........... 39 Chief Information Officer
Robert F. Moore.......... 45 Senior Vice President, Core Services
Joanna M. Jacobson(2).... 40 Director
David L. Lougee(1)(2).... 60 Director
Richard G. Hamermesh(1).. 52 Director
Edward M. Philip(2)...... 34 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
KIM A. MAYYASI has been President, Chief Executive Officer and a director
since July 1999. From June 1994 to June 1999, Mr. Mayyasi served as Managing
Partner of Hill, Holliday, Connors, Cosmopulos, Inc., a nationally recognized
advertising agency owned by The Interpublic Group of Companies, Inc.
MICHAEL E. SAVAGE has been Senior Vice President and Chief Financial Officer
since September 1999. From May 1997 to August 1999, Mr. Savage served as Chief
Financial Officer of Digital City, a subsidiary of American Online, Inc. From
May 1994 to May 1997, Mr. Savage served as Chief Financial Officer and Vice
President of World Corp., the holding company of World Airways, Inc. and
InteliData Technologies Corp.
ROBERT F. MOORE joined VIALOG in November 1997 as Vice President Marketing
and Business Development. In April 1999, Mr. Moore became Vice President, Core
Services. Mr. Moore served as Vice President Sales and Marketing for Citizens
Communication Corporation, a division of Citizens Utilities, Inc. from March
1997 to October 1997. From January 1994 to December 1996, Mr. Moore served as
a Senior Vice President of Hill, Holliday, Connors, Cosmopulos, Inc.
ROBERT F. SAUR has been Chief Information Officer since October 1999. From
May 1992 to October 1999, Mr. Saur was Chief Information Officer for Cambridge
Technology Partners, a management consulting and systems integration firm.
JOANNA M. JACOBSON served as a consultant to the Company prior to, and
became a director of, the Company in November 1997. Since November 1999, Ms.
Jacobson has been a Senior Lecturer in the Entrepreneurial Management/Service
Management Unit at the Harvard Business School. From April 1996 to July 1999,
Ms. Jacobson served as President of Keds Corp., a distributor of athletic
footwear and a division of Stride-Rite Corporation. From February 1995 to
March 1996, she was a partner in Core Strategy Group, a strategic marketing
consulting firm. Ms. Jacobson currently serves as a director of Stride Rite
Corp.
88
<PAGE>
DAVID L. LOUGEE became a director of the Company in November 1997. Mr.
Lougee has been Managing Partner of the law firm of Mirick, O'Connell,
DeMallie & Lougee, LLP for more than the last five years. Mr. Lougee is also a
director of Meridian Medical Technologies, Inc., a public company in the
medical devices and drug delivery business. Mirick, O'Connell, DeMallie &
Lougee, LLP serves as the Company's outside general counsel.
RICHARD G. HAMERMESH became a director of the Company in June 1998. Dr.
Hamermesh is a founder and Managing Partner of The Center for Executive
Development ("CED"), an executive education consulting firm in Cambridge,
Massachusetts. Dr. Hamermesh currently serves on the Board of Directors of two
public companies--BE Aerospace, Inc. and Applied Extrusion Technologies, Inc.
EDWARD M. PHILIP became a director of the Company in February 1999. He has
served as Chief Financial Officer and Secretary of Lycos, Inc. since December
1995 and Chief Operating Officer since December 1996. From July 1991 to
December 1995, Mr. Philip was employed by The Walt Disney Company where he
served in various finance positions, most recently as Vice President and
Assistant Treasurer. Mr. Philip is also a director of Allscripts, Inc.
The Company's Board of Directors is divided into three classes, with one
class of directors elected each year at the annual meeting of stockholders for
a three-year term of office. All directors of one class hold their positions
until the annual meeting of stockholders at which the terms of the directors
in such class expire and until their respective successors are elected. Ms.
Jacobson serves in the class whose terms expire in 2002, Mr. Mayyasi and Mr.
Lougee serves in the class whose terms expire in 2000, and Dr. Hamermesh and
Mr. Philip serve in the class whose terms expire in 2001. The executive
officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors or until their successors are elected.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee reviews the scope and results of the annual
audit of the Company's consolidated financial statements conducted by its
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to internal accounting, auditing and financial controls, and
makes recommendations to the Board of Directors on the engagement of the
independent accountants, as well as other matters which may come before it or
as directed by the Board of Directors. The Compensation Committee administers
the Company's compensation programs, including the 1996 and 1999 Stock Plans,
and performs such other duties as may from time to time be determined by the
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Due to an administrative error, the Company's November 11, 1999 grant to
Robert F. Saur of a stock option to purchase 50,000 shares of common stock was
not reported on a Form 3 until February 10, 2000.
Item 11. Executive Compensation.
Director Compensation
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional cash compensation for serving as directors. Each
newly-elected director is granted an option to purchase 20,000 shares of
common stock upon the director's election. Following each annual meeting of
stockholders, each non-employee director then in office is granted an option
to purchase 5,000 shares of common stock. Each non-employee director receives
a $10,000 annual retainer payable quarterly in arrears. Additionally, each
non-employee director receives $1,000 for attendance at each Board of
Directors meeting and $500 for each committee meeting (unless held on the same
day as a Board of Directors meeting). Directors are also reimbursed for out-
of-pocket expenses incurred in attending meetings of the Board of Directors or
committees thereof or otherwise incurred in their capacity as Directors.
89
<PAGE>
Compensation Committee Interlocks and Insider Participation
Between January 1, 1999 and July 29, 1999, the Compensation Committee
consisted of Glenn D. Bolduc, Ms. Jacobson and Mr. Lougee. On July 30, 1999,
Mr. Hamermesh replaced Ms. Jacobson on the Compensation Committee. Mr. Bolduc,
who also served as the Company's Chief Executive Officer and President until
June 1999, resigned as director and member of the Compensation Committee
effective December 31, 1999. Mr. Lougee also serves as one of the Company's
directors and is Managing Partner of Mirick, O'Connell, DeMallie & Lougee,
llp, Vialog's legal counsel. None of Vialog's executive officers or directors
serves as a member of the board of directors or compensation committee of any
other entity that has an executive officer serving as a member of Vialog's
Board of Directors or Compensation Committee.
Executive Compensation
Summary compensation. The following table summarizes the compensation earned
by the two individuals who served as the Company's Chief Executive Officer in
1999 and the Company's executive officers who earned more than $100,000 in
salary and bonus in 1999 (the "named executive officers"). The compensation
summarized in this table does not include medical, group life insurance, or
other plan benefits that are available generally to all of the Company's
salaried employees, or perquisites or other personal benefits that do not in
the aggregate exceed the lesser of either $50,000 or 10% of the officer's
salary and bonus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------- Securities Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation($)
- --------------------------- ---- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Kim A. Mayyasi........... 1999 177,692 0 250,000 0
President and CEO
Glenn D. Bolduc(1)....... 1998 261,923 0 40,000 0
Former President and CEO 1999 121,846 50,000 0 149,153(2)
Michael E. Savage........ 1999 66,000 35,000 100,000 0
Senior Vice President
and Chief Financial
Officer
Robert F. Moore.......... 1998 163,269 0 25,000 0
Senior Vice President,
Core Services 1999 198,500 60,000 105,000 0
</TABLE>
- --------
(1) Mr. Bolduc resigned from his position as Chief Executive Officer and
President on June 30, 1999, and as a director on December 31, 1999. As of
December 31, 1999, Mr. Bolduc held an aggregate of 269,000 shares of
restricted common stock worth approximately $840,625.
(2) Under the terms of the Severance Agreement dated June 8, 1999 between
Vialog and Mr. Bolduc, Vialog paid Mr. Bolduc an aggregate of $149,153 in
severance-related compensation in 1999.
Option grants in 1999. The following table summarizes all options granted to
the named executive officers in 1999. Amounts reported in the last two columns
represent hypothetical values that the holder could realize by exercising the
options immediately before their expiration, assuming the value of the
Company's common stock appreciates at the specified compounded annual rates
over the terms of the options. These numbers are calculated based on the SEC's
rules and do not represent the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and common stock
holdings will depend on the timing of exercise and the future performance of
the Company's common stock. Vialog may not be able to achieve the rates of
appreciation assumed in this table and the named executive officers may not
receive the calculated amounts. This table does not take into account any
appreciation in the price of the common stock from the date of grant to the
current date. The values shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the
exercise.
90
<PAGE>
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------------- ---------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- ----------- -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kim A. Mayyasi.......... 250,000 18.27 3.34 7/1/09 525,127 1,330,774
Glenn D. Bolduc......... 0 0 0 0 0
Michael E. Savage....... 100,000 7.31 3.56 11/11/09 224,075 567,850
Robert F. Moore......... 105,000 7.67 4.03 4/5/09 266,116 674,392
</TABLE>
The exercise price of these options is the fair market value on the date of
grant as determined under the Company's stock plans.
If a named executive officer ceases to be employed by the Company, further
vesting of the named executive officer's options ceases and all vested options
expire 90 days after the date the named executive officer ceases to be
employed by the Company.
Fiscal year-end option values. The following table provides information
regarding the value of all unexercised options held by the named executive
officers at the end of 1999. The value of unexercised in-the-money options
represents the difference between the fair market value of the Company's
common stock on December 31, 1999 and the option exercise price, multiplied by
the number of shares underlying the option. The closing sale price of the
Company's common stock on December 31, 1999 was $3.125.
1999 Aggregated Option Exercises and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal-Year End (#) Year End ($)
Shares Acquired ---------------------------------- -------------------------
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------------ -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kim A. Mayyasi.......... 0 0 41,670 208,330 0 0
Glenn D. Bolduc......... 235,000 657,075 0 0 0 0
Michael E. Savage....... 0 0 0 0 0 0
Robert F. Moore......... 0 0 62,419 137,581 31,500 32,816
</TABLE>
Employment Agreements and Change-of-Control Provisions
Mr. Mayyasi's employment offer letter provides for an annual base salary of
$350,000 and an annual bonus of up to $100,000. If Vialog terminates Mr.
Mayyasi's employment without cause, Vialog will pay Mr. Mayyasi or his estate
his base salary and health insurance benefits for six months.
Mr. Savage's employment agreement provides for an annual base salary of
$195,000, a signing bonus of $35,000, and an annual bonus of up to 50% of his
annual base salary. Vialog may terminate his employment immediately with or
without cause. Mr. Savage may terminate his employment agreement with 30 days
prior written notice. If Vialog terminates Mr. Savage's employment without
cause, or in the event of Mr. Savage's death or his termination of his
employment under certain circumstances set forth in the contract, Vialog will
pay Mr. Savage or his estate his base salary and health insurance benefits for
six months.
91
<PAGE>
Mr. Moore's annual compensation is currently $230,000. Either party may
terminate his employment without cause with 30 days prior written notice. If
Vialog terminates Mr. Moore's employment other than for cause, disability or
death, Vialog will pay Mr. Moore his base compensation and employee benefits
for twelve months subject to adjustment if he finds new employment during the
severance period. Mr. Moore is entitled to a $500 monthly automobile
allowance.
All unvested options held by Mssrs. Mayyasi, Savage and Moore will vest and
become immediately exercisable upon the occurrence of any of the following
events:
. Vialog's merger into or consolidation with another company,
. the sale of substantially all of Vialog's assets to another company, or
. the sale of more than 50% of Vialog's outstanding capital stock to an
unrelated person or group.
Mr. Bolduc resigned as Vialog's President and Chief Executive Officer on
June 30, 1999. Under the terms of Mr. Bolduc's severance agreement, Vialog
will continue to pay Mr. Bolduc his base salary and a $1,000 monthly car
allowance for eighteen months beginning June 30, 1999. Vialog also accelerated
the vesting of two of Mr. Bolduc's stock options.
Stock Plans
Vialog currently maintains the following stock plans:
<TABLE>
<CAPTION>
Outstanding
Stock Awards Shares
or Options Available for
Shares Issued Under Issuance Under
Reserved Under Plan as of Plan as of
Plan Name Adoption Date Expiration Date Plan March 23, 2000 March 23, 2000
--------- ------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1996 Stock Plan 2/14/96 2/14/06 3,250,000 1,751,776 865,314
1999 Stock Plan 4/29/99 4/29/09 1,500,000 980,000 520,000
</TABLE>
The purpose of the stock plans is to provide directors, officers, key
employees and consultants with additional incentives by increasing their
ownership interests in the Company. Individual awards under the stock plans
may take the form of one or more of (i) incentive stock options, (ii) non-
qualified stock options, (iii) stock appreciation rights and (iv) restricted
stock.
The Compensation Committee and Board of Directors administer the Plan and
generally select the individuals who will receive awards and the terms and
conditions of those awards. Shares of common stock subject to awards which
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
On April 15, 1999, Vialog registered with the Securities and Exchange
Commission 2,430,097 shares of common stock reserved for issuance under the
Company's 1996 Stock Plan. On September 1, 1999, Vialog registered with the
Securities and Exchange Commission 1,500,000 reserved for issuance under the
Company's 1999 Stock Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table provides information regarding the beneficial ownership
of Vialog's outstanding common stock as of March 13, 2000 for:
. each person or group that Vialog know owns more than 5% of the common
stock,
. each of Vialog's directors,
. each of Vialog's executive officers, and
. all of Vialog's directors and executive officers as a group.
92
<PAGE>
Beneficial ownership is determined under rules of the SEC and includes
shares over which the indicated beneficial owner exercises voting and/or
investment power. Shares of common stock that Vialog may issue upon the
exercise of options currently exercisable or exercisable within 60 days of
March 13, 2000 are deemed outstanding for computing the percentage ownership
of the person holding the options but are not deemed outstanding for computing
the percentage ownership of any other person. Except as otherwise indicated,
Vialog believes the beneficial owners of the common stock listed below, based
on information furnished by them, have sole voting and investment power over
the number of shares listed opposite their names. The address for each
stockholder below is c/o Vialog Corporation, 35 New England Business Center,
Suite 160, Andover, Massachusetts 01810.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned
Shares Issuable pursuant to (Including the Number of
Options Exercisable within Shares shown in the first Percentage of Shares
Name of Beneficial Owner 60 days of March 13, 2000 column) Outstanding
- ------------------------ --------------------------- ------------------------- --------------------
<S> <C> <C> <C>
John J. Hassett......... 0 784,762 8.57%
Robert F. Moore......... 126,505 126,505 1.36%
Kim A. Mayyasi.......... 100,006 100,006 1.08%
David L. Lougee......... 15,678 66,178 *
Joanna M. Jacobson...... 17,010 17,010 *
Richard G. Hamermesh.... 14,346 14,346 *
Edward M. Philip........ 10,010 10,010 *
Michael E. Savage....... 4,170 4,170 *
Robert F. Saur.......... 0 0 *
All directors and
executive officers as a
group (8) persons...... 287,725 338,225 3.59%
</TABLE>
- --------
*Less than 1%
Item 13. Certain Relationships and Related Transactions.
David L. Lougee, one of Vialog's directors, is a partner of Mirick,
O'Connell, DeMallie & Lougee, LLP, the law firm Vialog currently retains as
legal counsel. In 1999, Vialog paid Mirick, O'Connell, DeMallie & Lougee, LLP
an aggregate of approximately $692,000 in legal fees and expenses for legal
services.
Vialog provides teleconferencing services to customers of a company owned by
Susan C. Hassett, spouse of John J. Hassett, for which Vialog recorded
revenues of $178,184 in 1999.
On November 6, 1997, we entered into a stockholder agreement with John J.
Hassett that provides, among other things, that while any senior notes or
other obligation of the Company or our operating centers (as subsidiary
guarantors) with respect to the senior notes remain outstanding:
. with respect to all matters submitted to a vote of our stockholders
regarding the appointment, election or removal of directors or officers
of the Company, Mr. Hassett will vote any shares of our voting stock
over which he has direct or indirect voting power in the same proportion
as the votes cast in favor of and against the particular matter voted
upon, by all of our other stockholders; and
. Mr. Hassett will not serve as a director or officer of the Company or
any subsidiary.
In 1999, Mr. Hassett provided consulting services to the Company in
consideration of fees totaling $30,000.
Company Policy
The Company has implemented a policy whereby neither the Company nor any
subsidiary will enter into contracts or business arrangements with persons or
entities owned in whole or in part by the Company's officers or directors or
any subsidiary except on an arms-length basis and with the approval of the
Board of Directors. The Company's By-Laws require that any approval must be by
a majority of the independent directors then in office who have no interest in
such contract or transaction.
93
<PAGE>
PART IV
Item 14. Financial Statements, Schedules, Reports on Form 8-K and Exhibits.
(a) Documents filed as part of this Form 10-K:
1. Financial Statements
See index to Financial Statements under ITEM 8--Financial Statements
and Supplementary Data.
2. Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required, not applicable, or the information to be included in the financial
statement schedules is included in the Consolidated Financial Statements or
the notes thereto.
3. Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
Vialog did not file any Form 8-Ks during the fourth quarter of 1999.
94
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1* Restated Articles of Organization of VIALOG Corporation.
3.2* Amended and Restated By-Laws of VIALOG Corporation.
4.1** Form of certificate evidencing ownership of Common Stock of the
Company.
4.2* Indenture Dated as of November 12, 1997 Among VIALOG Corporation,
Telephone Business Meetings, Inc., Conference Source International,
Inc., Kendall Square Teleconferencing, Inc., American Conferencing
Company, Inc., Communication Development Corporation Inc., Call
Points, Inc. and State Street Bank and Trust Company (including Forms
of Series A Security and Series B Security attached to the Indenture
as Exhibits A-1 and A-2, respectively).
4.3* Unit Agreement Dated as of November 12, 1997 By and Among VIALOG
Corporation, Telephone Business Meetings, Inc., Conference Source
International, Inc., Call Points, Inc., Kendall Square
Teleconferencing, Inc., American Conferencing Company, Inc.,
Communications Development Corporation, and State Street Bank and
Trust Company (including Form of Unit Certificate attached to the
Unit Agreement as Exhibit A).
4.4* Warrant Agreement Dated as of November 12, 1997 Between VIALOG
Corporation and State Street Bank and Trust Company (including Form
of Warrant Certificate attached to the Warrant Agreement as Exhibit
A).
4.5* Security Holders' and Registration Rights Agreement Dated as of
November 12, 1997 Among VIALOG Corporation and Jefferies & Company,
Inc.
4.6* Registration Rights Agreement Dated as of November 12, 1997 By and
Among VIALOG Corporation, Kendall Square Teleconferencing, Inc., AMCS
Acquisition Corporation, Communication Development Corporation,
Telephone Business Meetings, Inc., Conference Source International,
Inc., Call Points Acquisition Corporation and Jefferies & Company,
Inc.
10.1* 1996 Stock Plan.
10.2*** 1999 Stock Plan.
10.3**** Lease Dated April 7, 1998 between Connecticut General Life Insurance
Company, on behalf of its Separate Account R, and VIALOG Corporation.
10.4 Indenture of Lease Dated March 3, 2000 By and Between VIALOG
Corporation and EOP--Crosby Corporate Center, L.L.C.
10.5+ Lease Dated as of August 3, 1998 Agreement By and Between Executive
Park, T.I.C. and VIALOG Corporation.
10.6* Lease Dated February 15, 1996 Between Robert A. Jones and K. George
Najarian, Trustees of Old Cambridge Realty Trust and Old Kendall
Square Realty Trust, and Kendall Square Teleconferencing, Inc. (f/k/a
Teleconversant, Ltd.).
10.7 Lease Agreement Dated August 3, 1999 By and Between Century 2000
Partners, LLP and A Business Conference Call, Inc.
10.8++ Assignment of Lease Dated as of March 13, 1998 Between Telephone
Business Meetings, Inc. and CMC Datacomm, Inc.
10.9* Lease dated December 6, 1994 between Aetna Life Insurance Company and
Access, as amended.
10.10 Deed of Lease dated September 30, 1999 by and between Royce, Inc. and
Telephone Business Meetings, Inc.
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.11+++ Loan & Security Agreement Dated as of September 30, 1998 by and
between Kendall Square Teleconferencing, Inc.; Conference Source
International, Inc.; Telephone Business Meetings, Inc.; Call Points,
Inc.; American Conferencing Company, Inc.; Communication Development
Corporation and Coast Business Credit.
10.12+++ Secured Term Note Dated September 30, 1998 in the principal amount of
$4,000,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source International, Inc.; Telephone Business Meetings,
Inc.; Call Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation to Coast Business Credit.
10.13+++ Secured Term Note Dated September 30, 1998 in the principal amount of
$1,500,000 delivered by Kendall Square Teleconferencing, Inc.;
Conference Source International, Inc.; Telephone Business Meetings,
Inc.; Call Points, Inc.; American Conferencing Company, Inc.; and
Communication Development Corporation to Coast Business Credit.
10.14+++ Security Agreement Dated September 30, 1998 by and Between VIALOG
Corporation and Coast Business Credit, a division of Southern Pacific
Bank.
10.15+++ Continuing Guaranty Dated September 30, 1998 executed by VIALOG
Corporation in favor of Coast Business Credit.
10.16 Employment Offer Letter Dated June 3, 1999 By and Between VIALOG
Corporation and Kim A. Mayyasi.
10.17 Employment Agreement Dated August 30, 1999 By and Between VIALOG
Corporation and Michael E. Savage.
10.18* Employment Agreement Dated October 20, 1997 By and Between VIALOG
Corporation and Robert F. Moore.
10.19 Severance Agreement Dated June 8, 1999 By and Between VIALOG
Corporation and Glenn P. Bolduc.
11.1 Statement Regarding Computation of Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
All non-marked Exhibits are filed with this Form 10-K.
* Incorporated by reference to the Exhibits to the Registration Statement
on Form S-4 filed with the Securities and Exchange Commission on January
9, 1998 (File No. 333-44041).
** Incorporated by reference to the Exhibits to Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on July 8, 1998 (File No. 333-53395).
*** Incorporated by reference to the Exhibits to the Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
September 1, 1999 (File No. 333-86319).
**** Incorporated by reference to the Exhibits to the Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on May 22,
1998 (File No. 333-53395).
+ Incorporated by reference to Amendment No. 3 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission
on December 31, 1998 (File No. 333-53395).
++ Incorporated by reference to the Exhibits to Form 10-K for the fiscal
year ended December 31, 1997 filed with the Securities and Exchange
Commission on March 31, 1998 (File No. 333-22585).
+++ Incorporated by reference to the Exhibits to the Current Report Pursuant
to Section 13 or 15(d) of the Securities Act of 1934 on Form 8-K filed
with the Securities and Exchange Commission on October 26, 1998 (File No.
000-24689).
96
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIALOG Corporation
/s/ Kim A. Mayyasi
By: _________________________________
Kim A. Mayyasi,
President and Chief Executive
Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kim A. Mayyasi President, Chief Executive March 30, 2000
By: __________________________________ Officer and Director
Kim A. Mayyasi
/s/ Michael E. Savage Senior Vice President, March 30, 2000
By: __________________________________ Chief Financial Officer
Michael E. Savage and Principal Accounting
Officer
/s/ Joanna M. Jacobson Director March 30, 2000
By: __________________________________
Joanna M. Jacobson
/s/ David L. Lougee Director March 30, 2000
By: __________________________________
David L. Lougee
/s/ Patti R. Bisbano Director March 30, 2000
By: __________________________________
Patti R. Bisbano
/s/ Richard G. Hamermesh Director March 30, 2000
By: __________________________________
Richard G. Hamermesh
/s/ Edward M. Philip Director March 30, 2000
By: __________________________________
Edward M. Philip
</TABLE>
97
<PAGE>
Exhibit 10.4
CONTENTS
1. REFERENCE DATA 1
1.1 Exhibits 1
1.2 Definition References 1
2. DESCRIPTION OF PREMISES 1
2.1 Demised Premises 1
2.2 Park 1
2.3 Appurtenant Rights 1
2.4 Exclusions and Reservations 1
3. TERM OF LEASE 2
3.1 Definitions 2
3.2 Habendum 2
3.3 Declaration Fixing Term Commencement Date 2
4. READINESS FOR OCCUPANCY - ENTRY BY TENANT
PRIOR TO TERM COMMENCEMENT DATE 3
4.1 Completion Date - Delays 3
4.2 When Landlord's Work Deemed Substantially Complete 3
4.3 Plans and Specifications 4
4.4 Preparation of Premises 5
4.5 Cost of Materials 5
4.6 Tenant's Delay - Additional Costs 5
4.7 Entry by Tenant Prior to Term Commencement Date 6
4.8 Conclusiveness of Landlord's Performance 6
4.9 Tenant Payments of Construction Cost 6
5. USE OF PREMISES 7
5.1 Permitted Use 7
5.2 Prohibited Uses 7
5.3 Licenses and Permits 7
5.4 Vacancy by Tenant 7
6. RENT 8
6.1 In General 8
6.2 Commencement of Rent 8
6.3 Rentable Area 8
7. HAZARDOUS MATERIALS 9
8. SERVICES FURNISHED BY LANDLORD 11
8.1 Electric Current 11
8.2 Water 13
8.3 Heat and Cleaning 13
<PAGE>
8.4 Air Conditioning 14
8.5 Additional Heat, Cleaning and \Air Conditioning Services 14
8.6 Additional Air Conditioning Equipment 14
8.7 Repairs 15
8.8 Interruption or Curtailment of Services 15
8.9 Energy Conservation 16
8.10 Miscellaneous 16
8.11 Park Security 16
9. ESCALATION 17
9.1 Definitions 17
9.2 Tax Excess 21
9.3 Operating Expense Excess 22
9.4 Part Years 22
9.5 Effect of Taking 23
9.6 Adjustment of Operating Costs and Taxes based upon Occupancy 23
9.7 Survival of Obligations 23
10. CHANGES OR ALTERATIONS BY LANDLORD 24
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT 25
12. ALTERATIONS AND IMPROVEMENTS BY TENANT 25
13. TENANT'S CONTRACTORS - MECHANIC'S AND OTHER LIENS -
STANDARD OF TENANT'S PERFORMANCE - COMPLIANCE WITH
LAWS 26
14. REPAIRS BY TENANT - FLOOR LOAD 27
14.1 Repairs by Tenant 27
14.2 Floor Load - Heavy Machinery 28
15. INSURANCE, INDEMNIFICATION, EXONERATION AND
EXCULPATION 28
15.1 General Liability Insurance 28
15.2 Certificates of Insurance 28
15.3 General 29
15.4 Property of Tenant 29
15.5 Bursting of Pipes, etc. 30
15.6 Repairs and Alterations - No Diminution 30
of Rental Value
15.7 Landlord Indemnity of Tenant 32
16. ASSIGNMENT, MORTGAGING AND SUBLETTING 32
16.1 General Prohibition Against Transfers 32
<PAGE>
16.2 Landlord's Rights upon Tenant's Request for
Sublet Consent 33
16.3 Transfer Consideration 33
16.4 Transfer of Beneficial Interests in Tenant 33
16.5 Effect of Landlord's Consent to Transfer 34
16.6 Subleasing Prior to First Anniversary of Term
Commencement Date 35
17. MISCELLANEOUS COVENANTS 34
17.1 Rules and Regulations 34
17.2 Access to Premises - Shoring 34
17.3 Accidents to Sanitary and Other Systems 35
17.4 Signs, Blinds and Drapes 36
17.5 Estoppel Certificate 36
17.6 Prohibited Materials and Property 36
17.7 Requirements of Law - Fines and Penalties 36
17.8 Tenant's Acts - Effect on Insurance 37
17.9 Miscellaneous 38
18. DAMAGE BY FIRE, ETC. 38
18.1 Casualty Insurances 38
18.2 Repair of Damage Caused by Casualty 38
18.3 Landlord's Termination Rights 39
18.4 Tenant's Termination Rights 39
18.5 General Provisions Relating to Any Casualty Termination 40
19. WAIVER OF SUBROGATION 40
20. CONDEMNATION - EMINENT DOMAIN 41
20.1 Landlord's Termination Rights 41
20.2 Tenant's Termination Rights 41
20.3 General Taking Provisions 41
20.4 Taking Process 42
20.5 Temporary Takings 42
21. DEFAULT 42
21.1 Conditions of Limitation - Re-entry - Termination 42
21.2 Damages - Assignment for Benefit of Creditors 43
21.3 Damages - Termination 44
21.4 Fees and Expenses 45
21.5 Waiver of Redemption 46
21.6 Landlord's Remedies Not Exclusive 46
21.7 Grace Period 46
22. END OF TERM - ABANDONED PROPERTY 46
23. SUBORDINATION 48
<PAGE>
24. QUIET ENJOYMENT 50
25. ENTIRE AGREEMENT - WAIVER - SURRENDER 50
25.1 Entire Agreement 50
25.2 Waiver by Landlord 50
25.3 Surrender 51
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE 51
27. BILLS AND NOTICES 52
28. PARTIES BOUND - SEIZING OF TITLE 53
29. MISCELLANEOUS 53
29.1 Separability 53
29.2 Captions, etc. 53
29.3 Broker 54
29.4 Governing Law 54
29.5 Assignment of Rents 54
29.6 Representation of Authority 55
29.7 Expenses Incurred by Landlord Upon Tenant Requests 55
29.8 Survival 55
<PAGE>
EXHIBITS
Exhibit 1 Lease Data Exhibit
Exhibit 2 Lease Plan
Exhibit 3 Plan and Legal Description of Park
Exhibit 4 Environmental Disclosure
Exhibit 5 Building Services
Exhibit 6 Form of Letter of Credit
Rider
<PAGE>
THIS INDENTURE OF LEASE made and entered into as of this ___ day of
_______ 2000, by and between VIALOG CORPORATION, a Massachusetts corporation
("Tenant") and EOP-CROSBY CORPORATE CENTER, L.L.C., a Delaware limited liability
company ("Landlord").
Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire and
take from Landlord, the Premises hereinafter mentioned and described
(hereinafter referred to as "Premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
1.1 Exhibits. Each reference in this Lease to any of the terms and
titles contained in any Exhibit attached to this Lease shall be deemed and
construed to incorporate the data stated under that term or title in such
Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 Demised Premises. The Premises are in the Building as described in
Exhibit 1, substantially as shown hatched or outlined on the Lease Plan, Exhibit
2 attached hereto and incorporated by reference as a part hereof.
2.2 Park. The Building is located in the Park described in Exhibit 1,
which Park may be changed, increased or decreased by addition or subdivision of
parcels and/or by construction and/or demolition of buildings and/or other
improvements by Landlord from time to time, in accordance with the terms of this
Lease. If, during the term of the Lease, additional buildings are added to the
Park, then Tenant's Tax Percentage set forth in Exhibit 1 shall be revised to
include the Total Rentable Area of such building(s) at the earlier of (x) the
time that Landlord has received a certificate of occupancy for such building(s)
or (y) the date that real estate taxes are adjusted to reflect such additional
building(s).
2.3 Appurtenant Rights. Tenant shall have, as appurtenant to the
Premises, rights to use in common, with others entitled thereto, subject to
reasonable rules governing use of the Park from time to time made by Landlord of
which Tenant is given prior written notice and with due regard for the rights of
others to use the same (a) the common roadways, sidewalks and walkways necessary
for the purposes of access to the Building from public road and walkways of the
Park and the loading docks for the Building, (b) such portions of the parking
areas of the Park, as may be designated by Landlord for common parking, for the
purpose of parking of motor vehicles by Tenant and Tenant's employees and
invitees, such parking to be provided to Tenant at a ratio of not in excess of
3.5 parking spaces per 1,000 square feet of the Total Rentable Area of the
Premises, the current location of which parking areas are shown on Exhibit 3 and
(c) any common area amenities of the Park (e.g., benches and lawns) for the
purposes for which the same are intended; and no other appurtenant rights or
easements. Subject to
-1-
<PAGE>
Landlord's reasonable security requirements, Tenant shall have access to the
Premises 24 hours per day, 7 days per week.
2.4 Exclusions and Reservations. Subject to the provisions of the Lease
(including, without limitation, Article 10), there is hereby expressly reserved
to Landlord (a) the right of access in and to the Premises for the purposes of
operation, maintenance, decoration and repair of the Premises, and (b) any space
in or adjacent to the Premises used for shafts, stacks, pipes, conduits, wires,
and appurtenant fixtures, fan rooms, ducts, electric and other utilities, sinks
or other Building facilities, in any case serving any other area(s) in the Park
and the use thereof. Notwithstanding anything to the contrary in the Lease
contained, Landlord and its agents, employees and contractors shall not, except
in an emergency and except for normal cleaning and maintenance operations,
exercise any right which it has to enter the Premises without giving Tenant
reasonable advance notice, and, in exercising any such right of access, Landlord
shall use reasonable efforts to minimize any interference with Tenant's use and
enjoyment of the Premises by Landlord.
3. TERM OF LEASE
3.1 Definitions. As used in this Lease the words and terms which follow
mean and include the following:
(a) "Specified Commencement Date" - The date (as stated on Exhibit 1)
on which it is estimated that the Premises will be ready for Tenant's occupancy
for its use as stated in Exhibit 1.
(b) "Term Commencement Date" - The "Term Commencement Date" is the date
on which the Premises are ready for Tenant's occupancy (as defined in Article
4.2) for use as set forth in Exhibit 1. If the Premises are not ready for such
occupancy but if, pursuant to permission therefor duly given by Landlord, Tenant
takes possession of the whole or any part of the Premises for business purposes
as set forth in Exhibit 1, "Term Commencement Date" shall be the date on which
Tenant takes such possession.
3.2 Habendum. TO HAVE AND TO HOLD the Premises for a term of years
commencing on the Term Commencement Date and ending on the Termination Date as
stated in Exhibit 1, subject to Paragraph 1 of the Rider to the Lease, or on
such earlier date upon which said term may expire or be terminated pursuant to
any of the conditions of limitation or other provisions of this Lease or
pursuant to law (which date for the termination of the term hereof is herein
referred to as the "Termination Date"). Notwithstanding the foregoing, if the
Termination Date as stated in Exhibit 1 shall fall on other than the last day of
a calendar month, said Termination Date shall be deemed to be the last day of
the calendar month in which said Termination Date occurs.
3.3 Declaration Fixing Term Commencement Date. As soon as reasonably
practicable after the Execution Date hereof, each of the parties hereto agrees,
upon demand of the other party to join in the execution, in recordable form, of
a statutory notice, memorandum, etc. of lease and/or written declaration in
which shall be stated
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such Term Commencement Date and (if need be) the Termination Date. If this Lease
terminates in accordance with its terms before the Termination Date stated in
Exhibit 1, then upon Landlord's request the parties shall execute, deliver and
record an instrument acknowledging such fact and the date of termination of this
Lease.
4. CONDITION OF PREMISES
4.1 Completion Date - Delays.
Subject to delay by causes beyond the reasonable control of Landlord or
caused by the action or inaction of Tenant, Landlord shall use reasonable speed
and diligence to have the Premises ready for Tenant's occupancy on the Specified
Commencement Date. The failure to have the Premises ready for Tenant's occupancy
on the Specified Commencement Date shall in no way affect the validity of this
Lease or the obligations of Tenant hereunder nor shall the same be construed in
any way to extend the term of this Lease. If the Premises are not ready for
Tenant's occupancy within the meaning of Article 4.2 hereof on the Specified
Commencement Date, Tenant shall not have any claim against Landlord, and
Landlord shall have no liability to Tenant, by reason thereof. Notwithstanding
the foregoing, if the Term Commencement Date shall not have occurred on or
before the Outside Date, as hereinafter defined, then Tenant shall have the
right, exercisable by a written thirty (30) day termination notice given on or
after the Outside Date, to terminate the Lease. If the Term Commencement Date
occurs on or before the thirtieth (30th) day after Landlord receives such
termination notice, Tenant's termination notice shall be deemed to be void and
of no force or effect. If the Term Commencement Date does not occur on or before
such thirtieth (30th) day, this Lease shall terminate and shall be of no further
force or effect. For the purposes hereof, the "Outside Date" shall be defined as
the date ninety (90) days after the Specified Commencement Date, provided
however, that the Outside Date shall be extended by the length of any delays in
Landlord's Work arising from causes beyond Landlord's reasonable control (see
Article 26)
4.2 When Premises Deemed Ready.
The Premises shall be conclusively deemed ready for Tenant's occupancy
as soon as (i) Landlord's Work, as defined in Article 4.2A, has been
substantially completed by Landlord insofar as is practicable in view of delays
or defaults, if any, of Tenant or its contractors, as hereinafter specified,
(ii) the elevator, plumbing, air conditioning and electric facilities are
initially substantially available to Tenant, in accordance with the obligations
assumed by Landlord hereunder, (iii) the earlier of (x) the date that Landlord
receives a temporary or permanent certificate of occupancy allowing Tenant to
occupy the Premises or (y) the date that Landlord would have received such
certificate absent any Tenant Delays, as hereinafter defined, and (iv) access
through the common areas of the Building to the Premises is provided. Such
facilities shall not be deemed to be unavailable if only minor or insubstantial
details of construction, decoration or mechanical adjustments remain to be done.
The Premises shall not be deemed to be unready for Tenant's occupancy or
incomplete if only minor or insubstantial details of
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construction, decoration or mechanical adjustments remain to be done in the
Premises or any part thereof, or if the delay in the availability of the
Premises for occupancy is due to any of the following (referred to collectively
as "Tenant Delays"): (i) due to special work, changes, alterations or additions
required or made by Tenant in the layout or finish of the Premises or any part
thereof, (ii) caused in whole or in part by Tenant through the delay of Tenant
in submitting Tenant's final approved plans on or before the Final Plans Date in
accordance with Article 4.3(c), (iii) caused in whole or in part by Tenant
through the delay of Tenant in supplying information, approving plans,
specifications or estimates, giving authorizations or otherwise or (iv) caused
in whole or in part by delay and/or default on the part of Tenant or its
contractors including, without limitation, the utility companies and other
entities furnishing communications, data processing or other service or
equipment. Notwithstanding the foregoing, if Landlord fails to notify Tenant of
any Tenant Delay addressed in clauses (i), (iii) or (iv) in the immediately
preceding sentence within two (2) days after the date Landlord knew of such
Tenant Delay, Tenant shall not be responsible for any such Tenant Delay with
respect to the period of time commencing three (3) days after the date when
Landlord knew that such Tenant Delay existed and ending on the date that
Landlord notified Tenant of such Tenant Delay. If the Premises are deemed ready
for Tenant's occupancy, pursuant to the foregoing, (and the term shall have
commenced by reason thereof), but the Premises are not in fact actually ready
for Tenant's occupancy, Tenant shall not (except with Landlord's consent) be
entitled to take possession of the Premises for use as set forth in Exhibit 1
until the Premises are in fact actually ready for such occupancy. Landlord's
architect's certificate of substantial completion, as hereinabove stated, given
in good faith, or of any other facts pertinent to this Article 4.2 shall be
deemed conclusive of the statements therein contained and binding upon Tenant,
unless Tenant gives written notice to Landlord objecting to such certificate
within fourteen (14) days after Landlord delivers such certificate of
substantial completion, setting forth with specificity Tenant's objections to
such certificate. Any of Landlord's Work in the Premises not fully completed on
the Term Commencement Date shall thereafter be so completed with reasonable
diligence by Landlord.
4.2A Definition of Landlord's Work
(i) Landlord shall perform the work ("Landlord's Work") shown on the
Tenant's Plans, as defined in Article 4.3, in order to prepare the Premises for
Tenant's occupancy, using Building standard materials.
(ii) Payment for the Cost of Landlord's Work. The cost of Landlord's
Work shall be paid as follows. Landlord shall contribute an amount ("Landlord's
Contribution") of up to Twenty-Two and 00/100 ($22.00) Dollars per square foot
of Total Rentable Area of the Premises towards the cost of Landlord's Work, plus
an amount (Landlord's HVAC Contribution") of up to Three and 50/100 ($3.50)
Dollars per square foot of Total Rentable Area of the Premises towards the cost
of installing a heating, air conditioning and ventilation system to serve the
Premises. Tenant shall have the right to apply any unused portion of Landlord's
Contribution and Landlord's HVAC Contribution towards architectural and
engineering fees incurred by Tenant in connection with Landlord's Work, towards
wiring and cabling costs incurred by Tenant in the Premises
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towards moving costs incurred by Tenant in moving to the Premises and towards
the cost of Tenant's signs as described in Article 17.4, all upon Landlord's
receipt of paid invoices evidencing such costs. Except as set forth in the
immediately preceding sentence, Tenant shall have no right to use any unused
portion of Landlord's Contribution or Landlord's HVAC Contribution. Tenant shall
be fully responsible for the entire cost of Landlord's Work in excess of
Landlord's Contribution and Landlord's HVAC Contribution, other than the cost of
change orders not requested by Tenant. Tenant shall pay such cost within fifteen
(15) business days of billing therefor. Without limiting any other remedy
Landlord may have, Tenant's failure to pay any such amounts shall be considered
to be a Tenant Delay. In the event Landlord's estimate and/or the actual cost of
Landlord's Work shall exceed the sum of Landlord's Contribution and Landlord's
HVAC Contribution, Landlord, prior to commencing any construction of Landlord
Work, shall submit to Tenant a written estimate setting forth the anticipated
cost of the Landlord Work, including but not limited to labor and materials,
contractor's fees and permit fees. Within three (3) business days thereafter,
Tenant shall either notify Landlord in writing of its approval of the cost
estimate, or specify its objections thereto and any desired changes to the
proposed Landlord Work. In the event Tenant notifies Landlord of such objections
and desired changes, Tenant shall work with Landlord to reach a mutually
acceptable alternative cost estimate.
4.3 Plans and Specifications
(a) Tenant's Plans. Tenant shall be solely responsible for the timely
preparation and submission to Landlord of the final architectural, electrical
and mechanical construction drawings, plans and specifications (called "Tenant
Plans") necessary to construct the Premises for Tenant's occupancy, which plans
shall be subject to Landlord's approval and shall comply with Landlord's
requirements to avoid aesthetic or other conflicts with the design and function
of the balance of the Building.
(b) Landlord's Approval of Tenant's Plans. Landlord agrees that it will
not unreasonably withhold its consent to Tenant's Plans. Landlord's approval is
solely given for the benefit of Landlord and neither Tenant nor any third party
shall have the right to rely upon Landlord's approval of Tenant's plans for any
purpose whatsoever, except for compliance with Section 4.3(a). Without limiting
the foregoing: (i) Tenant shall be responsible for all elements of the design of
Tenant's plans (including, without limitation, compliance with law,
functionality of design, the structural integrity of the design, the
configuration of the Premises and the placement of Tenant's furniture,
appliances and equipment), (ii) Landlord's approval of Tenant's plans shall in
no event relieve Tenant of the responsibility for such design, and (iii)
Landlord shall have no responsibility for the adequacy of the design of the HVAC
System serving the Premises for Tenant's use (Tenant acknowledging that Tenant
is relying upon its own architects and engineers in determining whether to
modify the HVAC equipment which serves the Premises as of the Term Commencement
Date).
(c) Cost of Tenant's Plans. If requested by Tenant, Landlord's
architect will prepare the plans necessary for Landlord's Work at Tenant's cost
(including charges for
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not only building standard work, but also for special services of the Landlord's
architect and engineer not included in the design of space for occupancy using
building standard partitioning, floors, ceiling and mechanical and electrical
service). Such special services shall include, but not be limited to, design of
built-in equipment, interior design embracing materials and finishes other than
building standard, design of private lavatories and other special purpose rooms
and interior decorating. Whether or not the layout and plans are prepared with
the help (in whole or in part) of Landlord's architect, Tenant agrees to remain
solely responsible for the timely preparation and submission of all of Tenant's
plans and for all elements of the design of such plans and for all costs related
thereto, subject to Landlord's Plans Contribution and Landlord's Contribution.
Tenant has assured itself by direct communication with the architect and
engineers (Landlord's or its own, as the case may be) that the final approved
plans can be delivered to Landlord on or before the Final Plans Date as stated
in Exhibit 1, provided that Tenant promptly furnishes complete information
concerning its requirements to said architect and engineers as and when
requested by them; and Tenant covenants and agrees to cause said final, approved
plans and specifications to be delivered to Landlord on or before said Final
Plans Date and to devote such time as may be necessary in consultation with said
architect and engineers to enable them to complete and submit all plans within
the required time limit. Time is of the essence in respect of preparation and
submission of plans by Tenant. (The word "architect" as used in this Article 4
shall include an interior designer or space planner.) Notwithstanding the
foregoing, Landlord shall contribute, in addition to Landlord's Contribution and
Landlord's HVAC Contribution, an amount ("Landlord's Plans Contribution") up to
Two and 00/100 ($2.00) per square foot of Total Rentable Area of the Premises
toward the cost of Tenant's Plans. Tenant shall have no right to use any unused
portion of Landlord's Plans Contribution. Landlord shall pay Landlord's Plans
Contribution to Tenant within thirty (30) days after Tenant submits to Landlord
monthly invoices therefor, provided that such invoices include evidence of the
costs so incurred by Tenant.
4.4 Preparation of Premises.
(a) By Landlord. Except as is otherwise herein provided or as may be
otherwise approved by the Landlord, all work necessary to prepare the Premises
for Tenant's occupancy, including work to be performed at Tenant's expense,
shall be performed by contractors employed by Landlord. Landlord agrees to bid
Landlord's Work to 3 general contractors and to share such bids with Tenant.
Landlord shall select the lowest bid received unless Landlord has a reasonable
reason for not selecting the lowest bidder, in which event Landlord shall advise
Tenant thereof. Landlord agrees to keep Tenant advised as to the status of
Landlord's Work by providing to Tenant copies of invoices, consulting with
Tenant on the management of Landlord's Work and permitting Tenant to attend and
participate in construction meetings for Landlord's Work.
(b) By Tenant. Tenant shall engage its own contractor to install cable
for its telecommunications and computer systems in the Premises. Subject always
to the provisions of Articles 4.2 and 4.3, if Tenant engages any contractors to
perform work in preparing the Premises for Tenant's occupancy, Landlord will
give Tenant reasonable
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advance notice of the date on which the Premises will be ready for such other
contractors and a reasonable time (which shall be not less than thirty (30)
days) will be allowed from such date for doing the work to be performed by such
other contractors.
(c) Cooperation of Tenant's Contractor. If any work, including but not
by way of limitation, installation of built-in equipment by the manufacturer or
distributor thereof, shall be performed by contractors not employed by Landlord,
Tenant shall take necessary reasonable measures to the end that such contractor
shall cooperate in all ways with Landlord's contractors to avoid any delay to
the work being performed by Landlord's contractors or conflict in any other way
with the performance of such work.
4.5 Cost of Materials. Except for Landlord's Contribution, Landlord's
HVAC Contribution and Landlord's Plans Contribution, Tenant shall bear all other
costs of preparing the Premises for its occupancy (including, without
limitation, the cost of any changes to the Plans).
4.6 Tenant Delay - Additional Costs. In the event of any Tenant Delays,
any additional cost to Landlord in connection with the completion of the
Premises in accordance with the terms of this Lease shall be promptly paid by
Tenant to Landlord if such additional cost is in whole or in part the result of
such failure, omission or delay of Tenant. For the purposes of the next
preceding sentence, the expression "additional cost to Landlord" shall mean the
cost over and above such cost as would have been the aggregate cost to Landlord
of completing the Premises in accordance with the terms of this Lease had there
been no such failure, omission or delay. Nothing contained in this Article 4.6
shall limit or qualify or prejudice any other covenants, agreements, terms,
provisions and conditions contained in this Lease, including but not limited to
Article 4.2.
4.7 Entry by Tenant Prior to Term Commencement Date. With Landlord's
prior written consent, which shall not be unreasonably withheld, Tenant shall
have the right to enter the Premises at least thirty (30) days prior to the Term
Commencement Date, during normal business hours and without payment of rent, to
perform such work or decoration as is to be performed by, or under the direction
or control of, Tenant and as is otherwise in compliance with the terms of this
Lease. Such right of entry shall be deemed a license from Landlord to Tenant,
and any entry thereunder shall be at the risk of Tenant. In addition, Tenant
shall have the right, after Tenant executes and delivers this Lease to Landlord,
without payment of rent, to enter the Premises for the purposes of preparing
Tenant's plans in connection with Landlord's Work, provided that Tenant does not
interfere with the performance of Landlord's Work in the Premises.
4.8 Conclusiveness of Landlord's Performance. With respect to any
patent defects in Landlord's Work, Tenant shall be conclusively deemed to have
agreed that Landlord has performed all of its obligations under this Article 4
unless not later than the end of the third calendar month next beginning after
the Term Commencement Date Tenant shall give Landlord written notice specifying
the respects in which Landlord has not performed any such obligation. With
respect to latent defects in any portion of Landlord's Work, Tenant shall be
conclusively deemed to have agreed that Landlord has
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performed all of its obligations under this Article 4 unless, not later than the
date eleven (11) months after the date Landlord substantially completes
Landlord's Work, Tenant shall give written notice to Landlord specifying the
respects in which Landlord has not performed any such obligation. Landlord, at
its option, may pursue such claims directly against the contractors or
subcontractors or assign any such warranties to Tenant for enforcement.
4.9 Tenant Payments of Construction Cost. Landlord shall have the same
rights and remedies which Landlord has upon the nonpayment of Yearly Rent and
other charges due under this Lease for nonpayment of any amounts which Tenant is
required to pay to Landlord or Landlord's contractor in connection with the
construction and initial preparation of the Premises (including, without
limitation, any amounts which Tenant is required to pay in accordance with
Articles 4.5 and 4.6 hereof) or in connection with any construction in the
Premises performed for Tenant by Landlord, Landlord's contractor or any other
person, firm or entity after the Term Commencement Date.
5. USE OF PREMISES
5.1 Permitted Use. Tenant shall during the term hereof occupy and use
the Premises only for the purposes as stated in Exhibit 1 and for no other
purposes. Utility areas (whether or not a part of the Premises) shall be used
only for their intended purpose. Subject to the other terms and provisions of
this Lease, Tenant shall be permitted to install and operate any kitchen
equipment shown on Tenant's Final Plans, and equivalent substitutions therefor,
provided that, and so long as, the same are maintained in good operating
condition. Such kitchen equipment may be used only for the purposes of serving
Tenant's employees and business invitees.
5.2 Prohibited Uses. Notwithstanding any other provision of this Lease,
Tenant shall not use, or suffer or permit the use or occupancy of, or suffer or
permit anything to be done in or anything to be brought into or kept in or about
the Premises, the Building, the Park or any part thereof: (i) which would
violate any of the covenants, agreements, terms, provisions and conditions of
this Lease, (ii) for any unlawful purposes or in any unlawful manner; (iii)
which, in the reasonable judgment of Landlord shall in any way (a) materially
impair the exterior appearance of the Building or the Park; or (b) materially
impair, interfere with or otherwise diminish the quality of any of the Building
services or the heating, cleaning, air conditioning or other servicing of the
Building or Premises, or with the use or occupancy of any of the other areas of
the Building or the Park, or occasion material interruption to the quiet
enjoyment of, or injury or damage to any occupants of the Premises or other
tenants or occupants of the Building or the Park; or (iv) which is materially
inconsistent with the maintenance of the Building and/or the Park as facilities
comparable to first-class office/research and development buildings in the
Market Area, as defined in Article 8.3, in the quality of their maintenance,
use, or occupancy.
5.3 Licenses and Permits. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if the
failure to
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secure such license or permit would in any way adversely affect Landlord, the
Premises, the Building, the Park or Tenant's ability to perform any of its
obligations under this Lease, Tenant, at Tenant's expense, shall duly procure
and thereafter maintain such license and submit the same to inspection by
Landlord. Tenant, at Tenant's expense, shall at all times comply with the terms
and conditions of each such license or permit.
5.4 Vacancy by Tenant. If Tenant shall cease using all or substantially
all of the Premises for a period ("Vacancy Period") of one hundred twenty (120)
consecutive days, then Landlord shall have the right, exercisable by written
notice given to Tenant at any time after the Vacancy Period, but prior to the
time that Tenant again recommences its use of the Premises to terminate this
Lease. Such termination of the Lease shall be effective on the date thirty (30)
days after Landlord's termination notice is given, unless Tenant recommences its
use of the Premises before the end of such thirty (30) period, in which event
this Lease shall continue in full force and effect. Vacancy by Tenant shall not
be considered to be a default by Tenant and Landlord shall not be entitled to
any damages from Tenant on account of any termination under this Article 5.4.
6. RENT
6.1 In General. During the term of this Lease the Yearly Rent, Tax
Excess, Operating Expense Excess, if applicable (collectively, "Rent") at the
rate stated in Exhibit 1, shall be payable by Tenant to Landlord by monthly
payments, as stated in Exhibit 1, in advance and without demand on the first day
of each month for and in respect of such month. Tenant's obligation to pay the
rent shall commence in accordance with Article 6.2 below. If, by reason of any
provisions of this Lease, the Rent shall commence or terminate on any day other
than the first day of a calendar month, the Rent for such calendar month shall
be prorated. The Rent shall be payable to Landlord or, if Landlord shall so
direct in writing, to Landlord's agent or nominee, in lawful money of the United
States which shall be legal tender for payment of all debts and dues, public and
private, at the time of payment, at the office of the Landlord or such place as
Landlord may designate, and the Rent and other charges in all circumstances
shall be payable without any setoff or deduction whatsoever, except as otherwise
expressly provided herein and only to that extent. Rent and any other sums due
hereunder not paid within ten (10) days after the date due shall bear interest
for each month or fraction thereof from the due date until paid computed at the
annual rate of two percentage points over the so-called prime rate then
currently from time to time published in the Wall Street Journal, (or if the
---- ------ -------
Wall Street Journal ceases to publish a prime rate, then the prime rate charged
- ---- ------ -------
to its most favored corporate customers by the largest national bank (N.A.
located in the City of Boston) or at any applicable lesser maximum legally
permissible rate for debts of this nature ("Lease Rate").
6.2 Commencement of Rent. Tenant's obligation to pay Rent shall
commence on the Term Commencement Date.
6.3 Rentable Area. Landlord and Tenant acknowledge the Total Rentable
Area of the Premises and of all other buildings in the Park were measured in
accordance
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with the New York Measurement Standard and have been determined by
agreement to be as set forth in Exhibit 1 attached hereto for the purposes of
this Lease and that the figures set forth therein shall be conclusive and
binding on Landlord and Tenant with regard to the Park as it exists as of the
Execution Date, provided that if any building is physically expanded, the Total
Rentable Area of such building and of the Park shall be appropriately increased
using the same methodology as was used to arrive at the figures in Exhibit 1
before said expansion.
7. HAZARDOUS MATERIALS
Landlord and Tenant agree as follows with respect to the existence or
use of "Hazardous Material" in or on the Premises.
(a) Tenant, at its sole cost and expense, shall comply with all laws,
statutes, ordinances, rules and regulations of any local, state or federal
governmental authority having jurisdiction concerning environmental, health and
safety matters (collectively, "Environmental Laws"), including, but not limited
to, any discharge into the air, surface, water, sewers, soil or groundwater of
any Hazardous Material (as defined in Article 7(c)), whether within or outside
the Premises within the Park. Notwithstanding the foregoing, nothing contained
in this Lease requires, or shall be construed to require, Tenant to incur any
liability related to or arising from environmental conditions not introduced or
caused by Tenant or those for whom Tenant is responsible or for which the
Landlord is responsible pursuant to the terms of this Lease.
(b) Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the Premises or otherwise in the Park by
Tenant, its agents, employees, contractors or invitees, without the prior
written consent of Landlord, except for Hazardous Materials which are typically
used in the operation of offices provided that the same shall at all times be
brought upon, kept or used in accordance with all applicable Environmental Laws.
Notwithstanding the foregoing, with respect to any of Tenant's Hazardous
Material which Tenant does not properly handle, store or dispose of in
compliance with all applicable Environmental Laws, Tenant shall, upon written
notice from Landlord, no longer have the right to bring such material into the
buildings or the Park until Tenant has demonstrated, to Landlord's reasonable
satisfaction, that Tenant has implemented programs to thereafter properly
handle, store or dispose of such material.
(c) As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material or waste or petroleum derivative which is or
becomes regulated by any Environmental Law. The term "Hazardous Material"
includes, without limitation, any material or substance which is (i) designated
as a "hazardous substance" pursuant to Section 1311 of the Federal Water
Pollution Control Act (33 U.S.C. Section 1317), (ii) defined as a hazardous
waste" pursuant to Section 1004 of the Federal Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), or (iii)
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. (42 U.S.C. Section 9601) or (iv) defined as "hazardous substance" or
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"oil" under Chapter 21E of the General Laws of Massachusetts, and "Environmental
Laws" include, without limitation, the laws listed in the preceding clauses (i)
through (iv).
(d) Any increase in the premium for necessary insurance on the Premises
or the Park which arises from Tenant's use and/or storage of these Hazardous
Materials shall be solely at Tenant's expense. Tenant shall procure and maintain
at its sole expense such additional insurance as may be necessary to comply with
any requirement of any Federal, State or local government agency with
jurisdiction.
(e) Tenant hereby covenants and agrees to indemnify, defend and hold
Landlord harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities or losses (collectively "Losses") which Landlord may
reasonably incur arising out of contamination of real estate, the Park or other
property not a part of the Premises, which contamination arises as a result of:
(i) the presence of Hazardous Material in the Premises, the presence of which is
caused or permitted by Tenant, or (ii) from a breach by Tenant of its
obligations under the first two sentences of Article 7(b). This indemnification
of Landlord by Tenant includes, without limitation, reasonable costs incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of Hazardous Material present in the
soil or ground water on or under the Premises based upon the circumstances
identified in the first sentence of this Article 7(e). The indemnification and
hold harmless obligations of Tenant under this Article 7(e) shall survive any
termination of this Lease. Without limiting the foregoing, if the presence of
any Hazardous Material in the buildings or otherwise in the Park caused or
permitted by Tenant results in any contamination of the Premises, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
Premises to a condition which complies with all Environmental Laws; provided
that Landlord's approval of such actions shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions, in Landlord's
reasonable discretion, would not potentially have any materially adverse
long-term or short-term effect on the Premises, and, in any event, Landlord
shall not withhold its approval of any proposed actions which are required by
applicable Environmental Laws.
(f) Landlord represents to Tenant that, to the best of Landlord's
knowledge, (Landlord representing to Tenant that Landlord has previously engaged
consultants to determine the existence of Hazardous Materials in the Park) there
are no Hazardous Materials (including asbestos) or underground storage tanks
presently located in the Park, except as described on Exhibit 4. Landlord
further represents to Tenant that, as of the Execution Date, there is no
asbestos located in the Premises, except as described on Exhibit 4. Landlord
shall take any action required by law (including, if necessary, implementation
of air monitoring and/or abatement procedures) in connection with the Hazardous
Materials and asbestos referenced on Exhibit 4.
(g) Landlord agrees that neither Landlord, nor its agents, employees or
contractors, shall cause or permit any Hazardous Materials (other than materials
which
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are typically used in the operation of offices) to be brought upon, kept, or
used in or about the Park. Landlord shall use reasonable efforts to prevent
other tenants from bringing, keeping or using hazardous materials in or about
the Park.
(h) Landlord hereby covenants and agrees to indemnify, defend and hold
Tenant harmless from any Losses which arise from: (1) any matters disclosed on
Exhibit 4; (2) any breach by Landlord of the representations set forth in
Article 7(f) above; and (3) any breach by Landlord of its agreements under
Article 7(g) above provided that Landlord shall have no liability to Tenant in
the event of a breach by another tenant of the Park of its obligations with
respect to Hazardous Materials other than to use reasonable efforts to cause
such tenant, without cost to Tenant, to remove such Hazardous Materials from the
Park, at the time, and in the manner required by law. The indemnification and
hold harmless provisions of this Article 7(h) shall survive any termination of
this Lease.
(i) Landlord further agrees that if Tenant suffers a loss (including,
without limitation, reasonable attorneys fees) as the result of Hazardous
Materials which are introduced into the Park by another tenant of the Park,
Landlord shall use reasonable efforts to enforce its rights against such tenant
to enable Tenant to recover such loss from such tenant. The provisions of this
Article 7(i) shall survive any termination of this Lease.
8. SERVICES FURNISHED BY LANDLORD
8.1 Electric Current.
(a) The parties acknowledge and agree that the consumption of
electricity for outlet plug use and supplemental (i.e., installed as part of
Landlord's Work, installed in the Premises subsequent to the Term Commencement
Date by Tenant, or installed in accordance with Article 8.6) HVAC in the
Premises will be measured by a separate sub-meter to be installed as part of the
Landlord's Work, and maintained by Landlord, provided that electricity for the
operation of the non-submetered (i.e., base building) HVAC system serving the
Premises and parking lot lighting in the Park shall not be connected to such
submeter. Landlord shall pay directly to the utility for electricity consumed by
Tenant in the Premises and Tenant shall reimburse Landlord for the entire cost
of the sub-metered electric current as follows:
(1) Commencing as of the Term Commencement Date and continuing
until the procedures set forth in Paragraph 2 of this Article 8.1(a)
are effected, Tenant shall pay to Landlord at the same time and in the
same manner that it pays its monthly payments of Yearly Rent hereunder,
estimated monthly payments on account of Tenant's obligation to
reimburse Landlord for electricity consumed in the Premises.
(2) Monthly after the Term Commencement Date, Landlord shall
determine the actual cost of electricity consumed by Tenant in the
Premises (i.e., by reading Tenant's sub-meter and by applying the
actual Electric Rate(s)
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applicable to the preceding period). If the total of Tenant's estimated
monthly payments on account of such period is less than the actual cost
of electricity consumed in the Premises during such period, Tenant
shall pay the difference to Landlord within thirty (30) days after
receipt of Landlord's bill therefor. If the total of Tenant's estimated
monthly payments on account of such period is greater than the actual
cost of electricity consumed in the Premises during such period, Tenant
may credit the difference against its next installment of rental or
other charges due hereunder, except that if such difference is
determined after the end of the term of the Lease, Landlord shall
refund such difference to Tenant to the extent that such difference
exceeds any amounts then due from Tenant to Landlord.
(3) After each adjustment, as set forth in Paragraph (2) above, the
amount of estimated monthly payments on account of Tenant's obligation
to reimburse Landlord for electricity in the Premises shall be adjusted
based upon the actual cost of electricity consumed during the
immediately preceding period.
(b) If Tenant shall require electric current for use in the Premises in
excess of the capacity of the Building electrical system (which capacity is
277/480 volt service), and if (i) in Landlord's reasonable judgment, Landlord's
facilities are inadequate for such excess requirements or (ii) such excess use
shall result in an additional burden on the Building air conditioning system and
additional cost to Landlord on account thereof then Landlord upon written
request and at the sole cost and expense of Tenant, will furnish and install
such additional wire, conduits, feeders, switchboards and appurtenances as
reasonably may be required to supply such additional requirements of Tenant if
current therefor be available to Landlord, provided that the same shall be
permitted by applicable laws and insurance regulations and shall not cause
damage to the Building or the Premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations or repairs
or which materially interfere with the quiet enjoyment of the other tenants or
occupants of the Park. Tenant shall have the right to use electric current in
the Premises 24 hours per day, 7 days per week, which electric current shall be
paid for by Tenant in accordance with Article 8.1(a).
(c) Landlord, at Tenant's expense and upon Tenant's request, shall
purchase and install all replacement lamps of types generally commercially
available (including, but not limited to, incandescent and fluorescent) used in
the Premises.
(d) Subject to Tenant's rights under Paragraphs (b), (c) and (d) of
Article 8.8, Landlord shall not in any way be liable or responsible to Tenant
for any loss, damage or expense which Tenant may sustain or incur if the
quantity, character, or supply of electrical energy is changed or is no longer
available or suitable for Tenant's requirements.
(e) Tenant agrees that it will not make any material alteration or
material addition to the electrical equipment and/or appliances in the Premises
without the prior
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written consent of Landlord in each instance first obtained, which consent will
not be unreasonably withheld.
8.2 Water. Landlord, at its expense, subject to the inclusion of such
expenses in Operating Costs, shall furnish hot and cold water for ordinary
office purposes and for cleaning, toilet, lavatory, and drinking purposes. If
Tenant requires, uses or consumes water for any purpose other than for the
aforementioned purposes, Landlord may (i) assess a reasonable charge for the
additional water so used or consumed by Tenant or (ii) install a water meter and
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
the cost of the meter and the cost of installation thereof and shall keep said
meter and installation equipment in good working order and repair. Tenant agrees
to pay for water consumed, as shown by said meter, together with the sewer
charge based on said meter charges, within thirty (30) days after receipt of
Landlord's bill therefor, and on default in making such payment, Landlord may
pay such charges and collect the same from Tenant.
8.3 Heat and Cleaning.
Landlord at its expense, subject to the inclusion of such expenses in
Operating Costs, shall: (i) furnish heat (substantially equivalent to that being
furnished in comparably aged similarly equipped first class suburban
office/research and development buildings in the greater Burlington, Lexington
and Bedford submarket ("Market Area")) to the Premises during the normal heating
season and as normal seasonal changes may require on Mondays through Fridays,
excepting legal holidays, from 8:00 a.m. to 6:00 p.m. and on Saturdays,
excepting legal holidays, from 8:00 a.m. to 1:00 p.m. (called "business days")
and (ii) cause the office areas of the Premises to be cleaned in accordance with
the provisions of Section 8.5 on business days (except on Saturdays) in
accordance with the cleaning standards attached as Exhibit 5, provided the same
are kept in reasonable order by Tenant.
8.4 Air Conditioning. Landlord shall at its expense, subject to the
inclusion of such expenses in Operating Costs, furnish to and distribute in the
Premises air conditioning substantially equivalent to that being furnished in
comparably aged similarly equipped first class suburban office/research and
development buildings, as normal seasonal changes may require, on business days
during the hours as aforesaid in Article 8.3 when air conditioning may
reasonably be required for the comfortable occupancy of the Premises by Tenant.
The parties acknowledge that the so-called 24 hour "call center" of the Premises
shall be served by a separate air-conditioning system to be installed as part of
the Landlord's Work. Tenant agrees to lower and close the blinds or drapes when
necessary because of the sun's position, whenever the air conditioning system is
in operation; provided, however, that Tenant's failure to comply with the
foregoing shall not be a default hereunder. Tenant further agrees to cooperate
fully with Landlord with regard to, and to abide by all the reasonable
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of the air conditioning system.
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8.5 Additional Heat, Cleaning and Air Conditioning Services.
(a) Landlord will use reasonable efforts upon reasonable advance
written notice from Tenant of its requirements in that regard, to furnish
additional heat, cleaning or air conditioning services to the Premises on days
and at times other than as above provided ("the Overtime Hours").
(b) Tenant will pay to Landlord a reasonable charge (i) for any such
additional heat, cleaning or air conditioning service required by Tenant for the
Overtime Hours, (ii) for any extra cleaning of the Premises required because of
Tenant's 24 hour "call-center" or because of the gross carelessness of Tenant
and (iii) for any cleaning beyond the requirements of Exhibit 5 done at the
request of Tenant of any portions of the Premises which may be used for storage,
shipping room or other non-office purposes. If the cost to Landlord for cleaning
the Premises shall be increased due to the installation in the Premises, at
Tenant's request, of any materials or finish other than as set forth in Exhibit
5, Tenant shall pay to Landlord an amount equal to such increase in cost.
8.6 Additional Air Conditioning Equipment.
In the event Tenant requires additional air conditioning for business
machines, meeting rooms or other special purposes, or because of occupancy or
excess electrical loads or any additional air conditioning units, chillers,
condensers, compressors, ducts, piping and other equipment, then such additional
air conditioning equipment will be installed and maintained by Landlord at
Tenant's sole cost and expense, but only if, in Landlord's reasonable judgment,
the same will not cause damage or injury to the Building or create a dangerous
or hazardous condition or entail excessive or unreasonable alterations, repairs
or expense or interfere with or disturb other tenants; and Tenant shall
reimburse Landlord in such an amount as will compensate it for the actual cost
(including depreciation associated with the equipment needed to bring in such
additional air conditioning and electrical service) incurred by it in operating
such additional air conditioning equipment.
8.7 Repairs. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, Landlord shall, at its expense,
subject to the inclusion of such expenses in Operating Costs, keep and maintain,
repair and replace as necessary the roof, exterior walls, exterior windows,
structural floor slabs, columns, elevators, public stairways and corridors,
lavatories, equipment (including, without limitation, sanitary, electrical,
heating, ventilation, air conditioning, or other systems) and other common
facilities of the Premises, the Building and the Park, including, without
limitation, all parking area lighting, signage and sewer facilities, in good
condition and repair, and shall maintain all lawns and planted areas in the Park
and keep in good repair and condition all surfaced roadways, walks, and parking
and loading areas which Tenant has a right to use under this Lease, and shall
keep the same clear and free of snow and ice as necessary.
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8.8 Interruption or Curtailment of Services.
(a) When necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements to the Premises and/or the Park which
in the reasonable judgment of Landlord are desirable or necessary to be made, or
by reason of difficulty or inability in securing supplies or labor, or of
strikes, or of any other cause beyond the reasonable control of Landlord,
whether such other cause be similar or dissimilar to those hereinabove
specifically mentioned, until said cause has been removed, Landlord reserves the
right to interrupt, curtail, stop or suspend (i) the furnishing of heating,
elevator, air conditioning, and cleaning services and (ii) the operation of the
plumbing and electric systems. Landlord shall use its best efforts to eliminate
the cause of any such interruption, curtailment, stoppage or suspension, but,
subject to Paragraphs (b) and (c) of this Article 8.8, there shall be no
diminution or abatement of Yearly Rent or other compensation due from Tenant to
Landlord hereunder, nor shall this Lease be affected or any of the Tenant's
obligations hereunder reduced, and the Landlord shall have no responsibility or
liability for any such interruption, curtailment, stoppage, or suspension of
services or systems. Landlord shall, except in an emergency or accident, give
Tenant advance notice of any interruption in Building services.
(b) Notwithstanding anything to the contrary in this Lease contained,
if the Premises shall lack any service which Landlord is required to provide
hereunder (thereby rendering the Premises or a portion thereof untenantable) for
a period of three (3) consecutive days after Landlord's receipt of written
notice from Tenant of such condition, the untenantability of which substantially
adversely affects the continued operation in the ordinary course of Tenant's
business, then, provided that such untenantability and Landlord's inability to
cure such condition is not caused by the fault or neglect of Tenant or Tenant's
agents, employees or contractors, or causes beyond Landlord's reasonable control
(excluding financial inability to perform obligations), Yearly Rent, Operating
Expense Excess and Tax Excess shall be abated in proportion to such
untenantability from the date such notice is received by Landlord until the day
such condition is completely corrected.
(c) Notwithstanding anything to the contrary in this Lease contained,
if the Premises shall lack any service which Landlord is required to provide
hereunder (thereby rendering the Premises or a portion thereof untenantable) for
a period of ten (10) consecutive days after Landlord's receipt of written notice
from Tenant of such condition, the untenantability of which substantially
adversely affects the continued operation in the ordinary course of Tenant's
business, then, provided that such untenantability and Landlord's inability to
cure such condition is not caused by the fault or neglect of Tenant, or Tenant's
agents, employees or contractors, Yearly Rent, Operating Expense Excess and Tax
Excess, shall thereafter be abated in proportion to such untenantability from
the date such notice is received by Landlord until the day such condition is
completely corrected.
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(d) Notwithstanding anything to the contrary in this Lease contained,
in the event that the Premises lack any service which Landlord is required to
provide under this Lease thereby rendering the Premises, or any material portion
thereof, untenantable, and (i) if such untenantability continues for ninety (90)
consecutive days, and (ii) if such untenantability is not caused by the fault or
neglect of Tenant or Tenant's agents, employees or contractors, Tenant shall
have the right to terminate this Lease exercisable by giving Landlord a written
termination notice as follows. This Lease shall terminate as of the date ten
(10) days after Landlord's receipt of Tenant's notice, unless Landlord shall
have cured such condition on or before such tenth day.
8.9 Energy Conservation. Notwithstanding anything to the contrary in
this Article 8 or in this Lease contained, Landlord may institute, and Tenant
shall comply with, such policies, programs and measures as may be necessary,
required, or expedient for the conservation and/or preservation of energy or
energy services to the Premises, so long as the same do not increase any cost or
rent to Tenant or materially interfere with Tenant's business in the Premises,
or as may be necessary or required to comply with applicable codes, rules
regulations or standards.
8.10 Miscellaneous. All services provided by Landlord to Tenant are
based upon an assumed maximum Premises population of one person per one-hundred
seventy-five (175) square feet of Total Rentable Area, which limit Tenant shall
in no event exceed at any one time.
8.11 Park Security. Without making any warranty or guaranty as to the
effectiveness of its efforts hereunder, Landlord agrees, at its expense, subject
to the inclusion of such expenses in Operating Costs, to provide security patrol
service in the Park on weeknights (commencing as of 4:00 p.m.) and weekends to
inspect the exterior of the Building and property in the Park.
9. ESCALATION
9.1 Definitions. As used in this Article 9, the words and terms which
follow mean and include the following:
(a) "Operating Year" shall mean a calendar year in which occurs any
part of the term of this Lease.
(b) "Operating Costs in the Base Year" shall be the amount as stated in
Exhibit 1.
(c) "Tenant's Operating Cost Percentage" and "Tenant's Tax Percentage"
shall be the respective figures as stated in Exhibit 1.
(d) "Taxes" shall mean the real estate taxes and other taxes, levies
and assessments imposed upon the Park and the land on which it is located and
upon any personal property of Landlord used in the operation thereof, or
Landlord's interest in the
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Park or such personal property; (provided that if such property is also used in
connection with real estate other than the Park, such taxes, levies, and
assessment shall be equitably allocated to each parcel of real estate) charges,
fees and assessments for transit, housing, police, fire or other governmental
services or purported benefits to the Park; service or user payments in lieu of
taxes; and any and all other taxes, levies, betterments, assessments and charges
arising from the ownership, leasing, operating, use or occupancy of the Park or
based upon rentals derived therefrom, which are or shall be imposed by National,
State, Municipal or other governmental authorities. As of the Execution Date,
"Taxes" shall not include any franchise, rental, income or profit tax, capital
levy or excise, provided, however, that any of the same and any other tax,
excise, fee, levy, charge or assessment, however described, that may in the
future be levied or assessed as a substitute for or an addition to, in whole or
in part, any tax, levy or assessment which would otherwise constitute "Taxes,"
whether or not now customary or in the contemplation of the parties on the
Execution Date of this Lease, shall constitute "Taxes," but only to the extent
calculated as if the Building and the land upon which it stands is the only real
estate owned by Landlord. In addition, "Taxes" shall exclude any increase in
real estate taxes assessed against any leasehold improvements made within
another tenant's Premises to the extent that it is determined from the records
of the Assessing Authority that such increase is based solely upon such
leasehold improvements (e.g., if the Assessing Authority determines Taxes for a
fiscal year based upon an income approach to valuation, in no event shall Taxes
exclude an increase based on change in income of the Park). "Taxes" shall also
include expenses of tax abatement or other proceedings contesting assessments or
levies. The parties acknowledge that Phase II of the Park is assessed as a
separate tax parcel and, therefore, Taxes shall include only Taxes applicable to
Phase II of the Park and shall exclude Taxes assessed against Phase I of the
Park.
(e) "Tax Base" shall be the amount stated in Exhibit 1 and shall apply
to a Tax Period of twelve (12) months. The Tax Base shall be reduced pro rata if
and to the extent that the Tax Period contains fewer than twelve (12) months.
(f) "Tax Period" shall be any fiscal/tax period in respect of which
Taxes are due and payable to the appropriate governmental taxing authority, any
portion of which period occurs during the term of this Lease, the first such
Period being the one in which the Term Commencement Date occurs.
(g) "Operating Costs":
(1) Definition of Operating Costs. "Operating Costs" shall mean all
costs incurred and expenditures of whatever nature made by Landlord in
the operation and management, for repair and replacements, cleaning and
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maintenance of the Building and Park, including, without limitation,
vehicular and pedestrian passageways related to the Building, related
equipment, facilities and appurtenances, cooling and heating equipment,
and a portion reasonably allocated by Landlord to the Building of the
costs and expenditures made by Landlord in the operation and
management, repair and replacement, cleaning and maintenance of the
Park. The allocation of costs and expenditures among the various
buildings in the Park shall be on the basis of the ratio of the Total
Rentable Area of each building in the Park to the Total Rentable Area
of the Park, unless such allocation would result in a disproportionate
charge based upon the relative usage of the service on which such cost
is based. Initially, the ratio of the Total Rentable Area of the
Premises to the Total Rentable Area of the Park is the Initial Building
Proportionate Share. To the extent that a cost included in Operating
Costs is also allocable to property other than the Park, such cost
shall be equitably allocated to each parcel of property which benefits
from such cost. Operating Costs shall include, without limitation,
those categories of "Specifically Included Operating Costs", as set
forth below, but shall not include "Excluded Costs", as hereinafter
defined.
(2) Definition of Excluded Costs. "Excluded Costs" shall be defined
as the cost of capital improvements (except as set forth in
Subparagraph (3) below); depreciation; interest (except as provided in
Subparagraph (3) below for the amortization of capital improvements);
principal payments of mortgage and other non-operating debts of
Landlord; the cost of repairs or other work to the extent Landlord is
reimbursed by insurance or condemnation proceeds; costs in connection
with leasing space in the Building, including brokerage commissions;
lease concessions, including rental abatements and construction
allowances, granted to specific tenants; costs incurred in connection
with the sale, financing or refinancing of the Building; fines,
interest and penalties incurred due to the late payment of Operating
Costs; organizational expenses associated with the creation and
operation of the entity which constitutes Landlord; any penalties or
damages that Landlord pays to Tenant under this Lease or to other
tenants in the Building under their respective leases; brokerage
commissions, salaries of executives and owners not directly employed in
the management/operation of the Building; the cost of work done by
Landlord for a particular tenant for which Landlord has the right to be
reimbursed by such tenant; rent under any ground lease; and increases
in insurance premiums on the Building, the Park or on property located
therein due to the actions or inactions of another tenant in the
Building or Park.
(3) Capital Expenditures.
(i) Replacements. If, during the term of this Lease, Landlord shall
replace any capital items or make any capital expenditures
(collectively called "Capital Expenditures") the total amount of which
is not properly includable in Operating Costs for the Operating Year in
which they were made, in accordance with generally accepted accounting
principles and practices in effect at the time of such replacement,
there shall nevertheless be included in such Operating Costs and in
Operating Costs for each succeeding Operating Year the amount, if any,
by which the Annual Charge-off (determined as hereinafter provided) of
such Capital Expenditure (less insurance proceeds, if any, collected by
Landlord by reason of damage to, or destruction of the capital item
being replaced) exceeds the annual charge-off of the Capital
Expenditure for the item being replaced.
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(ii) New Capital Items. If a new capital item is acquired which
does not replace another capital item which was worn out, has become
obsolete, etc., and if such new capital item is purchased primarily to
reduce Operating Costs or otherwise improve the operating efficiency of
the Building or is required to comply with applicable laws that are
enacted, or first interpreted to apply to the Building, after the Term
Commencement Date, then there shall be included in Operating Costs for
each Operating Year in which and after such capital expenditure is made
the Annual Charge-Off of such capital expenditure.
(iii) Annual Charge-Off. "Annual Charge-Off" shall be defined as
the annual amount of principal and interest payments which would be
required to repay a loan ("Capital Loan") in equal monthly installments
over the Useful Life, as hereinafter defined, of the capital item in
question on a direct reduction basis at an annual interest rate equal
to the Capital Interest Rate, as hereinafter defined, where the initial
principal balance is the cost of the capital item in question.
(iv) Useful Life. "Useful Life" shall be reasonably determined by
Landlord in accordance with generally accepted accounting principles
and practices in effect at the time of acquisition of the capital item.
Notwithstanding the foregoing, if Landlord reasonably concludes on the
basis of engineering estimates that a particular capital expenditure
will effect savings in Building operating expenses including, without
limitation, energy-related costs, and that such annual projected
savings will exceed the Annual Charge-Off of Capital Expenditures
computed as aforesaid, then and in such events, the Annual Charge-Off
shall be determined based upon a Useful Life which would cause the
principal and interest payments in a full repayment of the Capital Loan
in question to equal the amount of projected savings of such Useful
Life.
(v) Capital Interest Rate. "Capital Interest Rate" shall be defined
as an annual rate of either one percentage point over the AA Bond rate
(Standard & Poor's corporate composite or, if unavailable, its
equivalent) as reported in the financial press at the time the capital
expenditure is made or, if the capital item is acquired through
third-party financing, then the actual (including fluctuating) rate
paid by Landlord in financing the acquisition of such capital item.
(4) Specifically Included Categories of Operating Costs. Subject to
the Excluded Costs definition, and as otherwise expressly excluded from
the definition of Operating Costs pursuant to the provisions of this
Lease, Operating Costs shall include, but not be limited to, the
following:
Taxes (other than real estate taxes): Sales, Federal Social Security,
Unemployment and Old Age Taxes and contributions and State Unemployment
taxes and contributions accruing to and paid by the Landlord on account
of all employees of Landlord and/or Landlord's managing agent, who are
employed in, about or on account of the Premises, except that taxes
levied upon the net income
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of the Landlord and taxes withheld from employees, and "Taxes" as
defined in Article 9.1(d) shall not be included herein.
Water: All charges and rates connected with water supplied to the
Premises and/or the Park and related sewer use charges.
Heat and Air Conditioning: All charges connected with heat and air
conditioning supplied to the Premises and/or Park.
Wages: Wages and cost of all employee benefits of all employees of the
Landlord and/or Landlord's managing agent who are employed in, about or
on account of the Premises and/or Park provided that (i) wages and
costs for employees who also work on other properties shall be
allocated to the Park based upon the proportion of their time spent
working on the Park and then allocated to the Premises on a square foot
basis and (ii) wages and costs of employees above the grade of general
manager shall be excluded from Operating Costs.
Cleaning: The cost of labor and material for cleaning the Premises,
surrounding areaways and windows in the Premises and/or Park,
including, without limitation, the services listed on Exhibit 5.
Elevator Maintenance: All expenses for or on account of the upkeep and
maintenance of all elevators in the Premises (if any).
Electricity: The cost of all electric current for the operation of any
machine, appliance or device used for the operation of the Premises and
the Building and/or Park, including the cost of electric current for
the elevators, lights, air conditioning and heating, but not including
electric current which is paid for directly to Landlord or to the
utility by the user/tenant in the Premises and/or Park. (If and so long
as Tenant is billed directly for its own consumption as determined by
its separate meter or by submeter, then Operating Costs shall include
only public area electric current consumption and not any demised
Premises electric current consumption.) Wherever separate metering is
unlawful, prohibited by utility company regulation or tariff or is
otherwise impracticable, relevant consumption figures for the purposes
of this Article 9 shall be determined by fair and reasonable
allocations and engineering estimates made by Landlord.
Insurance, etc.: Fire, casualty, liability and such other insurance as
may from time to time be reasonably required by lending institutions on
first-class office buildings in the City or Town wherein the Building
is located and all other expenses customarily incurred in connection
with the operation and maintenance of first-class suburban
office/research and development buildings in the Market Area,
including, without limitation, market rate rental costs associated with
the Building's management office.
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Extrapolation to Account for Vacancies. If less than 95% of the Park is
occupied by tenants throughout any Operating Year for which Operating
Expense Excess is determined then any Operating Cost which varies based
upon occupancy (including, without limitation, management fees) for
such period shall be extrapolated by Landlord on an item by item basis
to the estimated amount of such Operating Cost which would have been
incurred if the Park had been at least 95% occupied by tenants
throughout such Operating Year; and the extrapolated amount shall, for
the purposes of this Lease, be deemed to be the amount included in
Operating Costs for such Operating Year. The foregoing extrapolation
provisions shall apply in determining the Operating Costs in the Base
Year (if applicable).
9.2 Tax Excess.
(a) In General. Commencing as of the Term Commencement Date, and
continuing thereafter throughout the term of this Lease, if in any Tax Period
the Taxes exceed the Tax Base, Tenant shall pay to Landlord Tenant's Tax
Percentage of such excess, such amount being hereinafter referred to as "Tax
Excess." Tax Excess shall be due within thirty (30) days of Tenant's receipt of
Landlord's bill therefor. In implementation and not in limitation of the
foregoing, Tenant shall remit to Landlord pro rata monthly installments on
account of projected Tax Excess, calculated by Landlord on the basis of the most
recent Tax data available. If the total of such monthly remittances on account
of any Tax Period is greater than the actual Tax Excess for such Tax Period,
Tenant may credit the difference against the next installment of rental or other
charges due to Landlord hereunder, except that if such difference is determined
after the end of the term of this Lease, Landlord shall refund such difference
to Tenant to the extent that such difference exceeds any amounts then due from
Tenant to Landlord. If the total of such remittances is less than the actual Tax
Excess for such Tax Period, Tenant shall pay the difference to Landlord within
thirty (30) days of Tenant's receipt of the bill.
(b) Effect of Abatements. Appropriate credit against Tax Excess shall
be given for any refund obtained by reason of a reduction in any Taxes by the
Assessors or the administrative, judicial or other governmental agency
responsible therefor. The original computations, as well as reimbursement or
payments of additional charges, if any, or allowances, if any, under the
provisions of this Article 9.2 shall be based on the original assessed
valuations with adjustments to be made at a later date when the tax refund, if
any, shall be paid to Landlord by the taxing authorities. Expenditures for legal
fees and for other similar or dissimilar expenses incurred in obtaining the tax
refund may be charged against the tax refund before the adjustments are made for
the Tax Period.
9.3 Operating Expense Excess.
(a) In General. Commencing as of the Term Commencement Date, and
continuing thereafter throughout the term of the Lease, if the Operating Costs
in any Operating Year exceed the Operating Costs in the Base Year, Tenant shall
pay to Landlord Tenant's Operating Cost Percentage of such excess, such amount
being
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hereinafter referred to as "Operating Expense Excess." Operating Expense Excess
shall be due within thirty (30) days of the Tenant's receipt of the Landlord's
bill therefor. In implementation and not in limitation of the foregoing, Tenant
shall remit to Landlord pro rata monthly installments on account of projected
Operating Expense Excess, calculated by Landlord on the basis of the most recent
Operating Costs data or budget available. Landlord shall, within one hundred
twenty (120) days after the end of each Operating Year, deliver to Tenant a
reasonably detailed statement ("Year End Statement") of the actual amount of
Operating Costs for such Operating Year. If the total of such monthly
remittances on account of any Operating Year is greater than the actual
Operating Expense Excess for such Operating Year, Tenant may credit the
difference against the next installment of rent or other charges due to Landlord
hereunder, except that if such difference is determined after the end of the
term of this Lease, Landlord shall refund such difference to Tenant to the
extent that such difference exceeds any amounts then due from Tenant to
Landlord. If the total of such remittances is less than actual Operating Expense
Excess for such Operating Year, Tenant shall pay the difference to Landlord
within thirty (30) days of Tenant's receipt of Landlord's bill therefor.
(b) Tenant's Audit Rights. Subject to the provisions of this paragraph,
Tenant shall have the right, at Tenant's cost and expense, to examine all
documentation and calculations prepared in the determination of Operating
Expense Excess:
(1) Such documentation and calculation shall be made available to
Tenant at the offices where Landlord keeps such records during normal
business hours within a reasonable time after Landlord receives a
written request from Tenant to make such examination.
(2) Tenant shall have the right to make such examination no more than
once in respect of any period in which Landlord has given Tenant a Year
End Statement.
(3) Any request for examination in respect of any Operating Year may be
made no more than one hundred eighty (180) days after Landlord has
given Tenant a Year End Statement for such Operating Year.
(4) Such examination may be made first by Tenant and any employees of
Tenant, and then, at Tenant's election, by an independent certified
public accounting firm, provided that in no event shall the
compensation payable by Tenant to such firm be on the basis of a
contingent fee.
(5) As a condition to performing any such examination, Tenant and its
examiners shall be required to execute and deliver to Landlord an
agreement, in form mutually acceptable to Landlord and Tenant, agreeing
to keep confidential any information which it discovers about Landlord
or the Building in connection with such examination, except in court or
as may be required by law.
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9.4 Part Years. If the Term Commencement Date or if the Termination
Date occurs in the middle of an Operating Year or Tax Period, Tenant shall be
liable for only that portion of the Operating Expense or Tax Excess, as the case
may be, in respect of such Operating Year or Tax Period represented by a
fraction the numerator of which is the number of days of the herein term
(commencing as of the Term Commencement Date) which falls within the Operating
Year or Tax Period and the denominator of which is three hundred sixty-five
(365), or the number of days in said Tax Period, as the case may be.
9.5 Effect of Taking. In the event of any taking of a portion of the
Park, the Building or the land upon which it stands under circumstances whereby
this Lease shall not terminate under the provisions of Article 20 then, for the
purposes of determining Tax Excess, there shall be substituted for the Tax Base
originally provided for herein a fraction of such Tax Base, the numerator of
which fraction shall be the Taxes for the first Tax Period subsequent to the
condemnation or taking which takes into account such condemnation or taking, and
the denominator of which shall be the Taxes for the last Tax Period prior to the
condemnation or taking, which did not take into account such condemnation or
taking. Tenant's Tax Percentage shall be adjusted appropriately to reflect the
proportion of the Premises and/or the Building remaining after such taking.
9.6 Adjustment of Operating Costs and Taxes based upon Occupancy. If
less than ninety-five (95%) percent of the rentable area of the Building shall
have been occupied by tenants at any time during any Operating Year or Tax
Period, then, at Landlord's election, Operating Costs or Taxes, or both, for
such Operating Year or Tax Period, as the case may be, shall be adjusted to
equal the amount which Landlord in good faith determines is the amount Operating
Costs or Taxes, or both, would have been for such period had occupancy been
ninety-five (95%) percent throughout such period.
9.7 Survival of Obligations. Any obligations under this Article 9 which
shall not have been paid at the expiration or sooner termination of the term of
this Lease shall survive such expiration and shall be paid when and as the
amount of same shall be determined to be due.
10. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at
any time and from time to time without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor or
otherwise affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Premises, the Building and/or the Park and the fixtures and equipment thereof,
as well as in or to the street entrances, halls, passages, elevators,
escalators, parking areas, tunnels, and stairways thereof, as it may deem
necessary or desirable, and to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building and/or the Park, provided,
however, that there be no unreasonable obstruction of the right of access to, or
material interference with the use and enjoyment
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of, the Premises or Tenant's appurtenant rights. Notwithstanding the foregoing:
(i) Landlord's rights under this Article 10 are subject to Article 2.4, and (ii)
unless required by law, Landlord shall make any alteration, addition, or
improvement of the Premises only if the same are performed in accordance with
the Landlord access procedures set forth in Article 2.4, and if the same shall
not materially interfere with the use and enjoyment by Tenant of the Premises or
Tenant's appurtenant rights. Nothing contained in this Article 10 shall be
deemed to relieve Tenant of any duty, obligation or liability of Tenant under
this Lease with respect to making any repair, replacement or improvement or
complying with any law, order or requirement of any governmental or other
authority. Landlord reserves the right, upon at least 30 days' prior written
notice to Tenant, to adopt and at any time and from time to time to change the
name of the Building and/or the Park. Neither this Lease nor any use by Tenant
shall give Tenant any right or easement for the use of any door or any passage
or any concourse connecting with any other building or to any public
convenience, and the use of such doors, passages and concourses and of such
conveniences may be regulated or discontinued at any time and from time to time
by Landlord without notice to Tenant and without affecting the obligation of
Tenant hereunder or incurring any liability to Tenant therefor, provided,
however, that there be no unreasonable obstruction of the right of access to, or
unreasonable interference with the use of the Premises by Tenant. If at any time
any windows of the Premises are temporarily (i.e. not in excess of five days)
closed or darkened for any reason whatsoever relating to any maintenance or
repair work, but Tenant shall not otherwise be prevented from occupying or using
the Premises for the uses set forth herein, Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatements of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction.
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS--REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises prior to or during the term, whether by Landlord at its
expense or at the expense of Tenant (either or both) or by Tenant shall be and
remain part of the Premises and shall not be removed by Tenant during or at the
end of the term unless Landlord otherwise elects to require Tenant to remove
such fixtures, equipment, improvements and appurtenances, subject to the
provisions of Articles 12 and/or 22 of the Lease. All electric, plumbing,
heating and sprinkling systems, fixtures and outlets, vaults, paneling, molding,
shelving, radiator enclosures, cork, rubber, linoleum and composition floors,
ventilating, silencing, air conditioning and cooling equipment, shall be deemed
to be included in such fixtures, equipment, improvements and appurtenances,
whether or not attached to or built into the Premises. Where not built into the
Premises, all removable electric fixtures, carpets, drinking or tap water
facilities, furniture, or trade fixtures or business equipment or Tenant's
inventory or stock in trade shall not be deemed to be included in such fixtures,
equipment, improvements and appurtenances and may be, and upon the request of
Landlord will be, removed by Tenant at the expiration or prior termination of
this term of the Lease, upon the condition that such removal shall not
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materially damage the Premises or the Building and that the cost of repairing
any damage to the Premises or the Building arising from installation or such
removal shall be paid by Tenant.
12. ALTERATIONS AND IMPROVEMENTS BY TENANT
(a) Tenant shall make no alterations, decorations, installations,
removals, additions or improvements (collectively, "Alterations") in or to the
Premises without Landlord's prior written consent and then only those made by
contractors or mechanics approved by Landlord. No installations or work shall be
undertaken or begun by Tenant until: (i) Landlord has approved written plans and
specifications and a time schedule for such work; (ii) Tenant has made provision
for either written waivers of liens from all contractors, laborers and suppliers
of materials for such installations or work, the filing of lien bonds on behalf
of such contractors, laborers and suppliers, or other appropriate protective
measures approved by Landlord; and (iii) Tenant has procured appropriate surety
payment and performance bonds. No amendments or additions to such plans and
specifications shall be made without the prior written consent of Landlord.
(b) Landlord's consent and approval required under this Article 12
shall not be unreasonably withheld. Landlord's approval is solely given for the
benefit of Landlord and neither Tenant nor any third party shall have the right
to rely upon Landlord's approval of Tenant's plans for any purpose whatsoever,
except for compliance with Article 12(a). Without limiting the foregoing, Tenant
shall be responsible for all elements of the design of Tenant's plans
(including, without limitation, compliance with law, functionality of design,
the structural integrity of the design, the configuration of the Premises and
the placement of Tenant's furniture, appliances and equipment), and Landlord's
approval of Tenant's plans shall in no event relieve Tenant of the
responsibility for such design. Landlord shall have no liability or
responsibility for any claim, injury or damage alleged to have been caused by
the particular materials, whether building standard or non-building standard,
appliances or equipment selected by Tenant in connection with any work performed
by or on behalf of Tenant in the Premises including, without limitation,
furniture, carpeting, copiers, laser printers, computers and refrigerators.
(c) Notwithstanding anything to the contrary herein contained,
Landlord's consent shall not be required for any Alteration that satisfies all
of the following criteria: (1) is of a cosmetic nature such as painting,
wallpapering, hanging pictures and installing carpeting; (2) is not visible from
the exterior of the Premises or Building; (3) will not affect the systems or
structure of the Building; and (4) does not require work to be performed behind
the walls or above the ceiling of the Premises.
(d) Any such Alterations shall be done at Tenant's sole expense and at
such times and in such manner as Landlord may from time to time reasonably
designate. If Tenant shall make any Alterations, then Landlord may elect to
require the Tenant at the expiration or sooner termination of the term of this
Lease to restore the Premises to substantially the same condition as existed at
the Term Commencement Date. If so
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requested by Tenant in writing at the time that Tenant requests Landlord's
approval, or gives Landlord written notice, as the case may be, of an
Alteration, Landlord shall, within ten (10) business days of its receipt of such
request, make its election as to whether Tenant shall be required to remove such
Alteration. In any event, Tenant shall be required to remove its data lines and
cable from the Premises at the end of the term of the Lease.
(e) Tenant shall pay, as an additional charge, the entire increase in
real estate taxes on the Building which shall, at any time prior to or after the
Term Commencement Date, result from or be attributable to any alteration,
addition or improvement to the Premises made by or for the account of Tenant in
excess of the value of Landlord's Work.
13. TENANT'S CONTRACTORS--MECHANICS' AND OTHER LIENS--STANDARD OF TENANT'S
PERFORMANCE--COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the Premises--whether such work be
done prior to or after the Term Commencement Date--Tenant will strictly observe
the following covenants and agreements:
(a) Tenant agrees that it will not, either directly or indirectly, use
any contractors and/or materials if their use will create any difficulty,
whether in the nature of a labor dispute or otherwise, with other contractors
and/or labor engaged by Tenant or Landlord or others in the construction,
maintenance and/or operation of the Building or any part thereof.
(b) In no event shall any material or equipment be incorporated in or
added to the Premises, so as to become a fixture or otherwise a part of the
Building, in connection with any such alteration, decoration, installation,
addition or improvement which is subject to any lien, charge, mortgage or other
encumbrance of any kind whatsoever or is subject to any security interest or any
form of title retention agreement. Any mechanic's lien filed against the
Premises or the Building for work claimed to have been done for, or materials
claimed to have been furnished to, Tenant shall be discharged by Tenant within
ten (10) days thereafter, at Tenant's expense by filing the bond required by law
or otherwise. If Tenant fails so to discharge any lien, Landlord may do so at
Tenant's expense and Tenant shall reimburse Landlord for any expense or cost
incurred by Landlord in so doing within fifteen (15) days after rendition of a
bill therefor. Notwithstanding the foregoing, Tenant shall have the right to
grant security interests and/or to lease its business equipment and personal
property in the premises, provided that such lessor or secured party agrees:
1. That it will repair any damage to the Building or the
Premises caused by the installation or removal of any
such equipment or personal property;
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2. That it will give Landlord not less than five (5)
days advance written notice prior to making any entry
into the Premises;
3. That it will not hold any auction or foreclosure sale
on the Premises; and
4. That it will have the right to remove such equipment
or property only during the term of this Lease.
(c) All installations or work done by Tenant shall be at its own
expense and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing insurance
rating bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and
specifications prepared by and at the expense of Tenant (except Landlord shall
pay for Tenant's Final Plans as provided in Article 4.4(b)) theretofore
submitted to and approved by Landlord.
(d) Tenant shall procure all necessary permits before undertaking any
work in the Premises; do all of such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements; and defend, save harmless, exonerate and indemnify Landlord from
all injury, loss or damage to any person or property occasioned by such work.
Tenant shall cause contractors employed by Tenant to carry Worker's Compensation
Insurance in accordance with statutory requirements, Automobile Liability
Insurance and, naming Landlord as an additional insured, Commercial General
Liability Insurance covering such contractors on or about the Premises in the
amounts stated in Article 15 hereof or in such other reasonable amounts as
Landlord shall require and to submit certificates evidencing such coverage to
Landlord prior to the commencement of such work.
14. REPAIRS BY TENANT--FLOOR LOAD
14.1 Repairs by Tenant. Tenant shall keep all and singular the Premises
neat and clean including, as necessary, periodic rug shampoo and waxing of tiled
floors and cleaning of blinds and drapes (provided that nothing herein shall
require Tenant to perform any services which Landlord is required to perform
under Exhibit 5) and in such repair, order and condition as the same are in on
the Term Commencement Date or may be put in during the term hereof, reasonable
use and wear thereof and damage by fire or by other casualty excepted. Tenant
shall make, as and when needed as a result of neglect by Tenant or Tenant's
servants, employees, agents, contractors, invitees, or licensees or otherwise,
all repairs in and about the Premises necessary to preserve them in such repair,
order and condition, which repairs shall be in quality and class equal to the
original work. Landlord may elect, at the expense of Tenant, to make any such
repairs or to repair any damage or injury to the Building or the Premises caused
by the neglect of Tenant or
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Tenant's servants, employees, agents, contractors, or licensees if Tenant fails
to make such repairs within thirty (30) day after written notice from Landlord
(except that no notice shall be required in an emergency).
14.2 Floor Load--Heavy Machinery. Tenant shall not place a load upon
any floor of the Premises exceeding the floor load per square foot of area which
such floor was designed to carry and which is allowed by law. Landlord reserves
the right to prescribe the weight and position of all business machines and
mechanical equipment, including safes, which shall be placed so as to distribute
the weight. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient in Landlord's
judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not
move any safe, heavy machinery, heavy equipment, freight, bulky matter, or
fixtures into or out of the Building without Landlord's prior written consent.
If such safe, machinery, equipment, freight, bulky matter or fixtures requires
special handling, Tenant agrees to employ only persons holding a Master Rigger's
License to do said work, and that all work in connection therewith shall comply
with applicable laws and regulations. Any such moving shall be at the sole risk
and hazard of Tenant and Tenant will defend, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit resulting
from such moving. Proper placement of all such business machines, etc., in the
Premises shall be Tenant's responsibility. Landlord agrees that it shall
exercise its rights under this Article 14.2 on a reasonable basis.
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
15.1 General Liability Insurance. Tenant shall procure, and keep in
force and pay for Commercial General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for bodily injury liability
(including, without limitation, bodily injury, sickness, disease, and death) or
damage to property which may be claimed to have occurred from and after the time
Tenant and/or its contractors enter the Premises in accordance with Article 4 of
this Lease, of not less than Two Million ($2,000,000) Dollars in the event of
bodily injury to any number of persons or damage to property, arising out of any
one occurrence, and from time to time thereafter shall be not less than such
higher amounts, if procurable, as may be reasonably required by Landlord and are
customarily carried by responsible similar tenants in the City or Town wherein
the Building is located. Landlord agrees it shall exercise its right to increase
Tenant's insurance limits no more often than one time every three years.
15.2 Certificates of Insurance. Such insurance may be obtained under a
blanket insurance policy, and shall be effected with insurers with a Best rating
of at least XI, A-, authorized to do business in the Commonwealth of
Massachusetts under valid and enforceable policies wherein Tenant names Landlord
and Landlord's managing agent as additional insureds. Such insurance shall
provide that it shall not be canceled or modified without at least thirty (30)
days' prior written notice to each insured named therein. On or before the time
Tenant and/or its contractors enter the Premises in accordance with
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Articles 4 and 14 of this Lease and thereafter not less than fifteen (15) days
prior to the expiration date of each expiring policy, original copies of the
policies provided for in Article 15.1 issued by the respective insurers, or
certificates of such policies setting forth in full the provisions thereof and
issued by such insurers together with evidence satisfactory to Landlord of the
payment of all premiums for such policies, shall be delivered by Tenant to
Landlord and certificates as aforesaid of such policies shall upon request of
Landlord, be delivered by Tenant to the holder of any mortgage affecting the
Premises.
15.3 Tenant Indemnity of Landlord. Subject to Article 19, Tenant will
save Landlord, its agents and employees, harmless and will exonerate, defend and
indemnify Landlord, its agents and employees, from and against any and all
claims, liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority arising:
(a) On account of or based upon any injury to person, or loss of or
damage to property, sustained or occurring on the Premises on account of or
based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (except to the extent caused by Landlord, its agents, contractors or
employees);
(b) On account of or based upon any injury to person, or loss of or
damage to property, sustained or occurring elsewhere (other than on the
Premises) in the Park (and, in particular, without limiting the generality of
the foregoing, on or about the elevators, stairways, public corridors,
sidewalks, concourses, arcades, malls, galleries, vehicular tunnels, approaches,
areaways, roof, or other appurtenances and facilities used in connection with
the Park, Building or Premises) to the extent caused by the negligence or
willful misconduct of Tenant or anyone claiming by, through, or under Tenant, or
their respective agents, employees or contractors; and
(c) Tenant's obligations under this Article 15.3 shall be insured
either under the Commercial General Liability Insurance required under Article
15.1, above, or by a contractual insurance rider or other coverage; and
certificates of insurance in respect thereof shall be provided by Tenant to
Landlord upon request.
15.3A Landlord Indemnity of Tenant. Except to the extent caused by the
negligence or willful misconduct of Tenant, its agents, contractors or
employees, Landlord shall indemnify, defend and hold Tenant, its agents,
contractors and employees harmless against and from all liabilities,
obligations, damages, penalties, claims, actions, costs, charges and expenses,
including, without limitation, reasonable attorneys' fees and other professional
fees (if and to the extent permitted by Law), which may be imposed upon,
incurred by or asserted against Tenant, its agents, contractors or employees and
arising out of or in connection with the acts or omissions (including violations
of law) of Landlord, its agents, contractors or employees.
15.4 Property of Tenant. In addition to and not in limitation of the
foregoing, Tenant covenants and agrees that, to the maximum extent permitted by
law, all
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merchandise, furniture, fixtures and property of every kind, nature and
description related or arising out of Tenant's leasehold estate hereunder, which
may be in or upon the Premises or Building, in the public corridors, or on the
sidewalks, areaways and approaches adjacent thereto, shall be at the sole risk
and hazard of Tenant, and that if the whole or any part thereof shall be
damaged, destroyed, stolen or removed from any cause or reason whatsoever no
part of said damage or loss shall be charged to, or borne by, Landlord; unless,
subject to Article 19 hereof, such damage or loss is due to the negligence or
willful misconduct of Landlord or Landlord's agents, employees, or contractors,
in which case Landlord shall bear loss or damage only to "ordinary office
property" (as hereinafter defined). For the purpose of this Article 15.4,
"ordinary office property" shall mean merchandise, furniture, and other tangible
personal property of the kind and quantity which may customarily be expected to
be found within comparable business offices in the greater Boston area, and
excluding any unusually valuable or exotic property, works of art, and the like.
15.5 Bursting of Pipes, etc. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical or electronic emanations or
disturbance, water, rain or snow or leaks from any part of the Building or from
the pipes, appliances, equipment or plumbing works or from the roof, street or
sub-surface or from any other place or caused by dampness, vandalism, malicious
mischief or by any other cause of whatever nature, unless caused by or due to
the negligence or willful misconduct of Landlord, its agents, servants or
employees, or the breach by Landlord of its maintenance and repair obligations
under this Lease, and then, where notice and an opportunity to cure are
appropriate (i.e., where Tenant knows of such condition sufficiently in advance
of the occurrence of any such injury or damage resulting therefrom as would have
enabled Landlord to prevent such damage or loss had Tenant notified Landlord of
such condition) only after (i) notice to Landlord of the condition claimed to
constitute negligence or breach and (ii) the expiration of a reasonable time
after such notice has been received by Landlord without Landlord having taken
all reasonable and practicable means to cure or correct such condition; and
pending such cure or correction by Landlord, Tenant shall take all reasonably
prudent temporary measures and safeguards to prevent any injury, loss or damage
to persons or property. Neither Landlord nor its agents shall be liable for any
such damage caused by other tenants or persons in the Building (other than
Landlord's agents, employees or contractors) or caused by operations in
construction of any public, or quasi-public work; nor shall Landlord be liable
for any latent defect in the Premises or in the Building, provided that the
foregoing shall not relieve Landlord from any obligation which it has to perform
maintenance or repairs in accordance with the Lease or relieve Landlord of any
obligation which it has in connection with Landlord's Work to the extent that
Tenant has complied with the notice requirements of Article 4.8.
15.6 Repairs and Alterations--No Diminution of Rental Value.
(a) Except as otherwise provided in paragraphs (b) and (c) of this
Article 15.6 and as provided in Article 18, there shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Landlord
by reason of inconvenience,
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annoyance or injury to Tenant arising from any repairs, alterations, additions,
replacements or improvements made by Landlord, Tenant or others in or to any
portion of the Park, Building or Premises or any property adjoining the Park, or
in or to fixtures, appurtenances, or equipment thereof, or for failure of
Landlord or others to make any repairs, alterations, additions or improvements
in or to any portion of the Park, Building, or of the Premises, or in or to the
fixtures, appurtenances or equipment thereof.
(b) Notwithstanding anything to the contrary in this Lease contained,
if due to any such repairs, alterations, replacements, or improvements made by
Landlord or if due to Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, or if due to the breach by
Landlord of any of its obligations under the Lease, any portion of the Premises
becomes untenantable for a period of three (3) consecutive days after Landlord's
receipt of written notice from Tenant of such condition, the untenantability of
which would substantially adversely affect the continued operation in the
ordinary course of Tenant's business, then, provided that such untenantability
and Landlord's inability to cure such condition is not caused by the fault or
neglect of Tenant or Tenant's agents, employees or contractors or caused beyond
Landlord's reasonable control (excluding financial inability to perform
obligations), Yearly Rent, Operating Expense Excess and Tax Excess shall be
abated in proportion to such untenantability from the date such notice is
received by Landlord until the day such condition is completely corrected.
(c) Notwithstanding anything to the contrary in this Lease contained,
if due to any such repairs, alterations, replacements, or improvements made by
Landlord or if due to Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, or if due to the breach by
Landlord of any of its obligations under the Lease, any portion of the Premises
becomes untenantable for a period of ten (10) consecutive days after Landlord's
receipt of written notice from Tenant of such condition, the untenantability of
which would substantially adversely affect the continued operation in the
ordinary course of Tenant's business, then, provided that such untenantability
and Landlord's inability to cure such condition is not caused by the fault or
neglect of Tenant or Tenant's agents, employees or contractors, Yearly Rent,
Operating Expense Excess and Tax Excess shall be abated in proportion to such
untenantability from the date such notice is received Landlord until the day
such condition is completely corrected.
(d) Notwithstanding anything to the contrary in the Lease contained, if
due to any such repairs, alterations, replacements, or improvements made by
Landlord or if due to Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, or if due to the breach by
Landlord of any of its obligations under the Lease, any portion of the Premises
becomes untenantable after Landlord's receipt of written notice from Tenant of
such condition, the untenantability of which materially adversely affects the
continued operation in the ordinary course of Tenant's business, and (i) if such
untenantability continues for ninety (90) consecutive days, and (ii) such
untenantability and Landlord inability to cure such conditions is not caused by
the fault or neglect of Tenant, or Tenant's agents, employees, or contractors,
then Tenant shall have the right to terminate this Lease exercisable by giving
Landlord a written termination
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notice as follows. This Lease shall terminate as of the date ten (10) days after
Landlord's receipt of Tenant's notice, unless Landlord shall have cured such
condition on or before such tenth day.
(e) The provisions of paragraphs (b), (c) and (d) of this Article
15.6 shall not apply in the event of untenantability caused by fire or other
casualty, or taking (see Articles 18 and 20).
15.7 Landlord Indemnity of Tenant. Landlord, subject to the limitations
on Landlord's liability contained elsewhere in this Lease, agrees to hold Tenant
harmless and to defend, exonerate and indemnify Tenant from and against any and
all claims, liabilities, or penalties asserted by or on behalf of any third
party (i.e. any person, firm, corporation or public authority) for damage to
property or injuries to persons on account of or based upon any injury to
persons, or loss of or damage to property, sustained or occurring in the Park to
the extent arising from the negligence, or willful misconduct of Landlord or
Landlord's agents, employees or contractors. The provisions of this Article 15.7
shall survive any termination of the Lease.
16. ASSIGNMENT, MORTGAGING AND SUBLETTING
16.1 General Prohibition Against Transfers. Tenant shall not assign,
sublease, transfer or encumber this Lease or any interest therein or grant any
license, concession or other right of occupancy of the Premises or any portion
thereof or otherwise permit the use of the Premises or any portion thereof by
any party other than Tenant (any of which events is hereinafter called a
"Transfer") without the prior written consent of Landlord, which consent shall
not be unreasonably withheld with respect to any proposed assignment or
subletting. Landlord's consent shall not be considered unreasonably withheld if:
(1) the proposed transferee's financial responsibility does not meet the same
criteria Landlord uses to select Building tenants; (2) the proposed transferee's
business is not suitable for the Building considering the business of the other
tenants and the Building's prestige or would result in a violation of an
exclusive right granted to another tenant in the Building; (3) the proposed use
is different than the Permitted Use; (4) the proposed transferee is a government
agency or occupant of the Building; (5) Tenant is in default after the
expiration of the notice and cure periods in this Lease; or (6) any portion of
the Building or Premises would become subject to additional or different
governmental laws or regulations as a consequence of the proposed Transfer
and/or the proposed transferee's use and occupancy of the Premises. Tenant
acknowledges that the foregoing is not intended to be an exclusive list of the
reasons for which Landlord may reasonably withhold its consent to a proposed
Transfer. Any attempted Transfer in violation of the terms of this Article
shall, at Landlord's option, be void. Consent by Landlord to one or more
Transfers shall not operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without Landlord's consent,
publicly advertise the proposed rental rate for any Transfer. Notwithstanding
anything to the contrary contained herein or in Article 16.4., Tenant may assign
its entire interest under this Lease or sublet the Premises to a wholly owned
corporation, partnership or other legal entity or affiliate, subsidiary or
parent of Tenant or
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to any successor to Tenant by purchase, merger, consolidation or reorganization
(hereinafter, collectively, referred to as "Permitted Transfer") without the
consent of Landlord, provided: (i) Tenant is not in default under this Lease;
(ii) if such proposed transferee is a successor to Tenant by purchase, merger,
consolidation or reorganization, the continuing or surviving entity shall own
all or substantially all of the assets of Tenant and shall have a net worth
which is at least equal to Tenant's net worth at the date of the Transfer; (iii)
such proposed transferee operates the business in the Premises for the permitted
use and no other purpose; and (iv) in no event shall any Transfer release or
relieve Tenant from any of its obligations under this Lease. Tenant shall give
Landlord written notice at least thirty (30) days prior to the effective date of
such Permitted Transfer. As used herein: (a) "parent" shall mean a company which
owns a majority of Tenant's voting equity; (b) "subsidiary" shall mean a entity
wholly owned by Tenant or at least fifty-one percent (51%) of whose voting
equity is owned by Tenant; and (c) "affiliate" shall mean an entity controlled,
controlling or under common control with Tenant. Notwithstanding the foregoing,
sale of the shares of equity of any affiliate or subsidiary to which this Lease
has been assigned or transferred other than to another parent, subsidiary or
affiliate of the original Tenant named hereunder shall be deemed to be an
assignment requiring the consent of Landlord hereunder, except to the extent
otherwise provided in Article 16.4 of the Lease.
16.2 Landlord's Rights upon Tenant's Request for Sublet Consent. If
Tenant requests Landlord's consent to a Transfer, Tenant, together with such
request for consent, shall provide Landlord with the name of the proposed
transferee and the nature of the business of the proposed transferee, the term,
use, rental rate and all other material terms and conditions of the proposed
Transfer, including, without limitation, a copy of the proposed assignment,
sublease or other contractual documents and evidence satisfactory to Landlord
that the proposed transferee is financially responsible. Notwithstanding
Landlord's agreement to act reasonably under Article 16.1 above, Landlord may,
within thirty (30) days after its receipt of all information and documentation
required herein, either, (1) consent to or reasonably refuse to consent to such
Transfer in writing; or (2) terminate this Lease in connection with a proposed
assignment or with respect to the portion of the Premises proposed to be sublet
upon thirty (30) days' notice, in which event such termination shall not be
considered to be a default by Tenant and Landlord shall not be entitled to any
damages from Tenant on account of any termination under this Article 16.2. In
the event Landlord consents to any such Transfer, the Transfer and consent
thereto shall be in a form approved by Landlord, and Tenant shall pay Landlord a
review fee of Seven Hundred Fifty Dollars ($750.00), provided if Landlord's
actual reasonable costs and expenses (including reasonable attorneys' fees)
exceed $750.00, Tenant shall reimburse Landlord for its actual reasonable costs
and expenses in lieu of a fixed review fee.
16.3 Transfer Consideration. Fifty (50%) percent of all cash or other
proceeds (the "Transfer Consideration") of any Transfer of Tenant's interest in
this Lease and/or the Premises, whether consented to by Landlord or not, shall
be paid to Landlord and Tenant hereby assigns all rights it might have or ever
acquire in any such proceeds to Landlord. In addition to the Rent hereunder,
Tenant hereby covenants and agrees to pay
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to Landlord fifty (50%) percent of all rent and other consideration which it
receives which is in excess of the Rent payable hereunder within ten (10) days
following receipt thereof by Tenant. Tenant may, prior to paying Landlord any
Transfer Consideration, deduct from the excess all reasonable and customary
expenses directly incurred by Tenant attributable to the Transfer including
brokerage fees, legal fees and construction costs. In addition to any other
rights Landlord may have, Landlord shall have the right to contact any
transferee and require that all payments made pursuant to the Transfer shall be
made directly to Landlord.
16.4 Transfer of Beneficial Interests in Tenant. If Tenant is a
corporation, limited liability company or similar entity, and if at any time
during the Lease Term the entity or entities who own the voting shares at the
time of the execution of this Lease cease for any reason (including but not
limited to merger, consolidation or other reorganization involving another
corporation) to own a majority of such shares, or if Tenant is a partnership and
if at any time during the Lease Term the general partner or partners who own the
general partnership interests in the partnership at the time of the execution of
this Lease, cease for any reason to own a majority of such interests (except as
the result of transfers by gift, bequest or inheritance to or for the benefit of
members of the immediate family of such original shareholder[s] or partner[s]),
such an event shall be deemed to be a Transfer. The preceding sentence shall not
apply whenever Tenant is a corporation, the outstanding stock of which is listed
on a recognized security exchange, or if at least eighty percent (80%) of its
voting stock is owned by another corporation, the voting stock of which is so
listed.
16.5 Effect of Landlord's Consent to Transfer. Any Transfer consented
to by Landlord in accordance with this Article 16 shall be only for the
Permitted Use and for no other purpose. In no event shall any Transfer release
or relieve Tenant from any obligations under this Lease.
17. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
17.1 Rules and Regulations. Tenant will faithfully observe and comply
with the Rules and Regulations (if any) annexed hereto, and such other and
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant, which in
the reasonable judgment of Landlord shall be necessary for the reputation,
safety, care or appearance of the Building and/or the Park, or the preservation
of good order therein, or the operation or maintenance of the Building and/or
the Park, or the equipment thereof, or the comfort of tenants or others in the
Park, provided, however, that in the case of any conflict between the provisions
of this Lease and any such Rules and Regulations, the provisions of this Lease
shall control, and provided further that nothing contained in this Lease shall
be construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or the terms, covenants or conditions in any other lease as
against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other
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tenant, its servants, employees, agents, contractors, visitors, invitees or
licensees. In no event shall any rules and regulations discriminate against
Tenant in enforcement or effect (i.e., the Rules and Regulations shall be the
same for all tenants of the Park with similar uses). Notwithstanding anything to
the contrary in this Lease contained, Landlord agrees that it will not enforce
said Rules and Regulations against Tenant in a discriminatory or arbitrary
manner.
17.2 Access to Premises--Shoring. Subject to Article 2.4 and 10,
Tenant shall: (i) permit Landlord to erect, use and maintain pipes, ducts and
conduits in and through the Premises, provided the same do not materially reduce
the floor area, materially adversely affect the appearance thereof, or
materially adversely affect Tenant's use of the Premises; (ii) permit Landlord
and any mortgagee of the Building and/or the Park or of the interest of Landlord
therein, and any lessor under any ground or underlying lease, and their
representatives, to have free and unrestricted access to and to enter upon the
Premises at all reasonable hours for the purposes of inspection or of making
repairs, replacements or improvements in or to the Premises or the Building
and/or the Park or equipment (including, without limitation, sanitary,
electrical, heating, air conditioning or other systems) or of complying with all
laws, orders and requirements of governmental or other authority or of
exercising any right reserved to Landlord by this Lease (including the right
during the progress of any such repairs, replacements or improvements or while
performing work and furnishing materials in connection with compliance with any
such laws, orders or requirements to take upon or through, or to keep and store
within, the Premises all necessary materials, tools and equipment); and (iii)
permit Landlord, at reasonable times, to show the Premises during ordinary
business hours to any existing or prospective mortgagee, ground lessor, space
lessee, purchaser, or assignee of any mortgage, of the Building and/or the Park
and the land or of the interest of Landlord therein, and during the period of 12
months next preceding the Termination Date to any person contemplating the
leasing of the Premises or any part thereof. If, during the last month of the
term, Tenant shall have removed all or substantially all of Tenant's property
therefrom, Landlord may immediately enter and alter, renovate and redecorate the
Premises, without elimination or abatement of rent, or incurring liability to
Tenant for any compensation, and such acts shall have no effect upon this Lease.
In an emergency, if Tenant shall not be personally present to open and permit an
entry into the Premises, Landlord or Landlord's agents may enter the same by a
master key, or may forcibly enter the same, without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property), and without in any manner
affecting the obligations and covenants of this Lease. Landlord shall exercise
its rights of access to the Premises permitted under any of the terms and
provisions of this Lease in such manner as to minimize to the extent practicable
interference with Tenant's use and occupation of the Premises. If an excavation
shall be made upon land adjacent to the Premises or shall be authorized to be
made, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Premises for the purpose of doing such
work as said person shall deem necessary to preserve the Building from injury or
damage and to support the same by proper foundations without any claims for
damages or indemnity against Landlord, or
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diminution or abatement of rent (subject, however, to the provisions of Articles
8.8, 15.4, 15.5, and 15.6 of this Lease).
17.3 Accidents to Sanitary and Other Systems. Tenant shall give to
Landlord prompt notice of any fire or casualty in the Premises or in the
Building and of any damage to, or defective condition in, any part or
appurtenance of the Building including, without limitation, sanitary,
electrical, heating and air conditioning or other systems located in, or passing
through, the Premises of which it has actual knowledge. Tenant shall not be
required to give Landlord notice of accidents which are covered by Workers
Compensation laws. Except as otherwise provided in Articles 18, 19 and 20, and
subject to Tenant's obligations in Article 14, such damage or defective
condition shall be remedied by Landlord with reasonable diligence, but if such
damage or defective condition was caused by Tenant or by the employees,
licensees, contractors or invitees of Tenant, the cost to remedy the same shall
be paid by Tenant. Subject to the provisions of Articles 8.8, 15.4, 15.5, and
15.6 of this Lease, Tenant shall not be entitled to claim any eviction from the
Premises or any damages arising from any such damage or defect unless the same
(i) shall have been occasioned by the negligence of the Landlord, its agents,
servants or employees and (ii) shall not, after notice to Landlord of the
condition claimed to constitute negligence, have been cured or corrected within
a reasonable time after such notice has been received by Landlord; and in case
of a claim of eviction unless such damage or defective condition shall have
rendered the Premises untenantable and they shall not have been made tenantable
by Landlord within a reasonable time.
17.4 Signs, Blinds and Drapes. Tenant shall put no signs in any part
of the Building or the Park, but Tenant shall be identified on a ground-mounted
sign located outside the Building entrance as well as on the lobby directory, on
sign panels installed by Landlord at Tenant's expense, subject to any unused
portion of Landlord's Contribution or Landlord's HVAC Contribution. No signs may
be put on or in any window or elsewhere if visible from the exterior of the
Building. Tenant may hang its own drapes or blinds, provided that they shall not
in any way interfere with the building standard drapery or blinds or be visible
from the exterior of the Building and that such drapes are so hung and installed
that when drawn, the building standard drapery or blinds are automatically also
drawn.
17.5 Estoppel Certificate. Each party ("Responding Party") shall at
any time and from time to time upon not less than ten (10) days' prior notice
from the other party ("Requesting Party"), execute, acknowledge and deliver to
the Requesting Party a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), and the dates to which the Yearly Rent and other charges have
been paid in advance, if any, stating whether or not the Requesting Party is in
default in performance of any covenant, agreement, term, provision or condition
contained in this Lease and, if so, specifying each such default and such other
facts as the Requesting Party may reasonably request, it being intended that any
such statement delivered pursuant hereto may be relied upon by any prospective
purchaser of the Building or of the Building and the land or of any interest of
Landlord therein, any
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mortgagee or prospective mortgagee thereof, any lessor or prospective lessor
thereof, any lessee or prospective lessee thereof, or any prospective assignee
of any mortgage thereof, or any prospective subtenant or assignee. Time is of
the essence in respect of any such requested certificate, each party hereby
acknowledging the importance of such certificates in mortgage financing
arrangements, prospective sale and the like.
17.6 Prohibited Materials and Property. Tenant shall not bring or
permit to be brought or kept in or on the Premises or elsewhere in the Building
or the Park any unique, unusually valuable, rare or exotic property, work of art
or the like unless the same is fully insured under all-risk coverage. Nor shall
Tenant cause or permit any odors of cooking or other processes, or any unusual
or other objectionable odors to emanate from or permeate the Premises.
17.7 Requirements of Law--Fines and Penalties.
(a) Subject to the provisions of this Article 17.7, Tenant at its
sole expense shall comply with all laws, rules, orders and regulations,
including, without limitation, all energy-related requirements, of Federal,
State, County and Municipal Authorities and with any direction of any public
officer or officers, pursuant to law (collectively "Laws"), which shall impose
any duty upon Landlord or Tenant with respect to or arising out of Tenant's
particular use or occupancy of the Premises. If Tenant receives notice of any
violation of law, ordinance, order or regulation applicable to the Premises, it
shall give prompt notice thereof to Landlord.
(b) Landlord shall comply with all Laws relating to the performance
of Landlord Work. Landlord, subject to inclusion of the cost of compliance as
Operating Costs in accordance with the provisions of Article 9.1(g) of this
Lease, shall comply with (i) all Laws which relate to the structure of the
Building, unless the need for such compliance arises from Tenant's particular
use of the Premises, and (ii) all other Laws applicable to the Park other than
those Laws for which Tenant is responsible pursuant to Article 17.7(a) above.
(c) Except as otherwise disclosed on Exhibit 4, Landlord represents
and warrants to Tenant that, to the best of Landlord's knowledge, the Park is,
as of the Execution Date, in compliance with all applicable laws.
(d) Landlord shall comply with the Americans with Disabilities Act of
1990, and the rules and regulations promulgated thereunder ("ADA") so far as
they relate to the parking areas, other common areas of the Park, and Landlord's
Work, including, without limitation, the exterior of the building, the bathrooms
located in the Building on the Term Commencement Date, and the elevators in the
Building. Operating Costs shall not include any costs incurred by Landlord in
order to bring the parking and other common areas of the Park, other buildings
in the Park, or the Landlord's Work into compliance with the ADA, as amended
through the Execution Date (including any regulations promulgated through the
Execution Date). Tenant shall be responsible for all costs of
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bringing the Premises (excluding any portions constructed by Landlord in the
performance of Landlord's Work) into compliance with ADA.
17.8 Tenant's Acts--Effect on Insurance. Tenant shall not knowingly do
or permit to be done any act or thing upon the Premises or elsewhere in the
Building or the Park which Tenant knows will invalidate or be in conflict with
any insurance policies covering the Building, the Park and the fixtures and
property therein; and shall not do, or permit to be done, any act or thing upon
the Premises which shall subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on upon said Premises or for any other reason. Tenant at
its own expense shall comply with all rules, orders, regulations and
requirements of the Board of Fire Underwriters, or any other similar body having
jurisdiction, and shall not (i) do, or permit anything to be done, in or upon
the Premises, or bring or keep anything therein, except as now or hereafter
permitted by the Fire Department, Board of Underwriters, Fire Insurance Rating
Organization, or other authority having jurisdiction, and then only in such
quantity and manner of storage as will not increase the rate for any insurance
applicable to the Building and/or the Park, or (ii) use the Premises in a manner
which shall increase such insurance rates on the Building, the Park or on
property located therein, over that applicable when Tenant first took occupancy
of the Premises hereunder. If by reason of the failure of Tenant to comply with
the provisions hereof the insurance rate applicable to any policy of insurance
shall at any time thereafter be higher than it otherwise would be, the Tenant
shall reimburse Landlord for that part of any insurance premiums thereafter paid
by Landlord, which shall have been charged because of such failure by Tenant.
Landlord represents to Tenant that the use permitted hereunder as described on
Exhibit 1 (as opposed to the actual manner and method of Tenant's particular
use) will not cause an increase in Landlord's insurance premiums.
17.9 Miscellaneous. Tenant shall not suffer or permit the Premises or
any Landlord fixtures, equipment or utilities therein or serving the same, to be
overloaded, damaged or defaced, nor permit any hole to be drilled or made in any
part thereof. Tenant shall not suffer or permit any employee, contractor,
business invitee or visitor to violate any covenant, agreement or obligations of
the Tenant under this Lease.
18. DAMAGE BY FIRE, ETC.
18.1 Casualty Insurance. During the entire term of this Lease, and
adjusting insurance coverages to reflect current values from time to time: (i)
so long as the same is available at commercially reasonable rates, Landlord
shall maintain so called All Risk property insurance on the Building at
replacement cost value, as reasonably estimated by Landlord (excluding any
alterations, installations or additions made by Tenant and any other property
installed by or at the expense of Tenant [referred to collectively herein as
"Above Base Building Work"]); and (ii) Tenant shall keep its personal property
in and about the Premises and any other property installed by or at the expense
of Tenant insured against loss or damage caused by any peril covered under fire,
extended coverage and all risk insurance in an amount equal to ninety percent
(90%) of the full replacement
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cost thereof. Such Tenant's insurance shall insure the interests of both
Landlord and Tenant as their respective interests may appear from time to time
and shall name Landlord as an additional insured with respect to the leasehold
improvements made by or at the expense of Tenant; and the proceeds thereof shall
be used only for the replacement or restoration of the Above Base Building Work.
18.2 Repair of Damage Caused by Casualty. If any portion of the
Premises required to be insured by Landlord under Article 18.1 shall be damaged
by fire or other insured casualty, Landlord shall proceed with diligence,
subject to the then applicable statutes, building codes, zoning ordinances, and
regulations of any governmental authority, and at the expense of Landlord (but
only to the extent of insurance proceeds made available to Landlord by any
mortgagee and/or ground lessor of the real property of which the Premises are a
part) to repair or cause to be repaired such damage, provided, however, that any
repairs to Above Base Building Work or other property installed by Tenant which
is damaged by such fire or other casualty which (in the reasonable judgment of
Landlord) can more effectively be repaired as an integral part of Landlord's
repair work on the Premises, such repairs shall be performed by Landlord but at
Tenant's expense; in all other respects, all repairs to and replacements of
Above Base Building Work and such other property shall be made by and at the
expense of Tenant. If the Premises or any part thereof shall have been rendered
unfit for use and occupation hereunder by reason of such damage the Yearly Rent
and other charges or a just and proportionate part thereof, according to the
nature and extent to which the Premises shall have been so rendered unfit, shall
be suspended or abated until the earlier of: (x) ninety (90) days after the
Premises (except as to the property which is to be repaired by or at the expense
of Tenant) shall have been restored as nearly as practicably may be to the
condition in which they were immediately prior to such fire or other casualty,
or (y) the date that Tenant first recommences its use and occupancy of the
Premises or any portion thereof. Tenant agrees to cooperate with Landlord and
Landlord's Mortgagee in such manner as Landlord may reasonably request in
assisting Landlord and Landlord's Mortgagee in collecting insurance proceeds
(including rent insurance proceeds) due in connection with any casualty
affecting the Premises. Landlord shall not be liable for delays in the making of
any such repairs which are due to government regulation, casualties and strikes,
unavailability of labor and materials, and other causes beyond the reasonable
control of Landlord (financial inability shall not be deemed to constitute
causes beyond Landlord's reasonable control), nor shall Landlord be liable for
any inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting from delays in repairing such damage.
18.3 Landlord's Termination Rights. If (i) the Premises are so damaged
by fire or other casualty (whether or not insured) at any time during the last
twelve (12) months of the term hereof that the cost to repair such damage is
reasonably estimated to exceed one-half of the total Yearly Rent payable
hereunder for the period from the estimated date of restoration until the
Termination Date, or (ii) the Building or the Park is so damaged by fire or
other casualty (whether or not insured) that substantial alteration or
reconstruction or demolition of the Building shall in Landlord's good faith
judgment be required, then and in either of such events, this Lease and the term
hereof may be
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terminated at the election of Landlord by a notice in writing of its election so
to terminate which shall be given by Landlord to Tenant within thirty (30) days
following such fire or other casualty, the effective termination date of which
shall be not less than thirty (30) days after the day on which such termination
notice is received by Tenant. Notwithstanding the foregoing, Landlord will not
be entitled to terminate this Lease solely because there is less than two (2)
years on the Lease Term if Tenant has an exercisable right to renew or extend
the term of the Lease and Tenant, within ten (10) days after receipt of
Landlord's notice of termination, validly exercises such right. The foregoing
shall not prohibit Landlord from exercising its right to terminate for any of
the other reasons set forth herein.
18.4 Tenant's Termination Right.
(a) Tenant shall have the right to terminate this Lease if all of the
following conditions occur: (1) a substantial portion of the Premises has been
damaged by fire or other casualty and such damage cannot reasonably be repaired
within sixty (60) days after the date of such fire or other casualty; and (2)
there is less than one (1) year of the term of the Lease remaining on the date
of such casualty; and (3) the casualty was not caused by the negligence or
willful misconduct of Tenant or its agents, employees or contractors; and (4)
Tenant provides Landlord with written notice of its intent to terminate within
thirty (30) days after the date of the fire or other casualty.
(b) If any portion of the Premises or any portion of the Building
shall be damaged or destroyed by fire or other casualty to the extent that the
operation of Tenant's business in the Premises in the normal course is
materially adversely affected, then, within thirty (30) days of such fire or
other casualty, Landlord shall submit to Tenant a reasonable engineering
estimate as to the estimated length of time to complete such repairs. If the
time period ("Estimated Restoration Period") set forth in such estimate shall
exceed two hundred seventy (270) days of the date of such casualty, Tenant may
elect, by a notice sent within fifteen (15) days after notice of such estimate
is sent to Tenant, to terminate this Lease. If such estimate shall fall within
the 270-day limit, Tenant shall have no such right to terminate and Landlord
shall, subject to the provisions of this Article 18, proceed with due diligence
and promptness to reasonably complete the repairs or restoration within such two
hundred seventy (270) days, subject always to delays for causes beyond
Landlord's reasonable control including, but not limited to the causes specified
in Article 26 hereof, and the other limitations set forth in this Article 18.
(c) In the event that the Premises or the Building are damaged by
fire or other casualty to such an extent so as to render the Premises
untenantable, and if Landlord shall fail to substantially complete said repairs
or restoration within two hundred seventy (270) days after the date of such fire
or other casualty for any reason other than Tenant's fault, Tenant may terminate
this Lease by giving Landlord written notice as follows:
(i) Said notice shall be given after said two hundred seventy day
period.
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(ii) Said notice shall set forth an effective date which is not
earlier than thirty (30) days after Landlord receives said
notice.
(iii) If said repairs or restoration are substantially complete
on or before the date thirty (30) days (which thirty-(30)-day
period shall be extended by the length of any delays caused by
Tenant or Tenant's contractors) after Landlord receives such
notice, said notice shall have no further force and effect.
(iv) If said repairs or restoration are not substantially
complete on or before the date thirty (30) days (which
thirty-(30)-day period shall be extended by the length of any
delays caused by Tenant or Tenant's contractors) after Landlord
receives such notice, the Lease shall terminate as of said
effective date.
18.5 General Provisions Relating to Any Casualty Termination.
In the event of any termination, this Lease and the term hereof shall
expire as of such effective termination date as though that were the Termination
Date as stated in Exhibit 1 and the Yearly Rent and other charges payable under
this Lease shall be apportioned as of such date; and if the Premises or any part
thereof shall have been rendered unfit for use and occupation by reason of such
damage the Yearly Rent and other charges for the period from the date of the
fire or other casualty to the effective termination date, or a just and
proportionate part thereof, according to the nature and extent to which the
Premises shall have been so rendered unfit, shall be abated.
19. WAIVER OF SUBROGATION
Notwithstanding anything set forth in this Lease to the contrary,
Landlord and Tenant do hereby waive any and all right of recovery, claim, action
or cause of action against the other, their respective principals,
beneficiaries, partners, officers, directors, agents, and employees, and, with
respect to Landlord, its Mortgagee(s), for any loss or damage that may occur to
Landlord or Tenant or any party claiming by, through or under Landlord or
Tenant, as the case may be, with respect to their respective property, the
Building or the Premises or any addition or improvements thereto, or any
contents therein, by reason of fire, the elements or any other cause, regardless
of cause or origin, including the negligence of Landlord or Tenant, or their
respective principals, beneficiaries, partners, officers, directors, agents and
employees and, with respect to Landlord, its Mortgagee(s), which loss or damage
is (or would have been, had the insurance required by this Lease been carried)
covered by insurance. Since this mutual waiver will preclude the assignment of
any such claim by subrogation (or otherwise) to an insurance company (or any
other person), Landlord and Tenant each agree to give each insurance company
which has issued, or in the future may issue, policies of insurance, with
respect to the items covered by this waiver, written notice of the terms of this
mutual waiver, and to have such insurance policies properly endorsed, if
necessary,
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to prevent the invalidation of any of the coverage provided by such insurance
policies by reason of such mutual waiver. For the purpose of the foregoing
waiver, the amount of any deductible applicable to any loss or damage shall be
deemed covered by, and recoverable by the insured under the insurance policy to
which such deductible relates. In the event that Tenant is permitted to and
self-insures any risk which would have been covered by the insurance required to
be carried by Tenant pursuant to Article 18 of the Lease, or if Tenant fails to
carry any insurance required to be carried by Tenant pursuant to Article 18 of
this Lease, then all loss or damage to Tenant, its leasehold interest, its
business, its property, the Premises or any additions or improvements thereto or
contents thereof shall be deemed covered by and recoverable by Tenant under
valid and collectible policies of insurance.
20. CONDEMNATION - EMINENT DOMAIN
20.1 Landlord's Termination Rights. In the event that the Premises or
any part thereof, or the whole or any material part of the Park, shall be taken
or appropriated by eminent domain or shall be condemned for any public or
quasi-public use, or (by virtue of any such taking, appropriation or
condemnation) shall suffer any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation, so that, in
Landlord's bona fide business judgment, the continued operation of the Park
shall be rendered uneconomic, then (and in any such event) this Lease and the
term hereof may be terminated at the election of Landlord by a notice in writing
of its election so to terminate which shall be given by Landlord to Tenant
within sixty (60) days following the date on which Landlord shall have received
notice of such taking, appropriation or condemnation. Such termination shall be
effective in accordance with Article 20.3.
20.2 Tenant's Termination Rights. In the event that a material part of
the Premises, the means of access thereto, or the Parking Areas shall be so
taken, appropriated or condemned, so that, in Tenant's bona fide business
judgment, the continued operation of Tenant's business in the Premises is
materially adversely affected, then (and in any such event) this Lease and the
term hereof may be terminated at the election of Tenant by a notice in writing
of its election so to terminate which shall be given by Tenant to Landlord
within sixty (60) days following the date on which Tenant shall have received
notice of such taking, appropriation or condemnation. Such termination shall be
effective in accordance with Article 20.3.
20.3 General Taking Provisions. Upon the giving of any notice of
termination (either by Landlord or Tenant) this Lease and the term hereof shall
terminate on or retroactively as of the date on which Tenant shall be required
to vacate any part of the Premises or shall be deprived of a substantial part of
the means of access thereto, provided, however, that Landlord may in Landlord's
notice elect to terminate this Lease and the term hereof retroactively as of the
date on which such taking, appropriation or condemnation became legally
effective. In the event of any such termination, this Lease and the term hereof
shall expire as of such effective termination date as though that were the
Termination Date as stated in Exhibit 1, and the Yearly Rent shall be
apportioned as
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of such date. If neither party (having the right so to do) elects to terminate
Landlord will, with reasonable diligence and at Landlord's expense, restore the
remainder of the Premises, or the remainder of the means of access, as nearly as
practicably may be to the same condition as obtained prior to such taking,
appropriation or condemnation in which event (i) the Total Rentable Area shall
be adjusted as in Exhibit 5 provided, (ii) a just proportion of the Yearly Rent,
according to the nature and extent of the taking, appropriation or condemnation
and the resulting permanent injury to the Premises and the means of access
thereto, shall be permanently abated, and (iii) a just proportion of the
remainder of the Yearly Rent, according to the nature and extent of the taking,
appropriation or condemnation and the resultant injury sustained by the Premises
and the means of access thereto, shall be abated until what remains of the
Premises and the means of access thereto shall have been restored as fully as
may be for permanent use and occupation by Tenant hereunder.
20.4 Taking Proceeds. Except for any award specifically reimbursing
Tenant for moving or relocation expenses, there are expressly reserved to
Landlord all rights to compensation and damages created, accrued or accruing by
reason of any such taking, appropriation or condemnation, in implementation and
in confirmation of which Tenant does hereby acknowledge that Landlord shall be
entitled to receive all such compensation and damages, grant to Landlord all and
whatever rights (if any) Tenant may have to such compensation and damages, and
agree to execute and deliver all and whatever further instruments of assignment
as Landlord may from time to time request.
20.5 Temporary Takings. In the event of any taking of the Premises or
any part thereof for temporary use (i.e. not in excess of two hundred
twenty-five days): (i) this Lease shall be and remain unaffected thereby, and
(ii) Tenant shall be entitled to receive for itself any award made for such use,
provided, that if any taking is for a period extending beyond the term of this
Lease, such award shall be apportioned between Landlord and Tenant as of the
Termination Date or earlier termination of this Lease.
21. DEFAULT
21.1 Conditions of Limitation - Re-entry - Termination. This Lease and
the herein term and estate are, upon the condition that if (a) subject to
Article 21.7, Tenant shall neglect or fail to perform or observe any of the
Tenant's covenants or agreements herein, including (without limitation) the
covenants or agreements with regard to the payment when due of Rent, additional
charges, reimbursement for increase in Landlord's costs, or any other charge
payable by Tenant to Landlord in accordance with the provisions of this Lease
(all of which shall be considered as part of Rent for the purposes of invoking
Landlord's statutory or other rights and remedies in respect of payment
defaults); or (b) Tenant shall be involved in financial difficulties as
evidenced by an admission in writing by Tenant of Tenant's inability to pay its
debts generally as they become due, or by the making or offering to make a
composition of its debts with its creditors; or (c) Tenant shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature, of
all or a substantial part of its property for the benefit of its creditors, or
(d) the leasehold hereby created shall be taken on execution or by other
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process of law and shall not be revested in Tenant within thirty (30) days
thereafter; or (e) a receiver, sequesterer, trustee or similar officer shall be
appointed by a court of competent jurisdiction to take charge of all or any part
of Tenant's property and such appointment shall not be vacated within ninety
(90) days; or (f) any proceeding shall be instituted by or against Tenant
pursuant to any of the provisions of any Act of Congress or State law relating
to bankruptcy, reorganizations, arrangements, compositions or other relief from
creditors, and, in the case of any proceeding instituted against it, if Tenant
shall fail to have such proceedings dismissed within ninety (90) days or if
Tenant is adjudged bankrupt or insolvent as a result of any such proceeding, or
(g) any event shall occur or any contingency shall arise whereby this Lease, or
the term and estate thereby created, would (by operation of law or otherwise)
devolve upon or pass to any person, firm or corporation other than Tenant,
except as expressly permitted under Article 16 hereof - then, and in any such
event (except as hereinafter in Article 21.2 otherwise provided) Landlord may,
by notice to Tenant, elect to terminate this Lease; and thereupon (and without
prejudice to any remedies which might otherwise be available for arrears of rent
or other charges due hereunder or preceding breach of covenant or agreement and
without prejudice to Tenant's liability for damages as hereinafter stated), upon
the giving of such notice, this Lease shall terminate as of the date specified
therein as though that were the Termination Date as stated in Exhibit 1. Without
being taken or deemed to be guilty of any manner of trespass or conversion, and
without being liable to indictment, prosecution or damages therefor, Landlord
may, forcibly if necessary, enter into and upon the Premises (or any part
thereof in the name of the whole); repossess the same as of its former estate;
and expel Tenant and those claiming under Tenant. Wherever "Tenant " is used in
subdivisions (b), (c), (e) and (f) of this Article 21.1, it shall be deemed to
include any guarantor of any of Tenant's obligations under this Lease. The words
"re-entry" and "re-enter" as used in this Lease are not restricted to their
technical legal meanings.
21.2 Damages - Assignment for Benefit of Creditors. For the more
effectual securing to Landlord of the rent and other charges and payments
reserved hereunder, it is agreed as a further condition of this Lease that if at
any time Tenant shall make any transfer similar to or in the nature of an
assignment of its property for the benefit of its creditors, the term and estate
hereby created shall terminate ipso facto, without entry or other action by
Landlord; and notwithstanding any other provisions of this Lease, Landlord shall
forthwith upon such termination, without prejudice to any remedies which might
otherwise be available for arrears of rent or other charges due hereunder or
preceding breach of this Lease, be ipso facto entitled to recover as liquidated
damages the sum of (a) the amount described in clause (x) of Article 21.3 and
(b) (in view of the uncertainty of prompt re-letting and the expense entailed in
re-letting the Premises) an amount equal to the rent and other charges payable
for and in respect of the twelve-(12)-month period next preceding the date of
termination, as aforesaid.
21.3 Damages - Termination.
(a) Upon the termination of this Lease under the provisions of this
Article 21, then except as hereinabove in Article 21.2 otherwise provided,
Tenant shall pay to Landlord the Rent and other charges payable by Tenant to
Landlord up to the time of
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such termination, shall continue to be liable for any preceding breach of
covenant, and in addition, shall pay to Landlord as damages, at the election of
Landlord
either:
(x) the amount (discounted to present value) by which, at the
time of the termination of this Lease (or at any time thereafter if
Landlord shall have initially elected damages under subparagraph (y),
below), (i) the aggregate of the Rent and other charges projected over
the period commencing with such termination and ending on the
Termination Date as stated in Exhibit 1 exceeds (ii) the aggregate Fair
Market Rental Value of the Premises for such period;
or:
(y) amounts equal to the Rent and other charges which would have
been payable by Tenant had this Lease not been so terminated, payable
upon the due dates therefor specified herein following such termination
and until the Termination Date as specified in Exhibit 1, provided,
however, if Landlord shall re-let the Premises during such period, that
Landlord shall credit Tenant with the net rents received by Landlord
from such re-letting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from
such re-letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting,
including altering and preparing the Premises for new tenants, brokers'
commissions, and all other similar and dissimilar expenses properly
chargeable against the Premises and the rental therefrom, it being
understood that any such re-letting may be for a period equal to or
shorter or longer than the remaining term of this Lease; and provided,
further, that (i) in no event shall Tenant be entitled to receive any
excess of such net rents over the sums payable by Tenant to Landlord
hereunder and (ii) in no event shall Tenant be entitled in any suit for
the collection of damages pursuant to this Subparagraph (y) to a credit
in respect of any net rents from a re-letting except to the extent that
such net rents are actually received by Landlord prior to the
commencement of such suit. If the Premises or any part thereof should
be re-let in combination with other space, then proper apportionment on
a square foot area basis shall be made of the rent received from such
re-letting and of the expenses of re-letting.
In calculating the Rent and other charges under Subparagraph (x), above, there
shall be included, in addition to the Yearly Rent, Tax Excess and Operating
Expense Excess and all other considerations agreed to be paid or performed by
Tenant, on the assumption that all such amounts and considerations would have
remained constant (except as herein otherwise provided) for the balance of the
full term hereby granted.
(b) Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained
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herein shall be deemed to require Landlord to postpone suit until the date when
the term of this Lease would have expired if it had not been terminated
hereunder.
(c) Nothing herein contained shall be construed as limiting or
precluding the recovery by Landlord against Tenant of any sums or damages to
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
(d) Landlord agrees to use reasonable efforts to relet the Premises
after Tenant vacates the Premises in the event that the Lease is terminated
based upon a default by Tenant hereunder. Marketing of Tenant's Premises in a
manner similar to the manner in which Landlord markets other Premises within
Landlord's control in the Park shall be deemed to have satisfied Landlord's
obligation to use "reasonable efforts." In no event shall Landlord be required
to (i) solicit or entertain negotiations with any other prospective tenants for
the Premises until Landlord obtains full and complete possession of the Premises
including, without limitation, the final and unappealable legal right to re-let
the Premises free of any claim of Tenant, (ii) relet the Premises before leasing
other vacant space in the Park, and (iii) lease the Premises for a rental less
than the current fair market rental then prevailing for similar space in the
Park.
21.4 Fees and Expenses.
(a) Landlord's Self Help. If Tenant shall default in the performance
of any covenant on Tenant's part to be performed as in this Lease contained,
Landlord may, upon thirty (30) days prior written notice to Tenant (except that,
in emergency situations, no notice shall be required) perform the same for the
account of Tenant. If Landlord at any time is compelled to pay or elects to pay
any sum of money, or do any act which will require the payment of any sum of
money, by reason of the failure of Tenant to comply with any provision hereof,
or if Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting, and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant shall
on demand pay to Landlord by way of reimbursement the sum or sums reasonably
paid by Landlord with all costs and damages, plus (if applicable) interest
computed as provided in Article 6 hereof.
(b) In the event of any litigation between Landlord and Tenant, the
losing party shall reimburse the prevailing party for its reasonable attorneys
fees and costs incurred in connection with such litigation.
21.5 Waiver of Redemption. Intentionally Omitted.
21.6 Remedies Not Exclusive. Unless otherwise specified in this Lease,
the specified remedies to which Landlord may resort hereunder are cumulative and
are not intended to be exclusive of any remedies or means of redress to which
Landlord may at any time be lawfully entitled, and either party may invoke any
remedy (including the
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remedy of specific performance) allowed at law or in equity as if specific
remedies were not herein provided for.
21.7 Grace Period. Notwithstanding anything to the contrary in this
Lease contained, Landlord agrees not to take any action to terminate this Lease
(a) for default by Tenant in the payment when due of any sum of money, if Tenant
shall cure such default within ten (10) days after written notice thereof is
given by Landlord to Tenant, provided, however, that no such notice need be
given and no such default in the payment of money shall be curable if on two (2)
prior occasions in the same twelve month period, there had been a default in the
payment of money which had been cured after notice thereof had been given by
Landlord to Tenant as herein provided or (b) for default by Tenant in the
performance of any covenant other than a covenant to pay a sum of money, if
Tenant shall cure such default within a period of thirty (30) days after written
notice thereof given by Landlord to Tenant (except where the nature of the
default is such that remedial action should appropriately take place sooner, as
indicated in such written notice), or within such additional period as may
reasonably be required to cure such default if (because of governmental
restrictions or any other cause beyond the reasonable control of Tenant) the
default is of such a nature that it cannot be cured within such thirty-(30)-day
period, provided, however, (1) that there shall be no extension of time beyond
such thirty-(30)-day period for the curing of any such non-monetary default
unless, not more than twenty (20) days after the receipt of the notice of
default, Tenant in writing (i) shall specify the cause on account of which the
default cannot be cured during such period and shall advise Landlord of its
intention duly to institute all steps necessary to cure the default and (ii)
shall, as soon as reasonably practicable, duly institute and thereafter
diligently prosecute to completion all steps necessary to cure such default and,
(2) that no notice of the opportunity to cure a non-monetary default need be
given, and no grace period whatsoever shall be allowed to Tenant, if the
condition on which Landlord seeks to terminate this Lease is based upon
subdivisions (b), (c), (d), (e), (f) or (g) of Article 21.1.
22. END OF TERM - ABANDONED PROPERTY
(a) Upon the expiration or other termination of the term of this
Lease, Tenant shall peaceably quit and surrender to Landlord the Premises and
all alterations and additions thereto, broom clean, in good order, repair and
condition (except as provided herein and in Articles 8.7, 18 and 20) excepting
only ordinary wear and use and damage by fire or other casualty for which, under
other provisions of this Lease, Tenant has no responsibility of repair or
restoration. Subject to Article 12, Tenant shall remove all of its property and,
to the extent specified by Landlord, all alterations and additions made by
Tenant and all partitions wholly within the Premises, and shall repair any
damages to the Premises, the Park or the Building caused by their installation
or by such removal. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease.
(b) Tenant will remove any personal property from the Building, the
Park and the Premises upon or prior to the expiration or termination of this
Lease and any such
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property which shall remain in the Building or the Premises thereafter shall be
conclusively deemed to have been abandoned, and may either be retained by
Landlord as its property or sold or otherwise disposed of in such manner as
Landlord may see fit. If any part thereof shall be sold, Landlord may receive
and retain the proceeds of such sale and apply the same, at its option, against
the expenses of the sale, the cost of moving and storage, any arrears of Yearly
Rent, additional or other charges payable hereunder by Tenant to Landlord and
any damages to which Landlord may be entitled under Article 21 hereof or
pursuant to law.
(c) If Tenant or anyone claiming under Tenant shall remain in
possession of the Premises or any part thereof after the expiration or prior
termination of the term of this Lease without any agreement in writing between
Landlord and Tenant with respect thereto, then, prior to the acceptance of any
payments for rent or use and occupancy by Landlord, the person remaining in
possession shall be deemed a tenant-at-sufferance. Whereas the parties hereby
acknowledge that Landlord may need the Premises after the expiration or prior
termination of the term of the Lease for other tenants and that the damages
which Landlord may suffer as the result of Tenant's holding-over cannot be
determined as of the Execution Date hereof, in the event that Tenant so holds
over, Tenant shall pay to Landlord in addition to all rental and other charges
due and accrued under the Lease prior to the date of termination, charges (based
upon fair market rental value of the Premises) for use and occupation of the
Premises thereafter and, in addition to such sums and any and all other rights
and remedies which Landlord may have at law or in equity, an additional use and
occupancy charge in the amount of fifty percent (50%) of either the Yearly Rent
and other charges calculated (on a daily basis) at the highest rate payable
under the terms of this Lease, but measured from the day on which Tenant's
hold-over commenced and terminating on the day on which Tenant vacates the
Premises or the fair market value of the Premises for such period, whichever is
greater. In addition, if Landlord is unable to deliver possession of the
Premises to a new tenant, or to perform improvements for a new tenant, as a
result of Tenant's holdover and Tenant fails to vacate the Premises within 15
days after Landlord notifies Tenant of Landlord's inability to deliver
possession or perform improvements, Tenant shall save Landlord, its agents and
employees, harmless and will exonerate, defend and indemnify Landlord, its
agents and employees, from and against any and all damages which Landlord may
suffer on account of Tenant's hold-over in the Premises after the expiration or
prior termination of the term of the Lease.
23. SUBORDINATION
(a) Subject to any mortgagee's or ground lessor's election, as
hereinafter provided for, this Lease is subject and subordinate in all respects
to all matters of record (including, without limitation, deeds and land
disposition agreements) and all mortgages, any of which may now or hereafter be
placed on or affect such leases and/or the real property of which the Premises
are a part, or any part of such real property, and/or Landlord's interest or
estate therein, and to each advance made and/or hereafter to be made under any
such mortgages, and to all renewals, modifications, consolidations, replacements
and extensions thereof and all substitutions therefor. This Article 23 shall
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be self-operative and no further instrument or subordination shall be required.
In confirmation of such subordination, Tenant shall execute, acknowledge and
deliver promptly any certificate or instrument that Landlord and/or any
mortgagee and/or their respective successors in interest may reasonably request.
Notwithstanding anything to the contrary in this Article 23 contained, as to any
future mortgages, ground leases, and/or underlying lease or deeds of trust, the
herein provided subordination and attornment shall be effective only if the
mortgagee, ground lessor or trustee therein, as the case may be, agrees, by a
written instrument in recordable form and in the customary form of such
mortgagee, ground lessor, or trustee ("Nondisturbance Agreement") that, as long
as Tenant shall not be in terminable default of the obligations on its part to
be kept and performed under the terms of this Lease, this Lease will not be
affected and Tenant's possession hereunder will not be disturbed by any default
in, termination, and/or foreclosure of, such mortgage, ground lease, and/or
underlying lease or deed of trust, as the case may be. Landlord hereby
represents to Tenant that, as of the date of this Lease, there is no mortgage
affecting the Building or the Premises.
(b) Any such mortgagee or ground lessor may from time to time
subordinate or revoke any such subordination of the mortgage or ground lease
held by it to this Lease. Such subordination or revocation, as the case may be,
shall be effected by written notice to Tenant and by recording an instrument of
subordination or of such revocation, as the case may be, with the appropriate
registry of deeds or land records and to be effective without any further act or
deed on the part of Tenant. In confirmation of such subordination or of such
revocation, as the case may be, Tenant shall execute, acknowledge and promptly
deliver any certificate or instrument that Landlord, any mortgagee or ground
lessor may reasonably request.
(c) Without limitation of any of the provisions of this Lease, if any
ground lessor or mortgagee shall succeed to the interest of Landlord by reason
of the exercise of its rights under such ground lease or mortgage (or the
acceptance of voluntary conveyance in lieu thereof) or any third party
(including, without limitation, any foreclosure purchaser or mortgage receiver)
shall succeed to such interest by reason of any such exercise or the expiration
or sooner termination of such ground lease, however caused, then such successor
may, upon notice and request to Tenant (which, in the case of a ground lease,
shall be within thirty (30) days after such expiration or sooner termination),
succeed to the interest of Landlord under this Lease, subject to such
limitations on such successor's liability as are set forth in the Nondisturbance
Agreement. In the event of such succession to the interest of the Landlord --
and notwithstanding that any such mortgage or ground lease may antedate this
Lease -- the Tenant shall attorn to such successor and shall ipso facto be and
become bound directly to such successor in interest to Landlord to perform and
observe all the Tenant's obligations under this Lease without the necessity of
the execution of any further instrument. Nevertheless, Tenant agrees at any time
and from time to time during the term hereof to execute a suitable instrument in
confirmation of Tenant's agreement to attorn, as aforesaid in a form reasonably
acceptable to Tenant.
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(d) The term "mortgage(s)" as used in this Lease shall include any
mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall
include any mortgagee or any trustee and beneficiary under a deed of trust or
receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)" as
used in this Lease shall include any mortgagor or any grantor under a deed of
trust.
(e) Tenant agrees to send to any mortgagee (ground lessor and/or
trustee) of which Tenant shall have been previously advised in writing
("Mortgagee") a copy of any notice of default given to Landlord at the same time
as such notice is given to Landlord. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in this
Lease, then Mortgagee shall have the following additional periods of time to
cure such default before Tenant is entitled to exercise its rights under the
Lease:
Abatement of Rent: Mortgagee shall have no additional periods of time
to cure Landlord's defaults prior to the
commencement of Tenant's rent abatement rights
under Articles 8.8, 15.6, 18, and 20 of the Lease.
Tenant's Termination Rights:
With respect to any right which Tenant has to
terminate the Lease based upon Landlord's default,
other than Tenant's right to terminate the Lease
based upon Landlord's failure timely to
Substantially Complete the Base Building Work as
set forth in Article 4.1 (with respect to which
Mortgagee shall have no additional cure period),
but including Tenant's termination rights under
Articles 8.8, 15.6, and 18 of the Lease, Mortgagee
shall have an additional thirty (30) days after
receipt of written notice that Landlord's cure
period has elapsed within which to cure such
default, provided however, that if such default
cannot be cured within that time, then Mortgagee
shall have such additional time, not to exceed
ninety (90) additional days, after Mortgagee's
receipt of written notice that Landlord's cure
period has elapsed, as may be reasonably necessary
to cure such default, if within such thirty (30)
day period, (i) Mortgagee gives written notice
("Mortgagee's Intent Notice") to Tenant that it
will cure such default as soon as possible, and
(ii) Mortgagee has commenced and thereafter
diligently pursues the remedies necessary to cure
such default (including, but not limited to,
commencement of foreclosure proceedings if
necessary to effect such cure), in which event the
Lease shall not be terminated by Tenant within the
thirty or ninety-day period, as applicable, while
such remedies are being so diligently pursued.
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24. QUIET ENJOYMENT
Landlord covenants that if, Tenant is not in default, beyond the
expiration of any applicable grace period, Tenant shall quietly enjoy the
Premises and its appurtenant rights from and against the claims of all persons
claiming by, through or under Landlord subject, nevertheless, to the covenants,
agreements, terms, provisions and conditions of this Lease and to the mortgages,
ground leases and/or underlying leases to which this Lease is subject and
subordinate, as hereinabove set forth.
Without incurring any liability to Tenant, Landlord may permit access
to the Premises and open the same, whether or not Tenant shall be present, upon
any demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or reasonable purporting to be
entitled to, such access for the purpose of taking possession of, or removing,
Tenant's property or for any other lawful purpose (but this provision and any
action by Landlord hereunder shall not be deemed a recognition by Landlord that
the person or official making such demand has any right or interest in or to
this Lease, or in or to the Premises), or upon demand of any representative of
the fire, police, building, sanitation or other department of the city, state or
federal governments.
25. ENTIRE AGREEMENT -- WAIVER -- SURRENDER
25.1 Entire Agreement. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties with respect to the
Premises, the Building and the Park, and any and all statements and
representations, written and oral, including previous correspondence and
agreements between the parties hereto, are merged herein. Tenant acknowledges
that all representations and statements upon which it relied in executing this
Lease are contained herein and that the Tenant in no way relied upon any other
statements or representations, written or oral. Any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of this Lease in whole or in part unless such executory agreement is
in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
25.2 Waiver. The failure of either party to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of Rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of such Rules and Regulations against Tenant and/or
any other tenant in the Building shall not be deemed a waiver of any such Rules
and Regulations. No provisions of this Lease shall be deemed to have been waived
by either unless such waiver be in writing signed by Landlord. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly Rent herein
stipulated shall be deemed to be other than on account of the stipulated rent,
nor shall any endorsement or statement on any
52
<PAGE>
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 rent or pursue any
other remedy in this Lease provided.
25.3 Surrender. No act or thing done by Landlord during the term
hereby demised shall be deemed an acceptance of a surrender of the Premises, and
no agreement to accept such surrender shall be valid, unless in writing signed
by Landlord. No employee of Landlord or of Landlord's agents shall have any
power to accept the keys of the Premises prior to the termination of this Lease.
The delivery of keys to any employee of Landlord or of Landlord's agents shall
not operate as a termination of the Lease or a surrender of the Premises. In the
event that Tenant at any time desires to have Landlord underlet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive the
keys for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for loss
of or damage to any of Tenant's effects in connection with such underletting.
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as expressly provided in this Lease, this Lease and the
obligations of Tenant to pay Rent hereunder and perform all the other covenants,
agreements, terms, provisions and conditions hereunder on the part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this Lease or is unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make or is delayed in making any repairs, replacements,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or any other cause
whatsoever beyond Landlord's control, including but not limited to, governmental
preemption in connection with a national emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any governmental
agency or by reason of the conditions of supply and demand which have been or
are affected by war, hostilities or other emergency. Financial inability shall
not be considered a cause beyond Landlord's reasonable control excusing
Landlord's performance hereunder. In each such instance of inability of Landlord
to perform, Landlord shall exercise reasonable diligence to eliminate the cause
of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim against
Landlord, or Landlord's agents or employees, or the assets of Landlord or of
Landlord's agents or employees, for breach of this Lease or otherwise, other
than against Landlord's interest in the Park and in the uncollected rents,
issues and profits thereof, and Tenant agrees to look solely to such interest
for the satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall Landlord or Landlord's agents or
employees (or any of the officers, trustees, directors, partners, beneficiaries,
joint venturers, members, stockholders or other principals or representatives,
and the like, disclosed or undisclosed, thereof) ever be personally liable for
any such liability. This
53
<PAGE>
paragraph shall not limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or to take any other action which shall not
involve the personal liability of Landlord to respond in monetary damages from
Landlord's assets other than the Landlord's interest in said real estate, as
aforesaid. In no event shall Landlord or Landlord's agents or employees (or any
of the officers, trustees, directors, partners, beneficiaries, joint venturers,
members, stockholders or other principals or representatives and the like,
disclosed or undisclosed, thereof) ever be liable for consequential or
incidental damages. If by reason of Landlord's failure to complete Landlord's
Work, Landlord shall be held to be in breach of this Lease, Tenant's sole and
exclusive remedy shall be to terminate the Lease in accordance with Article 4.1.
27. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by
either party to the other party shall be in writing and, if received at
Landlord's or Tenant's address, shall be deemed to have been duly given when
either served personally and by certified mail, return receipt requested,
deposited in the United States mail, or sent by recognized overnight courier
service addressed to Landlord at its address as stated in Exhibit 1 and to
Tenant at the Premises (or at Tenant's address as stated in Exhibit 1, if mailed
prior to Tenant's occupancy of the Premises) with a coy to Glen M. Mair, Esq.,
Mirick O'Connell, DeMallie & Lougee, LLP, 100 Front Street, Worcester, MA
01608-1477, or if any address for notices shall have been duly changed as
hereinafter provided, if mailed as aforesaid to the party at such changed
address. Either party may at any time change the address or specify an
additional address for such notices, consents, requests, bills, demands or
statements by delivering or mailing, as aforesaid, to the other party a notice
stating the change and setting forth the changed or additional address, provided
such changed or additional address is within the United States.
If Tenant's interest in the Lease is assigned to a partnership, Tenant,
for itself, and on behalf of all of its partners, shall appoint a partner of
Tenant as Tenant's Service Partner, to accept service of any notice, consent,
request, bill, demand or statement hereunder by Landlord and any service of
process in any judicial proceeding with respect to this Lease on behalf of
Tenant and as agent and attorney-in-fact for each partner of Tenant.
All bills and statements for reimbursement or other payments or charges
due from Tenant to Landlord hereunder shall be due and payable in full thirty
(30) days from receipt of the same by Tenant, unless herein otherwise provided.
Tenant's failure to make timely payment of any amounts indicated by such bills
and statements, whether for work done by Landlord at Tenant's request,
reimbursement provided for by this Lease or for any other sums properly owing by
Tenant to Landlord, shall be treated as a default in the payment of rent, in
which event Landlord shall have all rights and remedies provided in this Lease
for the nonpayment of rent.
54
<PAGE>
28. PARTIES BOUND -- SEIZING OF TITLE
The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the successors and assigns of the parties hereto
with the same effect as if mentioned in each instance where a party hereto is
named or referred to, except that no violation of the provisions of Article 16
hereof shall operate to vest any rights in any successor or assignee of Tenant
and that the provisions of this Article 28 shall not be construed as modifying
the conditions of limitation contained in Article 21 hereof.
If, in connection with or as a consequence of the sale, transfer or
other disposition of the real estate (land and/or Building, either or both, as
the case may be) of which the Premises are a part, Landlord ceases to be the
owner of the reversionary interest in the Premises, Landlord shall be entirely
freed and relieved from the performance and observance from and after the date
of such sale, transfer or other disposition of all covenants and obligations
hereunder on the part of Landlord to be performed and observed, provided that in
such event (and it shall be deemed and construed as a covenant running with the
land) the person succeeding to Landlord's ownership of said reversionary
interest shall thereupon assume, and perform and observe, any and all of such
covenants and obligations of Landlord.
29. MISCELLANEOUS
29.1 Separability. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
29.2 Captions, etc. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provisions thereof. References to "State"
shall mean, where appropriate, the District of Columbia and other Federal
territories, possessions, as well as a state of the United States.
29.3 Broker.
(a) Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of space in the Building or the
Park (called "Building, etc." in this Article 29.3) with any broker or had its
attention called to the Premises or other space to let in the Building, etc. by
anyone other than the broker, person or firm, if any, designated in Exhibit 1.
Tenant agrees to defend, exonerate and save harmless and indemnify Landlord and
anyone claiming by, through or under Landlord against any claims for a
commission arising in breach of the representation and warranty set forth in the
immediately preceding sentence, provided that Landlord shall be solely
responsible for the payment of brokerage commissions to the broker, person or
firm, if any, designated in Exhibit 1.
55
<PAGE>
(b) Landlord represents and warrants that, in connection with the
execution and delivery of the Lease, it has not directly or indirectly dealt
with any broker other than the brokers designated on Exhibit 1. Landlord agrees
to defend, exonerate, save harmless, and indemnify Tenant and anyone claiming
by, through, or under Tenant against any claims arising in breach of the
representation and warranty set forth in the immediately preceding sentence.
29.4 Governing Law. This Lease is made pursuant to, and shall be
governed by, and construed in accordance with, the laws of the State wherein the
Building is situated and any applicable local municipal rules, regulations,
by-laws, ordinances and the like.
29.5 Assignment of Rents. With reference to any assignment by Landlord
of its interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding a mortgage or
ground lease on the Building, Tenant agrees:
(a) that the execution thereof by Landlord and the acceptance thereof
by such mortgagee and/or ground lessor shall never be deemed an assumption by
such mortgagee and/or ground lessor of any of the obligations of the Landlord
thereunder, unless such mortgagee and/or ground lessor shall, by written notice
sent to the Tenant, specifically otherwise elect; and
(b) that, except as aforesaid, such mortgagee and/or ground lessor
shall be treated as having assumed the Landlord's obligations thereunder only
upon foreclosure of such mortgagee's mortgage or deed of trust or termination of
such ground lessor's ground lease and the taking of possession of the Premises
after having given notice of its exercise of the option stated in Article 23
hereof to succeed to the interest of the Landlord under this Lease.
29.6 Representation of Authority. By his execution hereof each of the
signatories on behalf of the respective parties hereby warrants and represents
to the other that he is duly authorized to execute this Lease on behalf of such
party. Landlord hereby represents to Tenant that it is the owner of the fee
interest of the Building.
29.7 Expenses Incurred by Landlord Upon Tenant Requests. Tenant shall,
upon demand, reimburse Landlord for all reasonable expenses, including, without
limitation, legal fees, incurred by Landlord in connection with all requests by
Tenant for consents, approvals or execution of collateral documentation related
to this Lease, including, without limitation, costs incurred by Landlord in the
review and approval of Tenant's plans and specifications in connection with
proposed alterations to be made by Tenant to the Premises, requests by Tenant to
sublet the Premises or assign its interest in the Lease, the execution by
Landlord of estoppel certificates requested by Tenant, and requests by Tenant
for Landlord to execute waivers of Landlord's interest in Tenant's
56
<PAGE>
property in connection with third party financing by Tenant. Such costs shall be
deemed to be additional rent under the Lease.
29.8 Survival. Without limiting any other obligation of Tenant or
Landlord which may survive the expiration or prior termination of the term of
the Lease, all obligations on the part of each party to indemnify, defend, or
hold the other party harmless, as set forth in this Lease shall survive the
expiration or prior termination of the term of the Lease.
IN WITNESS WHEREOF the parties hereto have executed this Indenture of
Lease in multiple copies, each to be considered an original hereof, as a sealed
instrument on the day and year noted in Exhibit 1 as the Execution Date.
LANDLORD: TENANT:
EOP-CROSBY CORPORATE CENTER, L.L.C. VIALOG CORPORATION
By: EOP Operating Limited
Partnership, a Delaware
limited partnership, its
sole member
By: Equity Office
Properties Trust,
a Maryland real
estate investment
trust, its managing
general partner
By: /s/ Thomas Q. Bakke By: /s/ John J. Dion
-------------------- ----------------
Name: Thomas Q. Bakke (Name)
------------------ Vice President - Finance & Treasurer
Title: Vice President Hereunto Duly Authorized
A SECRETARY'S OR CLERK'S CERTIFICATE OF THE AUTHORITY AND THE
INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT AND LANDLORD SHOULD BE
ATTACHED.
<PAGE>
EXHIBIT 1, SHEET 1
Building No. 7
CROSBY CORPORATE CENTER
Bedford, Massachusetts
- --------------------- ----------------------------------------------------------
Execution March 3, 2000
Date:
- --------------------- ----------------------------------------------------------
Tenant: Vialog Corporation, a Massachusetts corporation
- --------------------- ----------------------------------------------------------
Tenant's 35 New England Business Center,
Mailing
Address: Andover, MA 01810
- --------------------- ----------------------------------------------------------
Landlord: EOP-Crosby Corporate Center, L.L.C., a Delaware limited
liability company (the sole member of which is EOP
Operating Limited Partnership, a Delaware Limited
Partnership; the managing general partner of which is
Equity Office Properties Trust, a Maryland real estate
investment trust).
- --------------------- ----------------------------------------------------------
Landlord's 1111 19th Street NW, Washington, D.C. 20036
Mailing
Address: with a copy to:
EOP-Crosby Corporate Center, L.L.C., c/o Equity Office
Properties Trust, Two North Riverside Plaza, Suite 2200,
Chicago, IL 60606, Attn: General Counsel of Property
Operations
- --------------------- ----------------------------------------------------------
Park: The land, buildings and other improvements thereon, from
time to time, located off Crosby Drive in the Town of
Bedford, Middlesex County, Commonwealth of Massachusetts
known as Crosby Corporate Center. The Park is
substantially as shown on Exhibit 3, Sheet 1, and the
legal description of the Park is set forth on Exhibit 3,
Sheets 2, 3 and 4. The Park includes Phase II which is
substantially as shown on Exhibit 3, Sheet 1 and the legal
description of the Park is set forth on Exhibit 3, Sheet
4.
- --------------------- ----------------------------------------------------------
Building: 32 Crosby Drive, Bedford, Massachusetts (Building Seven in
the Park). The Building is located in Phase II of the
Park.
- --------------------- ----------------------------------------------------------
Premises: An area on the first (1st) floor of the Building,
--------------------------------------------------
substantially as shown on Lease Plan, Exhibit 2.
------------------------------------------------
- --------------------- ----------------------------------------------------------
Art. 3.1 Specified Commencement Date: May 15, 2000
------------
- --------------------- ----------------------------------------------------------
Art. 3.2 Termination Date: Five (5) years after the term
-----------------------------
Commencement Date
------------------
- --------------------- ----------------------------------------------------------
Art. 4 Final Plans Date: March 15, 2000
--------------
- --------------------- ----------------------------------------------------------
-1-
<PAGE>
EXHIBIT 1, SHEET 2
Building No. 7
CROSBY CORPORATE CENTER
Bedford, Massachusetts
Tenant: Vialog Corporation
Execution Date: March 3, 2000
- --------------------------------------------------------------------------------
Art. 5 Use of Premises: General business offices,
-------------------------
assembly and manufacturing and
------------------------------
research and development.
-------------------------
- --------------------------------------------------------------------------------
Art. 6 Yearly Rent:
- --------------------------------------------------------------------------------
Lease Year1 Yearly Rent Monthly Payment Per Square Foot
- --------------------------------------------------------------------------------
1-3 $668,832.00 $55,736.00 $24.00
- --------------------------------------------------------------------------------
4-5 $696,700.08 $55,058.34 $25.00
- --------------------------------------------------------------------------------
Art. 6.3 Total Rentable Area
Premises: 27,868 square feet
------
Building 7: 103,717 square feet
-------
Phase II of the Park: 257,528 square feet
-------
The Park: 594,129 square feet
-------
- --------------------------------------------------------------------------------
Art. 8 Electricity: Electric current will be sub-metered
-------------------------------------------------
and paid for by Tenant in accordance with Article
-------------------------------------------------
8.1 of the Lease.
-----------------
- --------------------------------------------------------------------------------
Art. 9 Operating and Tax Escalation:
Operating Expense Excess:
Tenant's Operating Cost Percentage: 26.8693%
--------
Operating Costs in the Base Year: The actual amount
-----------------
of Operating costs
------------------
in calendar
-----------
Year 2000
---------
Tax Excess:
Tenant's Tax Percentage: 10.8213%
-------
Tax Base: The actual amount of Taxes for
------------------------------
fiscal/tax year 2001 (i.e. July 1, 2000 -
-----------------------------------------
June 30, 2001
-------------
- --------------------------------------------------------------------------------
- -------------------
1 For purpose of this Lease, "Lease Year" shall be defined as any
twelve-(12)-Month period during the term of the Lease Commencement Date or
as of any anniversary of the Term Commencement Date.
-2-
<PAGE>
EXHIBIT 1, SHEET 3
Building No. 7
CROSBY CORPORATE CENTER
Bedford, Massachusetts
Tenant: Vialog Corporation
Execution Date: March 3, 2000
Art. 29.3 Broker: Meredith & Grew, Inc.
---------------------
LANDLORD;
EOP-CROSBY CORPORATE CENTER, L.L.C.
By: EOP Operating Limited Partnership, a Delaware limited partnership, its
sole member
By: Equity Office Properties Trust, a Maryland real estate investment
trust, its managing general partner
By: /s/ THOMAS Q. BAKKE
---------------------
(Name)(Title) THOMAS Q. BAKKE
VICE PRESIDENT
Date Signed: 3/3
-----
TENANT;
VIALOG CORPORATION
By: /s/ John J. Dion
-----------------
(Name) John J. Dion
(Title) Vice President-Finance & Treasurer
Hereunto Duly Authorized
Dated Signed: 2/18/00
--------
-3-
<PAGE>
EXHIBIT 2
---------
LEASE PLAN
----------
This Exhibit is attached to and made a part of the Lease dated as of ,
2000, by and between EOP- Crosby Corporate Center, L.L.C. ("Landlord") and
Vialog Corporation ("Tenant") for space in the Building located at Building 7,
Crosby Corporate Center, Bedford, Massachusetts.
[Exhibit contains graphic of floor plan.]
-1-
<PAGE>
EXHIBIT 3
---------
PLAN AND LEGAL DESCRIPTION OF PARK
-----------------------------------
[Exhibit contains maps of Crosby Corporate Center Complex and legal description]
-2-
<PAGE>
EXHIBIT 4
---------
ENVIRONMENTAL DISCLOSURE
------------------------
EXISTING SITE CONDITIONS -- PHASE I
-----------------------------------
Landlord represents to Tenant that, as of the Execution Date of the Lease,
Landlord is aware of the site conditions disclosed in the following
documentation:
Draft Tank Removal Observation Reports prepared for Digital Equipment
Corporation ("Digital") by GZA GeoEnvironmental, Inc. ("GZA")
undated and unsigned.
Release Categorization Form submitted by GZA on behalf of Digital to the
Massachusetts Department of Environmental Protection ("DEP") undated
and unsigned;
Report on Preliminary Oil and Hazardous Material Site Evaluation dated
August 18, 1992 prepared by Haley & Aldrich, Inc. for Rubin and
Rudman;
Draft Report dated May 26, 1992 from GZA to Digital, Re: Additional
Environmental Study, Former Crosby Drive Facility unsigned;
Letter dated February 3, 1993 to Digital from DEP captioned "BEDFORD -- 12
CROSBY DRIVE, Former Digital Corp. Site, DEP Case #3-4264, NOTICE OF
RESPONSIBILITY PURSUANT TO M.G.L. C.21E and Phase I Request";
Preliminary Site Assessment Update and Limited Subsurface Investigation
dated April 23, 1993 prepared by Rizzo Associates, Inc., for C & K
Components, Inc.;
Waiver Application Form, Preliminary Assessment Report, Interim Site
Classification Form, and Phase I Limited Site Investigation, 12
Crosby Drive, Bedford, Massachusetts, DEP Site No. 3-4624, each
prepared by GZA;
Investigative Survey Report for Asbestos-Containing Materials, Bedford
Research Park, 30 Crosby Drive, Bedford, MA 01730 dated October 7,
1992 prepared for Bedford Research Park Associates by H +GCL, Inc.;
Regulatory File Review, Bedford Research Park, 30 Crosby Drive, Bedford,
Massachusetts, dated April 12, 1994 prepared by Haley & Aldrich,
Inc.; and
Report on Oil and Hazardous Material Site Evaluation, Bedford Research
Park, 12 to 30 Crosby Drive, Bedford, Massachusetts prepared by
Haley & Aldrich, Inc. dated April 24, 1994, Revised May 2, 1994.
-3-
<PAGE>
EXISTING SITE CONDITIONS -- PHASE II
------------------------------------
"TANK REMOVAL OBSERVATION, DIGITAL EQUIPMENT CORPORATION, CROSBY DRIVE,
BEDFORD, MA," MARCH 1992.
"ADDITIONAL ENVIRONMENTAL STUDY, FORMER CROSBY DRIVE FACILITY, BEDFORD,
MA," DECEMBER 1992.
"PHASE I LIMITED SITE INVESTIGATION, 12 CROSBY DRIVE, BEDFORD, MA DEP SITE
NO. 3-4264," JULY 1993.
"PHRASE II COMPREHENSIVE SITE ASSESSMENT SCOPE OF WORK, GASOLINE UST AREA,
FORMER DIGITAL FACILITY, BEDFORD, MA DEP SITE NO. 3-4264, WAIVER
SUBMITTAL," SEPTEMBER 1995.
"PHASE II COMPREHENSIVE SITE ASSESSMENT FORMER DIGITAL BEDFORD FACILITY,
BEDFORD, MA RELEASE TRACKING NUMBER 3-4264, WAIVER SUBMITTAL," APRIL 1996.
-4-
<PAGE>
EXHIBIT 5
---------
BUILDING SERVICES
-----------------
A. General Cleaning (Monday through Friday)
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed
flooring to be swept nightly, using approved dust-down preparation.
2. All wood, linoleum, vinyl-asbestos, vinyl and other similar types of
floors to be swept or dry mopped nightly, using dust-down
preparation; all carpeting and rugs in the main traffic areas
(corridors, reception areas, etc.) to be vacuumed nightly and all
other carpeted areas to be vacuumed at least once each week.
3. Wax all public areas monthly.
4. Hand dust all furniture, files and fixtures nightly.
5. Empty all waste receptacles nightly and remove waste paper and waste
materials, including folded paper boxes and cartons, to a designated
area.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Wash and clean all water fountains and coolers nightly. Sinks and
floors adjacent to sinks to be washed nightly.
8. Hand dust all door and other ventilating louvers within reach, as
necessary, but not less often than monthly.
9. Dust all telephones as necessary.
10. Keep lockers and janitor sink rooms in a neat, orderly condition at
all times.
11. Wipe clean all bright metal work as necessary.
12. Check all stairwells throughout entire building nightly and keep in
clean condition.
13. Metal doors and trim of all public elevator cars to be properly
maintained and kept clean.
B. Common Area Lavatories
1. Sweep and wash all lavatory floors nightly, using proper non-scented
disinfectants.
-5-
<PAGE>
2. Clean all mirrors, powder shelves, bright work and enameled surfaces
in all lavatories nightly. Scour, wash and disinfect all basins,
bowls and urinals using non-scented disinfectants.
3. Police lavatories during the day with matron or porter to pick up
waste and replenish materials.
4. Wash all toilet seats nightly.
5. Fill toilet tissue holders nightly.
6. Empty paper towel receptacles nightly.
7. Empty sanitary disposal receptacles nightly.
8. Thoroughly clean all wall tile and stall surfaces as necessary.
C. High Dusting
Do all high dusting (not reached in nightly cleaning) quarterly which
includes the following:
1. Dust all pictures, frames, charts, graphs, and similar wall
hangings.
2. Dust exposed pipes, ventilation and air conditioning louvers, ducts
and high moldings.
D. Window Cleaning
1. All exterior windows (except for any retail/commercial areas) from
the second floor and above will be cleaned inside and outside except
when cleaning is rendered impracticable by inclement weather.
2. Entrance doors and elevator lobby glass to be cleaned daily and kept
in a clean condition at all times during the day.
3. Wipe down all metal window frames as necessary but not less often
than monthly.
E. Building Lobbies
1. Floors to be swept and washed or vacuumed nightly, and machine
scrubbed according to Building Standard frequency.
-6-
<PAGE>
2. Carpeting in passenger elevator cabs to be vacuum cleaned nightly.
3. Lobby walls to be dusted as often as necessary, but not less than
weekly.
4. Screen and clean sand urns nightly.
5. Clean all unpainted metal work in a manner appropriate to original
finish.
F. Porters
Necessary number of day porters under supervision will be assigned for the
following services:
1. Service all public and building operating space throughout the
Building.
2. Keep elevator cars clean and neat during the day.
3. Maintain lobbies clean and, during wet weather, mopped dry to the
extent practicable.
4. Dust and rub down all elevator doors, frames, telephone booths and
directories daily.
5. Sweep sidewalks, ramps, etc. daily.
6. Clean roofs and setbacks as often as necessary.
7. Maintain firehose and equipment clean.
8. Lay and remove lobby runners as necessary.
9. Replenish toilet tissue, towels and other supplies in lavatories.
10. Maintain fan rooms, motor rooms and air conditioning rooms in clean
condition.
11. Check stairways and keep same neat and clean during the day.
12. Clean exterior columns, exterior signs and metal work, standpipe and
sprinkler system, walkways and stairs as necessary.
13. If directed by superintendent, fill towel and soap dispensers and
perform any emergency cleaning required.
-7-
<PAGE>
EXHIBIT 6
SAMPLE LETTER OF CREDIT
------------------------
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No. ______________________
Issuance Date:_____________
Expiration Date:____________
Applicant: Vialog Corporation
Beneficiary
- -----------
EOP-Crosby Corporate Center, L.L.C.
1111 19th Street, N.W.
Washington, D.C. 20036
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your favor
for the account of the above referenced Applicant in the amount of
____________________ U.S. Dollars ($____________________) available for payment
at sight by your draft drawn on us when accompanied by the following documents:
1. An original copy of this Irrevocable Standby Letter of Credit.
2. Beneficiary's dated statement purportedly signed by one of its officers
reading: "This draw in the amount of ______________________ U.S. Dollars
($____________) under your Irrevocable Standby Letter of Credit No.
____________________ represents funds due and owing to us as a result of
the Applicant's failure to comply with one or more of the terms of that
certain lease by and between EOP-Crosby Corporate Center, L.L.C., as
landlord, and Vialog Corporation, as tenant."
It is a condition of this Irrevocable Standby Letter of Credit that it
will be considered automatically renewed for a one year period upon the
expiration date set forth above and upon each anniversary of such date, unless
at least sixty (60) days prior to such expiration date or applicable anniversary
thereof, we notify you in writing by certified mail, return receipt requested,
that we elect not to so renew this Irrevocable Standby Letter of Credit. A copy
of any such notice shall also be sent to: Equity Office Properties Trust, 2
North Riverside Plaza, Suite 2200, Chicago, IL 60606, Attention: Vice
President-Corporate Operations. In addition to the foregoing, we understand and
agree that you shall be entitled to draw upon this Irrevocable Standby Letter of
Credit in accordance with 1 and 2 above in
<PAGE>
the event that we elect not to renew this Irrevocable Standby Letter of Credit
and, in addition, you provide us with a dated statement purportedly signed by
one of Beneficiary's officers stating that the Applicant has failed to provide
you with an acceptable substitute irrevocable standby letter of credit in
accordance with the terms of the above referenced lease. We further acknowledge
and agree that: (a) upon receipt of the documentation required herein, we will
honor your draws against this Irrevocable Standby Letter of Credit without
inquiry into the accuracy of Beneficiary's signed statement and regardless of
whether Applicant disputes the content of such statement; (b) this Irrevocable
Standby Letter of Credit shall permit partial draws and, in the event you elect
to draw upon less than the full stated amount hereof, the stated amount of this
Irrevocable Standby Letter of Credit shall be automatically reduced by the
amount of such partial draw; and (c) you shall be entitled to assign your
interest in this Irrevocable Standby Letter of Credit from time to time without
our approval and without charge. In the event of an assignment, we reserve the
right to require reasonable evidence of such assignment as a condition to any
draw hereunder.
This Irrevocable Standby Letter of Credit is subject to the Uniform
Customs and Practice for Documentary Credits (1993 revision) ICC Publication No.
500.
We hereby engage with you to honor drafts and documents drawn under and in
compliance with the terms of this Irrevocable Standby Letter of Credit.
All communications to us with respect to this Irrevocable Standby Letter
of Credit must be addressed to our office located at
______________________________ to the attention of
__________________________________.
Very truly yours,
----------------------
[name]
--------------------
[title}
<PAGE>
RIDER
-----
This Rider is attached to and made a part of the Lease and is entered into
as of the day of , 2000 by and between EOP-CROSBY CORPORATE CENTER, L.L.C., a
Delaware limited liability company ("Landlord") and VIALOG CORPORATION, a
Massachusetts corporation ("Tenant") for space in the Building located at 32
Crosby Drive, Bedford, Massachusetts (Building Seven in the Park).
1. TENANT'S OPTION TO EXTEND THE TERM OF THE LEASE
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A. Tenant, provided it is not in default and has not sublet more than
25% of the Premises or assigned this Lease, shall have the right to extend the
term of the Lease for one additional period of five (5) years commencing on the
day following the expiration of the initial term of the Lease ("Termination
Date") and ending on the fifth (5th) anniversary of the Termination Date (the
"Renewal Term"). Such option to extend the term of the Lease shall be exercised
by providing written notice ("Exercise Notice") to Landlord on or before the
date nine (9) months prior to the Termination Date of the initial term of the
Lease.
B. The Yearly Rent during the Renewal Term shall equal the prevailing
market rate for such space as determined in Landlord's reasonable judgment.
Within 30 days after receipt of Tenant's Exercise Notice, Landlord shall advise
Tenant of Landlord's designation of the Yearly Rent during the Renewal Term.
Tenant shall have the right, by written notice ("Arbitration Notice") given to
Landlord within 15 days after the date on which Landlord advises Tenant of
Landlord's designation, to submit such designation to appraisal in accordance
with the procedures set forth in Subparagraph E of this Paragraph 1. If Tenant
fails timely to give Landlord an Arbitration Notice, then Landlord's designation
of the applicable Yearly Rent for the Renewal Term shall be final and binding on
Landlord and Tenant.
C. Tenant shall pay Operating Expense Excess and Tax Excess during the
Renewal Term in accordance with the terms of this Lease.
D. If Tenant is entitled to and properly exercises the renewal option,
Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes
in the Yearly Rent, term of Lease, Termination Date and other appropriate terms.
The Renewal Amendment shall be:
1. sent to Tenant within 60 days after receipt of the Renewal Notice;
and
2. executed by Tenant and returned to Landlord within 15 days of
receipt thereof.
E. If Tenant provides Landlord with an Arbitration Notice, each party
shall, at its own expense, select and retain an appraiser, with the
qualifications set forth below and notify the other party of its selection
within ten (10) days after Landlord's receipt of
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the Arbitration Notice. Each appraiser so selected shall be certified as an MAI
appraiser or as an ASA appraiser and shall have had at least three (3) years
experience within the previous ten (10) years as a real estate appraiser working
in the Bedford, Massachusetts area, with working knowledge of current rental
rates and practices. For purposes of this Lease, an "MAI" appraiser means an
individual who holds an MAI designation conferred by, and is an independent
member of, the American Institute of Real Estate Appraisers (or its successor
organization, or in the event there is no successor organization, the
organization and designation most similar), and an "ASA" appraiser means an
individual who holds the Senior Member designation conferred by, and is an
independent member of, the American Society of Appraisers (or its successor
organization, or, in the event there is no successor organization, the
organization and designation most similar). Within thirty (30) days after
Landlord's receipt of the Arbitration Notice, each appraiser shall determine the
prevailing market rate and shall notify the other appraiser and both parties of
such appraiser's determination. In the event only one party selects an appraiser
and notifies the other party of its selection during the ten (10) day period
specified above, and such party's appraiser gives such notice within the thirty
(30) day period, or in the event an appraiser duly selected by one party fails
to give such notice within the thirty (30) day period, then the determination of
the prevailing market rate made by the selected appraiser who gave such notice
shall be deemed to be the prevailing market rate. If the determination of the
appraisers are within five percent (5%) of each other, the prevailing market
rate shall be the average of the two (2) determinations. If both appraisers
notify each other and both of the parties of their respective determination of
the prevailing market rate within the thirty (30) day period, and their
determinations do not agree within five percent (5%) on the prevailing market
rate, then within fifteen (15) days after both appraisers notify both parties of
their respective determination of the prevailing market rate, each party will
cause the appraiser selected by it to confer with the other appraiser and the
two (2) appraisers shall select a third appraiser (the "Third Appraiser") having
the qualifications set forth above. In the event the appraisers selected by
Landlord and Tenant cannot agree upon the Third Appraiser within such fifteen
(15) day period, each party will, within ten (10) days thereafter, cause the
appraiser selected by it to supply the name of one (1) appraiser having the
qualifications as set forth above, and a representative of Landlord, with a
representative of Tenant present, shall make a blind draw of one (1) name of the
two (2) provided who shall serve as the Third Appraiser. In the event only one
of the appraisers supplies the name of a prospective third appraiser during such
ten (10) day period, the appraiser named by such appraiser shall be the Third
Appraiser. Within twenty (20) days from the date of his appointment, the Third
Appraiser shall make his determination of the prevailing market rate for the
Renewal Term and will submit a written determination thereof to both parties and
both appraisers. Within a fifteen (15) day period after delivery of the Third
Appraiser's determination of the prevailing market rate, the three (3)
appraisers shall confer and attempt to reach agreement as to the prevailing
market rate. In the event the three (3) appraisers cannot within the fifteen
(15) day conference period reach a determination of the prevailing market rate,
then the determination of any two (2) of the three (3) appraisers shall be
deemed to be the prevailing market rate for the Renewal Term. If the Third
Appraiser fails to make his determination within the twenty (20) day period, or
if two (2) appraisers cannot agree within the fifteen (15) day conference
period, the parties shall repeat the
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selection procedure hereinabove described and shall thereby choose a new Third
Appraiser. If the Third Appraiser believes that expert advice would materially
assist him, he may retain one or more qualified persons, to provide such expert
advice. The parties shall share equally in the costs of the Third Appraiser and
of any experts retained by the Third Appraiser. Any fees of any appraiser,
counsel or experts engaged directly by Landlord or Tenant, however, shall be
borne by the party retaining such appraiser, counsel or expert. In the event
that the prevailing market rate has not been determined by the commencement date
of the Renewal Term, Tenant shall pay Yearly Rent upon the terms and conditions
in effect for initial Premises until such time as the prevailing market rate has
been determined. Upon such determination, the Yearly Rent shall be retroactively
adjusted to the commencement of the Renewal Term. If such adjustment results in
an underpayment of Yearly Rent by Tenant, Tenant shall pay Landlord the amount
of such underpayment within thirty (30) days after the determination thereof. If
such adjustment results in an overpayment of Yearly Rent by Tenant, Landlord
shall credit such overpayment against the next installment of Yearly Rent due
under the Lease and, to the extent necessary, any subsequent installments until
the entire amount of such overpayment has been credited against Base Rent.
2. SECURITY DEPOSIT
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A. A Security Deposit in the amount of $350,000.00 shall be delivered to
Landlord upon execution of this Lease by Tenant and shall be held by Landlord
without liability for interest (except as required by law) and as security for
the performance of Tenant's obligations under this Lease. The Security Deposit
shall not be considered an advance payment of Rent or a measure of Tenant's
liability for damages. Landlord may, from time to time, without prejudice to any
other remedy, use all or a portion of the Security Deposit to make good any
arrearage of Rent, to repair damages to the Premises, to clean the Premises upon
termination of this Lease or otherwise to satisfy any other covenant or
obligation of Tenant hereunder. In addition, in the event of a termination based
upon the default of Tenant under the Lease, or a rejection of the Lease pursuant
to the provisions of the Federal Bankruptcy Code, Landlord shall have the right
to use all or a portion of the Security Deposit (from time to time, if
necessary) to cover the full amount of damages and other amounts due from Tenant
to Landlord under the Lease. Any amounts so used shall, at Landlord's election,
be applied first to any unpaid rent and other charges which were due prior to
the filing of the petition for protection under the Federal Bankruptcy Code.
Following any such application of the Security Deposit, Tenant shall pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. If Tenant is not in default at the termination
of this Lease, after Tenant surrenders the Premises to Landlord in accordance
with this Lease and all amounts due Landlord from Tenant are finally determined
and paid by Tenant or through application of the Security Deposit, the balance
of the Security Deposit remaining after any such application shall be returned
to Tenant. If Landlord transfers its interest in the Premises during the Lease
Term, Landlord shall assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit. Tenant agrees to look solely to such transferee or assignee for the
return of the Security Deposit. Landlord and its successors and assigns shall
not be
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bound by any actual or attempted assignment or encumbrance of the Security
Deposit by Tenant, provided, however, if Tenant's interest in this Lease has
been assigned, Landlord shall, provided that Landlord has been furnished with a
fully executed copy of the agreement assigning such Security Deposit, return the
Security Deposit to such assignee in accordance with the terms and conditions
hereof. If Landlord returns the Security Deposit to Tenant's assignee as
aforesaid, Landlord will have no further obligation to any party with respect
thereto. Landlord shall not be required to keep the Security Deposit separate
from its other accounts.
B. All or part of the Security Deposit may be in the form of an
irrevocable letter of credit (the "Letter of Credit"), which Letter of Credit
shall: (a) be issued on the form attached hereto as Exhibit 6, attached hereto
and incorporated by reference herein; (b) name the Landlord as its beneficiary;
(c) be drawn on an FDIC insured financial institution satisfactory to the
Landlord; and (d) expire no earlier than sixty (60) days after the Termination
Date of this Lease.
C. Notwithstanding anything herein to the contrary, provided that (i)
Tenant is not in default under this Lease as of the effective date of the
reduction of the Security Deposit or as of the date Landlord is required to
return such portion of the Security Deposit and (ii) Tenant submits to Landlord,
at least 30 days prior to the Effective Reduction Date, as hereinafter defined,
audited financial statements indicating to Landlord's reasonable satisfaction
that the 12 month period immediately preceding the Effective Reduction Date were
profitable, as determined in accordance with generally accepted accounting
principles, Tenant shall have the right to reduce the amount of the Security
Deposit to $150,000.00 effective as of the third (3rd) anniversary of the Term
Commencement Date ("Effective Reduction Date"). If Tenant is entitled to a
reduction in the Security Deposit, Tenant shall have the right to provide
Landlord with written notice requesting that the Security Deposit be reduced as
provided above (the "Reduction Notice"). If Tenant provides Landlord with a
Reduction Notice, Landlord shall refund the applicable portion of the Security
Deposit to Tenant within forty-five (45) days after the later to occur of (i)
Landlord's receipt of the Reduction Notice, or (ii) the date upon which Tenant
is entitled to a reduction in the Security Deposit as provided above.
3. ANTENNA AREA
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Tenant shall have the right to use the Antenna Area, as hereinafter
defined, to install a satellite dish and/or antenna (collectively, the
"Antenna") for a period commencing as of the date that Tenant installs the
Antenna, as hereinafter defined, in the Antenna Area ("Commencement Date in
respect of the Antenna Area") and terminating as of the expiration or earlier
termination of the Term of the Lease. The "Antenna Area" shall be an area on the
roof of the Building in a location to be designated by Landlord. Tenant shall be
permitted to use the Antenna Area solely for one (1) Antenna installed in
accordance with specifications approved by Landlord in advance utilizing a
frequency or frequencies and transmission power identified in such approved
specifications and no other frequencies or transmission power shall be used by
Tenant without Landlord's prior written consent. Such installation shall be
designed in such manner as to be easily
<PAGE>
removable and so as not to damage the roof of the Building. The Antenna and any
replacement shall be subject to Landlord's approval. Tenant's use of the Antenna
Area shall be upon all of the conditions of the Lease, except as follows:
A. Tenant shall have no obligation to pay Yearly Rent, Operating Expense
Excess or Tax Excess in respect of the Antenna Area.
B. Landlord shall have no obligation to provide any services to the
Antenna Area.
C. Tenant shall have no right to make any changes, alterations, signs,
decoration or other improvements (which changes, alterations, signs, decoration
or other improvements, together with the Antenna, are hereby collectively
referred to as "Rooftop Installations") to the Antenna Area or to the Antenna
without Landlord's prior written consent.
D. Landlord shall provide Tenant with 24-hour access to the Antenna
Area, subject to Landlord's reasonable security procedures and restrictions
based on emergency conditions and to other causes beyond Landlord's reasonable
control. Tenant shall give Landlord reasonable advance written notice of the
need for access to the Antenna Area (except that such notice may be oral in an
emergency), and Landlord must be present during any entry by Tenant onto the
Antenna Area. Each notice for access shall be in the form of a work order
referencing the lease and describing, as applicable, the date access is needed,
the name of the contractor or other personnel requiring access, the name of the
supervisor authorizing the access/work, the areas to which access is required,
the Building common elements to be impacted (risers, electrical rooms, etc.) and
the description of new equipment or other Rooftop Installations to be installed
and evidence of Landlord's approval thereof. In the event of an emergency, such
notice shall follow within five (5) days after access to the Antenna Area.
E. At the expiration or prior termination of Tenant's right to use the
Antenna Area, Tenant shall remove all Rooftop Installations (including, without
limitation, the Antenna) from the Antenna Area.
F. Tenant shall be responsible for the cost of repairing any damage to
the roof of the Building caused by the installation or removal of any Rooftop
Installations.
G. Tenant shall have no right to sublet the Antenna Area, except in
connection with a sublease permitted hereunder or otherwise approved by Landlord
in accordance with the terms hereof.
H. No person, firm or entity (including, without limitation, other
tenants, licensees or occupants of the Building or the Park) shall have the
right to benefit from the services provided by the Antenna other than Tenant.
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I. In the event that Landlord performs repairs to or replacement of the
roof, Tenant shall, to the extent reasonably required, at Tenant's cost, remove
the Antenna until such time as Landlord has completed such repairs or
replacements. Tenant recognizes that there may be an interference with Tenant's
use of the Antenna in connection with such work. Landlord shall use reasonable
efforts to complete such work as promptly as possible and to perform such work
in a manner which will minimize or, if reasonably possible, eliminate any
interruption in Tenant's use of the Antenna.
J. Any services required by Tenant in connection with Tenant's use of
the Antenna Area or the Antenna shall be installed by Tenant, at Tenant's
expense, subject to Landlord's prior approval.
K. To the maximum extent permitted by law, all Rooftop Installations in
the Antenna Area shall be at the sole risk of Tenant, and Landlord shall have no
liability to Tenant in the event that any Rooftop Installations are damaged for
any reason, except to the extent caused by the gross negligence or willful
misconduct of Landlord, its agents or contractors.
L. Tenant shall take the Antenna Area "as-is", in the condition in which
the Antenna Area is in as of the Commencement Date in respect of the Antenna
Area.
M. Tenant shall comply with all applicable laws, ordinances and
regulations in Tenant's use of the Antenna Area and the Antenna.
N. Landlord shall have the right, upon sixty (60) days notice to Tenant,
to require Tenant to relocate the Antenna Area to another area ("Relocated
Rooftop Area") on the roof of the Building suitable for the use of the Rooftop
Installations. In such event, Tenant shall, at Landlord's cost and expense, on
or before the sixtieth (60th) day after Landlord gives such notice, relocate all
of its Rooftop Installations from the Antenna Area to the Relocation Rooftop
Area.
O. In addition to complying with the applicable construction provisions
of the Lease, Tenant shall not install or operate Rooftop Installations in any
portion of the Antenna Area until (x) Tenant shall have obtained Landlord's
prior written approval, which approval will not be unreasonably withheld or
delayed, of Tenant's plans and specifications for the placement and installation
of the Rooftop Installations in the Antenna Area, and (y) Tenant shall have
obtained and delivered to Landlord copies of all required governmental and
quasi-governmental permits, approvals, licenses and authorizations necessary for
the lawful installation, operation and maintenance of the Rooftop Installations.
The parties hereby acknowledge and agree, by way of illustration and not
limitation, that Landlord shall have the right to withhold its approval of
Tenant's plans and specifications hereunder, and shall not be deemed to be
unreasonable in doing so, if Tenant's intended placement or method of
installation or operation of the Rooftop Installations (i) may subject other
licensees, tenants or occupants of the Building or the Complex, or other
surrounding or neighboring landowners or their occupants, to signal
interference, Tenant hereby acknowledging that a shield may be required in order
to
<PAGE>
prevent such interference, (ii) does not minimize to the fullest extent
practicable the obstruction of the views from the windows of the Building that
are adjacent to the Rooftop Installations, if any, (iii) does not complement (in
Landlord's sole judgment, which shall not, however, require Tenant to incur
unreasonable expense) the design and finish of the Building, (iv) may damage the
structural integrity of the Building or the roof thereof, or (v) may constitute
a violation of any consent, approval, permit or authorization necessary for the
lawful installation of the Rooftop Installations.
P. In addition to the indemnification provisions set forth in the Lease
which shall be applicable to the Antenna Area, Tenant shall, to the maximum
extent permitted by law, indemnify, defend and hold Landlord and its agents,
contractors and employees harmless from and against any and all claims, losses,
demands, actions or causes of actions suffered by any person, firm, corporation
or other entity arising from Tenant's use of the Antenna and/or the Antenna
Area.
Q. Landlord shall have the right to designate or identify the Rooftop
Installations with or by a lease or license number (or other marking) and to
place such number (or marking) on or near such Rooftop Installations.
R. If Tenant installs any additional equipment in the Antenna Area other
than the one (1) Antenna ("Additional Installation"), Tenant shall pay to
Landlord, in the same manner as Base Rent is paid under the Lease, a monthly fee
of $200.00 per Additional Installation.
4. GENERATOR AREA
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from Landlord, an area in an area outside of the Building adjacent to the
loading dock, as designated by Landlord ("Generator Area") for an emergency
generator ("Generator") for a term commencing as of the Term Commencement Date
in respect of the Premises demised to Tenant under the Lease and terminating as
of the Termination Date. Said demise of the Generator Area shall be upon all of
the same terms and conditions of the Lease, except as set forth in this
Paragraph 4. Tenant shall not install or operate the Generator until Tenant has
installed a concrete pad in the Generator Area, which work shall be subject to
Landlord's prior written consent, not to be unreasonably withheld or delayed,
and obtained and submitted to Landlord copies of all required governmental
permits, licenses, and authorizations necessary for the installation and
operation of the Generator. In addition, Tenant shall comply with all reasonable
construction rules and regulations promulgated by Landlord in the installation,
maintenance and operation of the Generator. Tenant shall be permitted to use the
Generator Area solely for the maintenance and operation of the Generator, and
the Generator and Generator Area are solely for the benefit of Tenant. All
electricity generated by the Generator may only be consumed by Tenant in the
Premises.
A. Tenant shall have no obligation to pay Yearly Rent, Tax Excess or
Operating Expense Excess in respect of the Generator Area.
<PAGE>
B. Landlord shall have no obligation to provide any services including,
without limitation, electric current, to the Generator Area.
C. Tenant shall have no right to make any changes, alterations,
additions, decorations or other improvements (collectively
"Installations") to the Generator Area without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed.
D. The Generator and any Installations may be removed by Tenant at any
time and shall be removed by Tenant at the expiration or earlier
termination of the term of the Lease, provided that Tenant has paid for
the Generator and Installations and provided further that Tenant repairs
any damage to the Building or the Property caused by the installation or
removal of the Generator and/or Installations. In addition, if so directed
by Landlord, Tenant shall, at the expiration or earlier termination of the
term of the Lease, remove the concrete pad and restore the land to the
condition in which it was in prior to the installation of the concrete
pad.
E. Tenant shall be responsible for the cost of repairing any damage to
the Building caused by the installation of the Generator and/or any
Installations.
F. Tenant shall have no right to sublet the Generator Area or to assign
its interest hereunder.
G. To the maximum extent permitted by law, the Generator and all
Installations in the Generator Area shall be at the sole risk of Tenant,
and Landlord shall have no liability to Tenant in the event that the
Generator or any Installations are damaged for any reason.
H. Tenant shall take the Generator Area "as-is" in the condition in
which the Generator Area is in as of the Term Commencement Date, without
any obligation on the part of Landlord to prepare or construct the
Generator Area for Tenant's use or occupancy. Without limiting the
foregoing, Landlord makes no warranties or representations to Tenant as to
the suitability of the Generator Area for the installation and operation
of the Generator.
I. In addition to and without limiting Tenant's obligations under the
Lease, Tenant shall comply with all applicable environmental and fire
prevention laws, ordinances and regulations in Tenant's use of the
Generator Area.
J. In addition to and without limiting Tenant's obligations under the
Lease, Tenant covenants and agrees that the installation and use of the
Generator and Installations shall not adversely affect the insurance
coverage for the Building. If for any reason, the installation or use of
the Generator and/or the Installations
<PAGE>
shall result in an increase in the amount of the premiums for such
coverage, then Tenant shall be liable for the full amount of any such
increase.
K. Tenant shall, at Tenant's sole cost and expense, repair and maintain
the Generator and Installations.
L. In addition to and without limiting the insurance provisions of the
Lease, Tenant shall procure, keep in force and pay for Commercial General
Liability Insurance in respect of the Generator Area of not less than Two
Million ($2,000,000.00) Dollars in the event of personal injury to any
number of persons or damage to property, arising out of any one occurrence
and such insurance shall name Landlord as an additional insured party.
Notwithstanding anything to the contrary herein contained, the provisions
of Articles 15.1 and 15.2 of the Lease, except to the extent inconsistent
with this Paragraph 4, shall apply to the Generator Area.
M. In addition to and without limiting the indemnification provisions
set forth in the Lease, Tenant shall, to the maximum extent permitted by
law, indemnify, defend, and hold Landlord harmless from any and all
claims, losses, demands, actions, or causes of actions suffered by any
person, firm, corporation, or other entity arising from Tenant's use of
the Generator Area.
N. Notwithstanding anything to the contrary herein or in the Lease
contained, in the event that at any time during the term of the Lease in
respect of the Generator Area, Landlord determines, in its bona fide
business judgment, that the Generator and/or any Installations interfere
with the operation of the Building or the operations of any of the
occupants of the Building, then Tenant shall, upon notice from Landlord,
cease any further operation of the Generator. From and after such notice
from Landlord, Tenant shall have no further right to operate the Generator
unless and until Tenant shall have redesigned and modified the Generator
and/or Installations in a manner approved by Landlord, which approval
shall not be unreasonably withheld, provided however, that Landlord's
approval of such redesign and modification shall constitute the mere
permission of Tenant to operate the Generator, which permission shall in
no event be construed to abrogate or diminish Landlord's rights or
Tenant's obligations under this Paragraph 4. Notwithstanding the
foregoing, Landlord shall not require Tenant to cease further operation of
the Generator pursuant to this Subparagraph N during any period of time
when Tenant is using the Generator as an emergency backup source at the
Premises.
<PAGE>
EXHIBIT 10.7
LEASE AGREEMENT
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THIS LEASE AGREEMENT, made this 3/rd/ day of August, 1999, by and between
CENTURY 2000 PARTNERS, LLP, a Limited Liability Partnership ("Landlord") and A
BUSINESS CONFERENCE CALL, INC., a Minnesota Corporation ("Tenant");
WITNESSETH THAT:
1. DEFINITIONS. For purposes of this Lease the following words or
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phrases shall have the following meanings:
BUILDING. Shall mean that certain office/warehouse building located
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on the Real Estate described in Exhibit "C" hereto. The address of the Building
is:
7920-8028 Century Boulevard, Chanhassen, Minnesota 55317
LEASED PREMISES. Shall mean that portion of the Building outlined on
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Exhibit "C" attached hereto containing 25,398 square feet of rentable area
measured from the exterior surface of the exterior walls to the center of the
interior walls. The Leased Premises street address is:
7974-7984 Century Boulevard, Chanhassen, Minnesota 55317
PROJECT. Shall mean and refer to the Building, Real Estate and all
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improvements situated thereon.
REAL ESTATE. Shall mean that certain parcel of Real Estate described
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in Exhibit "C" hereto.
RENTABLE AREA. Shall mean the sum of the square footage contained in
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the Leased Premises plus Tenant's percentage of all common areas such as entry
ways, restrooms, hallways, loading docks, mechanical rooms, and other common
areas of the Building.
TENANT'S PERCENTAGE. Shall mean that percentage of the Rentable Area
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of all areas of the Building designated by Landlord for lease that is included
in the Rentable Area of the Leased Premises. Based upon the Leased Premises
containing 25,398 square feet of Rentable Area and the Building containing
115,520 square feet of Rentable Area, the Tenant's Percentage is 22.0%.
2. DEMISE AND PREMISES. Subject to the terms and conditions hereof,
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Landlord leases to Tenant, and Tenant hires and takes of and from Landlord the
Leased Premises.
3. TERM. The Term of this Lease shall commence on the 1st day of
----
October, 1999, and shall terminate on the 30th day of September, 2005, unless
earlier terminated as hereinafter provided. In the event Landlord does not have
a Certificate of Occupancy from the City of Chanhassen as of October 1, 1999,
this Lease shall commence on the date Landlord receives said Certificate of
Occupancy from the City of Chanhassen and the Lease shall terminate on the date
which is later of September 30, 2005 or six years and zero months after the
actual commencement date of this Lease, unless earlier terminated as herein
provided. However, Tenant shall begin paying Base Rent at the actual
commencement of this Lease if said commencement is later than October 1, 1999.
Landlord and Tenant shall execute a Lease Amendment stating the actual
commencement and termination dates and corresponding Base Rents for said dates
as stated in Section 3 herein.
4. BASE RENT. Tenant agrees to pay Landlord, at 3610 County Road 101,
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Wayzata, Minnesota, 55391 or such other place as Landlord may from time to time
designate in writing, a monthly Base Rent of $19,049.00 per month from October
1, 1999 through September 30, 2002; $20,954.00 per month from October 1, 2002
through September 30, 2005 payable in advance on the first day of each
<PAGE>
month during the term of this Lease without demand therefore or deduction or set
off. Base Rent for the first month of the term of this Lease is payable upon
execution of the Lease. In the event the commencement date of this Lease falls
on a date other than the first day of the month, the rent payable for the first
month shall be adjusted on a pro rata basis and shall be payable on or before
the commencement date. However, Tenant shall begin paying Base Rent at the
actual commencement of this Lease if said commencement is later than October 1,
1999. Landlord and Tenant shall execute a Lease Amendment stating the actual
commencement and termination dates and corresponding Base Rents for said dates
as stated in Section 3 herein.
5. OPERATING EXPENSES. Tenant shall pay to Landlord as additional rent
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hereunder, payable at the same time and location as the Base Rent, Tenant's
Percentage (22.0%), of the following amounts:
a. All real estate taxes and installments of special assessments which
shall accrue or become a lien against, or are payable in respect to
any part of the Project during the term of this Lease and all other
governmental impositions, including, but not limited to, amounts
payable under assessments, gross receipts taxes and taxes on rentals
(other than income taxes) relating to the Project.
b. All other reasonable costs and expenses which Landlord may incur in
maintaining and operating the Project that may be expensed rather than
capitalized by Landlord for Federal income tax purposes including, but
not limited to costs actually incurred for cutting, fertilizing and
maintaining grass, shrubbery, shrubbery beds, and trees; sewer, water
and management fees (not to exceed 4% of Base Rent and Operating
Expenses), including reasonable expenses reimbursable to any manager;
fees for professional services, including the costs of contesting real
estate taxes; charges under maintenance and service contracts, all
supplies purchased for use for the Project; insurance maintained by
Landlord; cleaning, maintaining, repairing, resurfacing, striping,
seal coating and snow removal of walkways, driveways, and parking
areas; lighting, sodding, planting and policing the Project;
maintaining, repairing and replacing roofs, downspouts, common
electrical, plumbing, and other utility services, sprinkler alarm
systems, and irrigation systems, and common area recycling. Tenant
shall not be responsible for roof replacement during the original roof
warranty period unless Tenant's use of the Leased Premises has caused
such replacement. Tenant shall not be responsible for the replacement
of entire common electrical, plumbing, utility, sprinkler alarm or
irrigation systems for the Project during the initial term of this
Lease but shall be responsible, as stated herein, for the repair of
components of said systems. Operating expenses shall not include
depreciation, leasing commissions, or payments of principal and or
interest on any mortgage on the Project.
c. Operating Expenses shall also include yearly amortization of the cost
of capital improvements (i) made to reduce Operating Expenses or limit
increases therein, (ii) required by Landlord's insurance carrier,
(iii) required by any law, rule, regulation or order of any
governmental or quasigovernmental authority having jurisdiction or
(iv) made to extend the life of or maintain or replace any component
of the project; amortized over the useful life of such capital
improvements in accordance with generally-accepted accounting
principles.
d. Prior to the Commencement Date and as frequently thereafter as
Landlord shall deem appropriate, Landlord may give Tenant notice of
Landlord's estimate of Operating Expenses for the Project for the
then-current calendar year ("Estimated Operating Expenses"). Tenant
shall pay throughout the Term of this Lease, as additional rent
hereunder, on the first day of each month together with each Base Rent
payment due, one-twelfth (or a pro rata portion thereof for partial
months) of Tenant's Percentage of the most current Estimated Operating
Expenses. Tenant shall have the right to review Landlord's Operating
Expense estimate and prior year detail once per calendar year at
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Landlord's place of business during normal business hours with
reasonable advance notice to Landlord.
e. Within a reasonable time after the expiration of each calendar year,
Landlord shall submit to Tenant a statement setting forth (I) the
actual Operating Expenses of the Project for such calendar year, (ii)
Tenant's Percentage of such actual Operating Expenses, and (iii) the
aggregate of Tenant's payments of Estimated Operating Expenses for
such year. Within ten (10) days after the delivery of such statement
(including any statement delivered after the expiration or termination
of the Term of this Lease), the party in whose favor the difference,
if any, between clause (ii) and clause (iii) exists, shall pay the
amount of such difference to the other provided that Landlord may, at
Landlord's option, credit any overpayment by Tenant against Tenant's
current obligation for payment of Rent or Additional Rent except in
the last year (or extension year) Landlord shall pay the amount of
such difference to Tenant within thirty (30) days of the termination
or expiration of this Lease. Notwithstanding any provision of this
Lease to the contrary, Landlord shall be entitled to retain as
Landlord's sole property, and Landlord shall not be obligated to
refund to Tenant or to any other tenant of the Project, any and all
sums received by Landlord as and for tax increment financing
assistance whether or not such sums are received on a so called "pay
as you go" basis, or otherwise.
6. SERVICE AND UTILITIES. Tenant agrees that it shall pay all costs
---------------------
incurred in operating, maintaining, repairing and replacing all heating,
ventilating, air conditioning (HVAC), plumbing and other utility systems serving
the Leased Premises, however, provided Tenant's use of the Leased Premises is
not harmful to existing HVAC equipment and provided Tenant maintains said HVAC
equipment according to manufacturer's recommendations, Tenant shall not be
responsible for the replacement of said units during the initial term of this
Lease or expiration of the warranty for said HVAC equipment, whichever is later.
Tenant shall be responsible for all costs for the maintenance and repair of said
HVAC equipment. All applicable manufacturer's warranties for said HVAC
equipment shall be transferable to Tenant. Tenant agrees to pay all charges for
heat, air conditioning and utility services furnished to the Leased Premises
during the term of this Lease including, but not by way of limitation, gas,
electric, sewer, water, telephone, sprinkler alarm system and rubbish removal.
Payments for utility services shall be paid by Tenant directly to the
appropriate utility authorities, when due, if such utility authorities permit or
accept direct payment.
All payments to be made by Tenant pursuant to this Section 6 shall be in
addition to payments for Operating Expenses to be paid by Tenant under Section 5
of the Lease. Landlord shall not be liable for failure to furnish, or for delay
or suspension in furnishing, lighting, heat, air conditioning, water service or
other utilities if such failure or suspension is caused by breakdown,
maintenance, repairs, strikes, scarcity of labor or materials, acts of third
parties or causes beyond Landlord's control.
7. USE OF PREMISES. Tenant agrees that it will use and occupy the Leased
---------------
Premises solely for office and storage purposes. Tenant will not use or occupy
the Leased Premises for any unlawful purpose and will comply with all present
and future laws, ordinances, regulations and orders of all governmental units
having jurisdiction over the Leased Premises. Tenant shall not cause or permit
any unusual noise, odors or nuisance in or about the Leased Premises and the
Building and grounds nor shall Tenant permit any debris, property or merchandise
of Tenant, its officers, employees or agents to be placed or left upon the
grounds; and Tenant, its officers and employees shall observe all rules and
regulations adopted by Landlord for the general safety, comfort and convenience
of Landlord, Tenant and other tenants including the reasonable assignment of one
hundred twenty (120) parking spaces, as shown on Exhibit D, for the exclusive
use of Tenant or other tenants of Landlord in the Building. Landlord disclaims
any warranty that the Leased Premises are suitable for Tenant's use and Tenant
acknowledges that it has had full opportunity to make its own determination in
this regard.
Tenant warrants that the operation of its business will not be harmful to
the Building or the mechanical equipment within the Building and Tenant shall be
liable in the event of damage arising from such harmful operation. In the event
Landlord's insurance premiums are increased above the standard
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building rate as a result of Tenant's use of the Leased Premises, Tenant will
pay to Landlord as additional rent the amount of such increase.
In the event Tenant shall cause or permit any unusual noise, odor or
nuisance or the storage of any debris, property or merchandise of Tenant, its
officers, employees or agents, in or about the Leased Premises, Building or
grounds in violation of the terms of this Section 7, Landlord shall, after
notice to Tenant and Tenant's failure to correct said violation within 5
business days of said notice, be entitled to take any steps it deems reasonably
necessary to correct or remove such violation and Tenant shall pay Landlord, as
additional rent hereunder, all costs and expenses incurred in such correction or
removal including all costs and expenses incurred in ascertaining which Tenant
is responsible for such violation.
8. ASSIGNMENT AND SUBLETTING. Tenant will not assign, transfer, mortgage
-------------------------
or encumber its interest in this Lease or sublet or rent or permit occupancy or
use of the Leased Premises, or any part thereof by any third party; nor shall
any assignment or transfer of this Lease be effectuated by operation of law or
otherwise, without in each such case obtaining the prior written consent of
Landlord, which consent will not be unreasonably withheld, delayed or
conditioned by Landlord unless in Landlord's reasonable opinion such assignment
or transfer adversely affects the Leased Premises or Building. Tenant shall
seek such consent of Landlord by a written request, setting forth such
information as Landlord may deem necessary and reimburse Landlord as additional
rent hereunder for any costs Landlord may incur, including Landlord's attorney's
fees, in reviewing and responding to Tenant's request. The consent by Landlord
to any assignment or subletting shall not be construed as a waiver or release of
Tenant from the terms of any covenant or obligation under this Lease, nor shall
the collection or acceptance of rent from any transferee under an assignment
constitute an acceptance of the assignment or a waiver or release of Tenant from
any covenant or obligation contained in this Lease, nor shall any assignment be
construed to relieve Tenant from the requirement of obtaining the consent in
writing of Landlord to any further assignment or subletting. No assignment or
sublease or other transfer of this Lease shall be effective unless the assignee,
sublessee or transferee shall at the time of such assignment, sublease or
transfer, assume in writing, all of the terms, covenants and conditions of this
Lease to be performed by Tenant.
Notwithstanding the foregoing, Tenant shall have the right to assign this
Lease or sublet the Leased Premises, in whole or in part, to an affiliate of
Tenant and/or in connection with the sale of all or substantially all of the
stock or assets of Tenant and/or in connection with the sale of the group(s),
division(s), or section(s) or of all or substantially all of the assets of such
group(s), division(s) or section(s) of Tenant occupying the Leased Premises
provided the following conditions are met: a) the assignee or subtenant's
financial standing shall be equal to or greater than that of Tenant; b) the
assignee or subtenant's use shall not be substantially different from that
conducted by Tenant and shall not involve greater use of Hazardous Substances
than Tenant's use; c) any assignee or subtenant shall agree in writing to comply
with all provisions of this Lease and a copy of such agreement and the
assignment or sublease shall be delivered to Landlord; and d) such assignment or
sublease shall not violate the terms of any mortgage to which the Landlord is a
party. In the event of assignment in accordance with the terms of this Section
8, Tenants' obligation and liability to pay Base Rent and Operating Expenses
shall transfer to said subtenant, assignee or affiliate.
Whether or not Landlord has consented to an assignment or sublease, Tenant shall
pay directly to Landlord the amount by which the rent or other payments received
by Tenant pursuant to such assignment or sublease exceeds, in any month, the
Base Rent and other payments payable by Tenant to Landlord hereunder.
9. SUBORDINATION. Without the necessity of any additional document being
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executed by Tenant for the purpose of effecting a subordination, this Lease
shall be subject and subordinate at all times to the lien of any mortgage now or
hereafter placed on, against or affecting the Project, or Landlord's interest or
estate therein; provided, however, that if the Landlord, any mortgagee or holder
of any mortgage elects to have Tenant's interest in this Lease be superior to
any such Mortgage, then by notice to Tenant, this Lease shall be deemed
superior, whether this Lease was executed before or after said mortgage.
Notwithstanding the foregoing, Tenant covenants and agrees to execute and
deliver upon
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demand such further instruments evidencing such subordination or superiority of
this Lease as may be required by Landlord or any mortgagee. Tenant further
agrees that in the event that any proceedings are brought for the foreclosure of
any mortgage, Tenant shall attorn to the purchaser at such foreclosure sale and
recognize such purchaser as the Landlord under this Lease, if requested to do so
by such purchaser, provided that said purchaser agrees, in writing, that
Tenant's possession of the Leased Premises shall not be disturbed so long as
Tenant shall continue to perform all of the covenants and conditions of this
Lease, in which case Tenant's obligations to perform such covenants and
conditions shall not be in any way diminished thereby. Tenant further waives the
provisions of any statute or rule of law, now or hereafter in effect, which may
give or purport to give Tenant any right to terminate or otherwise adversely
affect this Lease and the obligations of Tenant hereunder in the event that any
such foreclosure proceeding is prosecuted or completed.
10. SALE OR MORTGAGE OF THE BUILDING. In the event of a sale of the
--------------------------------
Project, Landlord shall be relieved of all liability under this Lease accruing
from and after the date of sale provided Landlord has obtained the written
agreement of its transferee or assignee to assume and carry out all of the
covenants and obligations of the Landlord hereunder.
Tenant agrees at any time and from time to time, upon not less than ten
(10) days' prior written notice by Landlord, to execute, acknowledge and deliver
to Landlord or a party designated by Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect, or if
there have been modifications, that this Lease is in full force and effect as
modified and stating the modifications, (ii) stating the dates to which the Base
Rent, Operating Expenses and other charges hereunder have been paid by Tenant,
(iii) stating whether or not Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and, if so, specifying
each such default, (iv) agreeing that Tenant and Landlord will not thereafter
modify the Lease without the approval of any mortgagee identified by Landlord,
and (v) agreeing that, except for any security deposit required herein, Tenant
shall not prepay any rent more than thirty (30) days in advance, and (vi) such
other matters relating to this Lease as may reasonably be requested. Any such
statement delivered pursuant hereto may be relied upon by any owner of the
Project, any prospective purchaser of the Project, any mortgagee or prospective
mortgagee of the Project or of Landlord's interest, or any prospective assignee
of any such mortgagee.
Landlord agrees at any time and from time to time, upon not less than ten
(10) business days' prior written notice by Tenant, to execute, acknowledge and
deliver to Tenant a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect, or if there have been modifications,
that this Lease is in full force and effect as modified and stating the
modifications, (ii) stating the dates to which the Base Rent, Operating Expenses
and other charges hereunder have been paid by Tenant, (iii) stating whether or
not, to Landlord's knowledge, Tenant is in default, and (iv) such other
certifications relating to this Lease as may reasonably be requested.
Upon securing a mortgage for the Building, Landlord will provide Tenant
with an agreement of non-disturbance.
11. TENANT INSURANCE. Tenant agrees that it shall purchase in advance and
----------------
carry the following insurance at its own expense: a) "All Risk" fire and
extended coverage insurance insuring Tenant's personal property, furniture,
trade fixtures, inventory and business records against loss from all insurable
events for the full replacement value thereof; b) insurance against interruption
of Tenant's business activities; c) comprehensive general public liability
insurance, providing coverage on an "occurrence" and, not a "claims made" basis,
covering all acts of Tenant, its employees, agents, representatives and guests
and insuring against all claims arising from injury to persons or damage to
property in or about the Leased Premises, Building or the Project in a single
limit amount of not less than $1,000,000.00 for personal injury or death and not
less than $500,000.00 for property damage and fire legal liability; d) workers
compensation insurance covering Tenant's business activities conducted on the
Leased Premises and providing such coverage as Tenant is statutorially required
to maintain.
The insurance maintained by Tenant under Clauses a), c) and of the
immediately preceding paragraph of this Section 11 shall name Landlord as an
additional insured, shall be issued by insurance
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companies reasonably acceptable to Landlord and shall provide for thirty (30)
days written notice to Landlord prior to cancellation, non-renewal or material
modification. Certificates of all such insurance shall be delivered to Landlord
prior to occupancy of the Leased Premises by Tenant and at least thirty (30)
days prior to the termination date of any existing policy. Tenant shall pay to
Landlord, upon demand, as additional rent the cost of securing such insurance in
the event Tenant fails to furnish certificates of insurance to Landlord.
However, it is not Landlord's duty nor obligation to secure such insurance for
Tenant.
Landlord shall maintain at all times during the term of this Lease: a)
standard all risk fire and casualty insurance in an amount not less than the
actual replacement cost of the Building as calculated annually according to the
applicable insurance policies, and b) liability insurance covering all acts of
Landlord and its agents and employees for matters occurring in, on or about the
Building and Real Estate in a single limit amount of not less than $1,000,000.00
for bodily personal injury or death and not less than $500,000.00 for property
damage and fire legal liability.
12. ANNUAL OPERATING STATEMENTS. In the event Tenant has been in default
----------------------------
of any of the terms of this Lease herein, then Tenant shall, within One Hundred
Twenty (120) days after the close of each fiscal year the Tenant shall furnish
the Landlord with annual operating statements and balance sheets certified by an
officer of the Company.
13. FIRE OR OTHER CASUALITY. If the Leased Premises or the Project shall
-----------------------
be damaged or destroyed by fire or other cause, Landlord shall either (a)
undertake to restore such damage (provided, however, that Landlord shall not be
required to spend amounts in excess of insurance proceeds available to Landlord
to effect such restoration), or (b) in the event the Leased Premises or the
Project are damaged by fire or other cause to such extent that damage cannot, in
Landlord's reasonable judgment, be economically repaired within one hundred and
eighty (180) days after the date of such damage (taking into account the time
necessary to effectuate a satisfactory settlement with any insurance company and
using normal construction methods without overtime or other premium), terminate
this Lease, by notice given to Tenant within sixty (60) days after the date of
damage. Any termination hereunder by reason of damage to the Leased Premises
shall be effective as of the date of the damage. Any termination by reason of
damage to the Project but not Leased Premises shall be effective as of the date
notice is given. If Landlord elects to restore, Landlord shall not be obligated
to restore any improvements to the Leased Premises which were not owned and or
constructed by Landlord. Upon substantial completion by Landlord of its work,
Tenant shall undertake to restore its leasehold improvements and trade fixtures
with all due diligence. This Lease shall, unless terminated by Landlord
pursuant to this Section 13, remain in full force and effect following such
damage, and, in the case of damage to the Leased Premises, the Base Rent and
Operating Expenses, prorated to the extent that the Leased Premises are rendered
untenable, shall be equitably abated until such repairs are completed; provided,
however, that if Tenant does not restore its leasehold improvements, except for
the Leasehold Improvements set forth in Exhibit C which the Landlord is
obligated to restore, and trade fixtures with due diligence, abatement shall
cease as of the date restoration could have been completed using due diligence.
Notwithstanding the foregoing, if the destruction or damage was wholly or
partially caused by the intentional misconduct, gross negligence or breach of
this Lease by Tenant, its officers, agents or employees, the rent shall not
abate and Tenant shall remain liable for the same.
14. CONDEMNATION. If the whole or any part of the Leased Premises shall
------------
be taken or condemned or purchased under threat of condemnation by any
governmental authority, then the Term of this Lease shall cease and terminate as
of the date when the interference with possession, enjoyment or value of the
Leased Premises occurs and Tenant shall have no claim against the condemning
authority, Landlord or otherwise for any portion of the amount that may be
awarded as damages as a result of such taking or condemnation or for the value
of any unexpired Term of this Lease, provided, however, that Landlord shall not
be entitled to any award made to Tenant for loss of business or the fair value
of and the cost of removal of stock and trade fixtures. In the event part of
the Project, but not the Leased Premises, is condemned to the extent that it
cannot, in Landlord's sole judgment, be economically restored within a
reasonable time, Landlord shall have the option, by notice given to Tenant
within 120
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days of the date of interference with possession, to terminate this Lease as of
the date of such interference with possession.
15. ALTERATIONS AND SIGNS. Tenant will not make or permit anyone to make
---------------------
any structural alterations, additions or improvements in or to the Leased
Premises or the Building without the prior written consent of Landlord, provided
that Landlord shall not unreasonably withhold, delay or condition consent to
Tenant's interior decorations unless, in Landlord's reasonable opinion, said
interior alterations, additions or improvements adversely affect the Leased
Premises or Building. Notwithstanding anything in this Lease to the contrary,
Tenant shall be allowed, without Landlord approval, to make non-structural
improvements or alterations to the Leased Premises provided said improvements or
alterations do not exceed $7,500.00. However, Tenant shall still notify
Landlord, in writing, of its' intention to perform said improvements or
alterations. As a condition precedent to written consent of Landlord hereunder,
Tenant agrees to obtain and deliver to Landlord such security against mechanic's
lien as Landlord shall reasonably request. If any mechanic's lien is filed
against any part of the Building or the Project for work claimed to have been
done for, or labor or materials claimed to have been furnished to or authorized
by Tenant, such mechanic's lien shall be discharged by Tenant within ten (10)
days thereafter, at Tenant's sole cost and expense, by the payment and
satisfaction thereof or by making any deposit required by law unless the amount
owed is disputed in good faith by Tenant. In no event shall said dispute
continue for more than thirty (30) business days after Landlord is notified of
said dispute. Should Tenant fail to obtain the discharge of any such mechanic's
lien within ten (10) days of the filing thereof, Landlord shall be entitled to
obtain such discharge by whatever reasonable means Landlord deems expedient, and
all costs incurred by Landlord in obtaining such discharge including reasonable
attorney's fees, shall be paid by Tenant as additional rent hereunder.
All alterations, decorations, additions or improvements in or to the Leased
Premises or the Project made by Tenant or by Landlord on Tenant's behalf shall
immediately become the property of Landlord and shall remain upon and be
surrendered with the Leased Premises as a part thereof at the end of the term
hereof without disturbance, molestation or injury, unless Landlord requires
specific portions thereof to be removed by Tenant at Tenant's sole expense, in
which event Tenant shall do so prior to the expiration of the term of this Lease
at its expense, and shall repair any damage caused thereby. Landlord shall
inform Tenant at the time of construction of any alterations or improvements if
said alterations or improvements shall be removed by Tenant at Tenant's expense
at the expiration or termination of this Lease. Notwithstanding the foregoing,
if Tenant is not in default in the performance of any of its obligations under
this Lease, and further provided that if any and all damage resulting therefrom
be repaired, Tenant shall have the right to remove at its own expense, prior to
the expiration or termination of the term of this Lease, all moveable furniture
or trade fixtures installed in the Leased Premises provided such removal is
completed with no damage to the Leased Premises or the Building.
Tenant shall not place or maintain any sign, advertisement or notice on any
part of the outside or the inside of the Building without Landlord's prior
written approval. Any such approved use shall be at the sole expense and cost
of Tenant.
Tenant shall not install any equipment which will or may necessitate any
changes, replacements or additions to, or in the use of, the heating,
ventilating or air conditioning system, or electrical system of the Leased
Premises or the Project nor any equipment containing Hazardous Substances or
chlorofluorocarbons without obtaining the prior written consent of Landlord.
Equipment belonging to Tenant which causes fumes, odors, noise or vibration that
may be transmitted to the structure of the Building or to any space therein to
such a degree as to be objectionable to Landlord or to any tenant in the Project
shall be installed and maintained by Tenant, at Tenant's expense, on vibration
eliminators, with ventilation equipment or other devices sufficient to eliminate
such fumes, odors, noise and vibration.
16. WAIVER OF SUBROGATION. Notwithstanding any other provisions in this
---------------------
Lease to the contrary, Landlord and Tenant hereby release one another, their
respective officers, agents, partners, employees and property manager, from any
and all liability or responsibility (to the other or anyone claiming through or
under them by way of subrogation or otherwise) for any loss or damage covered by
insurance actually carried or coverable by the insurance required by Section 11
hereof, even if such loss
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or damage shall have been caused by the fault or negligence of the other party,
or anyone for whom such party may be responsible.
17. WAIVER AND INDEMNITY. Tenant agrees that Landlord, its officers,
--------------------
agents, partners and employees shall not be liable to Tenant or those claiming
through or under Tenant for any injury, death or property damage occurring in,
on or about the Leased Premises, the Building or the Project except to the
extent such injury, death or property damage was caused by the intentional
misconduct or gross negligence of Landlord, its agents or employees. Without
limitation of the foregoing, Landlord shall not be liable to Tenant for any
damage, compensation or claims arising from: loss or damage to books, records,
files, money, securities, negotiable instruments or other papers in or about the
Leased Premises; the necessity of repairing any portion of the Project; the
interruption in the use of the Leased Premises; accident or damage resulting
from the use or operation by Landlord, Tenant, or any other person or persons
whatsoever of elevators, or heating, cooling, electrical or plumbing equipment
or apparatus; the termination of this Lease by reason of the destruction or
condemnation of the Leased Premises; any fire, robbery, theft, or any other
casualty; any leakage or bursting of pipes or water vessels or any roof or wall
leakage in any part or portion of the Leased Premises or the Building; water,
rain, snow or underground water that may leak into, flow on, or flow from, any
part of the Leased Premises or the Project.
Tenant agrees to indemnify and hold harmless Landlord and its officers,
agents, partners and employees from and against all claims, costs, liabilities
and expenses, of whatever nature a) arising or resulting from any act, omission
or gross negligence of Tenant, its officers, employees and agents in or about
the Leased Premises, Building or the Project or, b) arising in connection with
Tenant's use of occupancy of the Leased Premises or the conduct of Tenant's
business thereon, and agrees to indemnify and hold harmless Landlord from and
against all costs, expenses and liabilities, including reasonable attorneys
fees, incurred in connection with any such claims or proceedings brought
thereon, and the defense thereof.
18. REPAIRS. Tenant shall put, keep, repair and maintain the Leased
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Premises and the fixtures and equipment therein at all times in a good,
properly functioning, safe and sanitary condition and state of repair,
reasonable wear and tear excepted, free of debris and other similar
obstructions. Tenant shall allow Landlord access to the Leased Premises during
all reasonable hours upon twenty-four (24) hours notice, except in the case of
emergencies, to make repairs required to be made by Tenant which Tenant fails or
refuses to make, and shall pay Landlord as additional rent the cost of such
repairs made for Tenant by Landlord. Subject to Tenant's obligation to pay
Operating Expenses pursuant to Section 5 of this Lease, Landlord shall: i) make
all necessary repairs to the outer walls, roof, and structural elements of the
Building, ii) keep the plumbing, sewage, heating, air conditioning, electrical
and ventilating systems of the Building not serving the Leased Premises in good
repair, ordinary wear and tear excepted, and iii) maintain and keep the common
areas, grounds, walkways, driveways and parking areas in a neat and clean
condition. Tenant shall pay for electrical lamps and ballasts used in the
Leased Premises. Any cost of repairs, modifications, alterations or
improvements to the Building, the Leased Premises or the Project which are
occasioned by the negligence or default of Tenant, its officers, employees,
agents or invitees, or by the requirements of law, ordinance or other
governmental directive and which arise out of the nature of Tenant's use and
occupancy of the Leased Premises or the installations of Tenant in the Leased
Premises shall be paid solely by Tenant.
Tenant will not suffer or permit any waste or injury to the Leased Premises
and will, at the expiration of the term of this Lease, surrender the same with
all walls, floor coverings and other components thereof in the same order and
condition as on the Commencement Date, ordinary wear and tear, subsequent
alterations or improvements consented to by Landlord as provided in Section 15
of this Lease, and casualty damage covered by insurance, excepted.
19. ENTRY AND INSPECTION. Upon twenty-four (24) hours prior notice,
--------------------
except in the case of emergencies, Tenant shall permit Landlord, its agents or
representatives to enter the Leased Premises to examine and inspect the same or
to make such alterations, renovations or repairs to the Leased Premises or the
Building as Landlord may deem necessary or desirable, or to exhibit the Leased
Premises to prospective Tenants during the last one hundred eighty (180) days
of the term of this Lease
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or to prospective purchasers at any time during the term. Landlord shall make
reasonable efforts not to unreasonably interfere with the conduct of Tenant's
business, but Landlord shall in no event be liable to Tenant or those claiming
under or through Tenant for any loss or damages in connection with such entry,
inspection, alterations, renovations or repairs.
20. IMPROVEMENTS. Landlord shall, at its' sole cost and expense, complete
------------
the Leased Premises in accordance with the plans and specifications set forth in
Exhibits "A" and "B" (Improvement Allowance and Space Plan) in a workmanlike
fashion with such minor modifications, as approved by Tenant in writing, as
determined by Landlord or its architect or as directed by governmental
inspectors or agents. The taking of possession of the Leased Premises or
renewal of this Lease by Tenant shall be conclusive evidence that the Leased
Premises and the Building are in good and satisfactory condition at the time of
such taking of possession or renewal.
21. WAIVER. No waiver by either party of any breach of any covenant,
------
condition or agreement herein contained shall operate as a waiver of such
covenant, condition, or agreement itself, or of any subsequent breach thereof.
No payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installments of rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent nor shall any endorsement or statement
on any check or letter accompanying a check for payment of rent be deemed on
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent, to terminate
this Lease, to repossess the Leased Premises or to pursue any other remedy
provided in this Lease. No re-entry by Landlord, and no acceptance by Landlord
of keys from Tenant, shall be considered an acceptance of a surrender of this
Lease or the Leased Premises.
22. COVENANTS OF LANDLORD. Landlord covenants that it has the right to
---------------------
make this Lease for the term aforesaid and covenants that if Tenant shall pay
the rent and perform all of the covenants, terms and conditions of this Lease to
be performed by Tenant, Tenant shall, during the term of this Lease freely,
peaceably and quietly occupy and enjoy the full possession of the Leased
Premises. The term "Landlord" as used in this Lease shall mean solely the owner
of the Project. In case the original or any successor Landlord shall convey or
otherwise dispose of its entire interest in the Project and turn over to the
transferee any funds held by it hereunder in which Tenant has an interest, all
liabilities of such Landlord under this Lease shall terminate, except for those
liabilities arising during the term of ownership by Landlord.
23. NO REPRESENTATIONS BY LANDLORD. Neither Landlord nor any agent,
------------------------------
employee or property manager of Landlord has made any representations with
respect to the Leased Premises or the Project except as herein expressly stated,
and no right, privileges, easements or licenses are acquired by Tenant except as
herein expressly stated.
24. DEFAULT.
-------
a) Any one of the following events shall constitute an Event of Default:
i) Tenant shall fail to pay any monthly installment of Base Rent,
Operating Expenses, or additional rent as herein provided and
such default shall continue for five (5) days after notice from
Landlord; however, such late payment shall not occur more than
once per calendar year;
ii) Tenant shall violate or fail to perform any of the other terms,
covenants or conditions of this Lease and such default shall
continue for 30 days after notice from Landlord;
iii) Tenant shall file or have filed against it or any guarantor of
this Lease any bankruptcy or other creditor's action which is not
dismissed within sixty (60) days
9
<PAGE>
provided Tenant is diligently pursuing cure, or make an
assignment for the benefit of its creditors;
b) If an Event of Default shall have occurred and be continuing, Landlord
may at its sole option by written notice to Tenant terminate this
Lease. Neither the passage of time after the occurrence of the Event
of Default nor exercise by Landlord or any other remedy with regard to
such Event of Default shall limit Landlord's right under this
Paragraph 24 b).
c) If an Event of Default shall have occurred and be continuing, whether
or not Landlord elects to terminate this Lease, Landlord may enter
upon and repossess the Leased Premises (said repossession being
hereinafter referred to as "Repossession") by force, summary
proceedings, ejectment or otherwise, and may remove Tenant and all
other persons and property therefrom.
d) From time to time after Repossession of the Leased Premises, whether
or not this Lease has been terminated, Landlord may, but shall not be
obligated to, attempt to relet the Leased Premises for the account of
Tenant in the name of Landlord or otherwise, for such term or terms
(which may be greater or less than the period which would otherwise
have constituted the balance of the Term) and for such terms (which
may include concessions or free rent) and for such uses as Landlord,
in its sole and unqualified discretion, may determine, and may collect
and receive the rent therefor. Landlord shall not be responsible or
liable for any failure to collect any rent due upon any such
reletting.
e) No termination of this Lease pursuant to Paragraph 24 b) and no
Repossession of the Leased Premises pursuant to Paragraph 24 c) or
otherwise shall relieve Tenant of its liabilities and obligations
under this Lease, all of which shall survive any such termination or
Repossession. In the event of any such termination or Repossession,
whether or not the Leased Premises shall have been relet, Tenant shall
pay to Landlord the Base Rent and other sums and charges to be paid by
Tenant up to the time of such termination or Repossession, and
thereafter Tenant, until the end of what would have been the term in
the absence of such termination or Repossession, shall pay to
Landlord, as and for liquidated and agreed current damages for
Tenant's default, the equivalent of the amount of the Base Rent,
Operating Expenses, additional rent and such other sums and charges
which would be payable under this Lease by Tenant if this Lease were
still in effect, less the net proceeds, if any, of any reletting
effected pursuant to the provisions of Paragraph 24 d) after deducting
all of Landlord's expenses in connection with such reletting,
including without limitation, all repossession costs, brokerage and
management commissions, operating expenses, legal expenses, reasonable
attorneys' fees, alteration costs, and expenses of preparation for
such reletting. Tenant shall pay such current damages to Landlord
monthly on the days on which the Base Rent would have been payable
under this Lease if this Lease were still in effect, and Landlord
shall be entitled to recover the same from Tenant on each such day.
At any time, after such termination or Repossession, whether or not
Landlord shall have collected any current damages as aforesaid,
Landlord shall be entitled to recover from Tenant, and Tenant shall
pay to Landlord on demand, as and for liquidated and agreed final
damage for Tenant's default, an amount equal to the then present worth
of the excess of the Base Rent and other sums or charges reserved
under this Lease from the day of such termination or repossession for
what would be the then unexpired term if the same had remained in
effect, over the then net fair rental value of the Leased Premises for
the same period.
f) If an Event of Default shall have occurred and Landlord places in the
hands of an attorney the enforcement of all or any of the terms,
covenants, agreements or conditions of this Lease, the collection of
any rent or other such sums and charges that are due or to become due,
or the recovery of possession of the Leased Premises, Tenant agrees to
reimburse Landlord, as additional rent hereunder, for Landlord's
reasonable attorneys
10
<PAGE>
fees, together with the actual cost of maintaining any action
commenced in law or equity by said attorneys for the services of the
attorneys, whether suit is actually filed or not. Such reimbursement
shall be payable within 30 days of demand therefor.
25. SURRENDER. Tenant shall surrender the Leased Premises to Landlord
---------
upon termination of this Lease, whether such termination occurs at the end of
the lease term or sooner, together with all utility systems, improvements,
replacements, alterations and decorations thereto and operating bulbs or tubes
in all light fixtures, broom clean and in good order, condition and repair
except for ordinary wear and tear or damage by casualty. Tenant shall remove
promptly, upon request by Landlord, alterations, modifications and the like to
the Leased Premises made by Tenant or on behalf of Tenant and shall restore and
repair damage caused by such removal. Should Tenant fail to surrender the
Leased Premises in the condition required by this section, Landlord shall be
entitled to take whatever steps may, in Landlord's sole discretion, be required
to restore the Leased Premises to said condition and Tenant agrees that it shall
pay to Landlord all costs incurred by Landlord in so restoring the Leased
Premises.
26. HOLDING OVER. Should the Tenant continue to occupy the Leased
------------
Premises, or any part thereof, after the expiration or termination of the Term
of this Lease whether with or against the consent of the Landlord, such tenancy
shall be from month to month and Tenant shall pay Landlord the additional rent
set forth in Section 5 plus 1.5 times the Base Rent set forth in Section 4
during the entire period that Tenant continues to so occupy the Leased Premises
after the term of this Lease, plus any other changes occasioned by such
holdover, plus all attorney fees and expenses incurred by Landlord to enforce
its rights hereunder.
27. LATE PAYMENT. Other remedies for non-payment of rent notwithstanding
------------
and without prejudice to such remedies, if Tenant fails to pay the monthly base
rent, Operating Expenses or any other payment due hereunder, within the 10 days
immediately following the date on which such payment is due, Tenant shall pay
the following amounts to Landlord as additional rent hereunder:
a) Interest on all such past due payments at the rate of 1 1/2% per month
or at the maximum rate permitted by law whichever rate is lower.
Interest shall accrue from the date each such late payment became due
and shall be payable to the date of payment thereof by Tenant;
b) A service charge equal to the costs actually incurred by Landlord as a
result of Tenant's failure to make payments due hereunder including,
but not limited to, costs incurred in the collection or attempted
collection of such past due amounts.
28. SECURITY AND DAMAGE DEPOSIT. Upon execution of this Lease, Tenant
---------------------------
will deposit with Landlord the sum of Twenty One Thousand Six Hundred Ninety
Four and 00/100 Dollars ($21,694.00), receipt of which is acknowledged hereby by
Landlord, which deposit is to be held by Landlord, without liability for
interest, as a security and damage deposit for the faithful performance by
Tenant during the term hereof or any extension hereof. Prior to the time when
Tenant shall be entitled to the return of this security deposit, Landlord may
co-mingle such deposit with Landlord's own funds and to use such security
deposit for such purposes as Landlord may determine. In the event of the
failure of Tenant to keep and perform any of the terms, covenants and conditions
of this Lease to be kept and performed by Tenant during the term hereof or any
extension hereof, then Landlord, either with or without terminating this Lease,
may (but shall not be required to) apply such portion of said deposit as may be
necessary to compensate or repay Landlord for all losses or damages sustained or
to be sustained by Landlord due to such breach on the part of Tenant, including,
but not limited to overdue and unpaid rent, any other sum payable by Tenant to
Landlord pursuant to the provisions of this Lease, damages or deficiencies in
the reletting of Leased Premises, and reasonable attorneys' fees incurred by
Landlord. Should the entire deposit or any portion thereof, be appropriated and
applied by Landlord, in accordance with the provisions of this paragraph, Tenant
upon written demand by Landlord, shall remit forthwith to Landlord a sufficient
amount of cash to restore said security deposit to the original sum deposited,
and Tenant's failure to do so within ten (10) days after receipt of such demand
shall constitute a breach of this
11
<PAGE>
Lease. Said security deposit shall be returned to Tenant, less any depletion
thereof as the result of the provisions of this paragraph, at the end of the
term of this Lease or any renewal thereof, or upon the earlier termination of
this Lease. Tenant shall have no right to anticipate return of said deposit by
withholding any amount required to be paid pursuant to the provision of this
Lease or otherwise.
In the event Landlord shall sell the Project, or shall otherwise convey or
dispose of its interest in this Lease, Landlord may assign said security deposit
or any balance thereof to Landlord's assignee, whereupon Landlord shall be
released from all liability for the return or repayment of such security deposit
and Tenant shall look solely to the said assignee for the return and repayment
of said security deposit. Said security deposit shall not be assigned or
encumbered by Tenant without the written consent of Landlord, and any assignment
or encumbrance without such consent shall not bind Landlord. In the event of
any rightful and permitted assignment of this Lease by Tenant, said security
deposit shall be deemed to be held by Landlord as a deposit made by the
assignee, and Landlord shall have no further liability with respect to the
return of said security deposit to the Tenant.
29. HAZARDOUS SUBSTANCES AND ENVIRONMENTAL REGULATIONS.
--------------------------------------------------
a) When used in this Section 29, the terms "Environmental Regulations"
and "Hazardous Substances" shall have the following meanings:
i) Environmental Regulations shall mean and refer to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. 9601 et seq., the Minnesota Environmental
Response and Liability Act, Minn. Stat. Chapter 115B, all
amendments thereto, and all other laws, acts, statutes,
ordinances, rules, regulations, orders or determinations of any
governmental authority pertaining to or regulating Hazardous
Substances, Infectious Waste, asbestos, radiation, radioactive
material, health or the environment.
ii) Hazardous Substances shall mean and refer to all hazardous
substances, hazardous waste, toxic waste, asbestos, PCB's,
radiation, radioactive material, pollutants or contaminants as
defined in or regulated by Environmental Regulations.
Tenant warrants, represents and agrees that:
b) Its use of the Leased Premises and the Project, and the operation of
its business thereon, shall not violate any Environmental Regulations.
c) Tenant has obtained and shall continue to maintain all permits,
licenses or similar authorizations required by Environmental
Regulations to conduct its business on the Leased Premises.
d) Tenant's use of the Leased Premises will not result in the disposal,
discharge, emission or release of any Hazardous Substance in any
quantity on or about the Leased Premises, Building or the Project or
the contamination of any part of the Project thereby.
e) Upon request by Landlord, Tenant shall deliver to Landlord copies of
all contracts, programs, management plans or certifications regarding
the generation, storage, use, removal or disposal of Hazardous
Substances which are required in order for Tenant to be compliance
with Environmental Regulations. Landlord agrees to hold said
contracts, programs, plans and certifications in confidence. Tenant
shall, upon request by Landlord, provide Landlord with copies of
permits, inspection reports, monitoring reports, license, orders,
compliance requests or other documentation filed, served, delivered or
transmitted either with, to or from the Minnesota Pollution Control
Agency, Minnesota Department of Health or the U.S. Environmental
Protection Agency or other
12
<PAGE>
governmental body relating to Tenant's use of Hazardous Substances in
or about the Leased Premises or the Project.
In the event Tenant, its officers, partners, agents, employees or
subcontractors shall breach or fail to perform any of the warranties,
representation and agreements contained in this Section, then, in addition to
any other remedy Landlord may have under this Lease, at law or in equity:
f) Upon notice from Landlord, Tenant shall remove from the Leased
Premises, Building or the Project, at Tenant's sole expense, any
Hazardous Substance which is not in compliance with Environmental
Regulations or this Lease Agreement;
g) Landlord and such Environmental Engineers or consultants as it may
employ shall be entitled to enter upon the Leased Premises for the
purpose of conducting such environmental audits or similar tests as
Landlord may deem necessary and the cost and expense of such
environmental audits or and tests incurred by Landlord shall be paid
by Tenant, if Tenant is found to be in Default of this Section 29, as
additional rent hereunder with the next installment of Base Rent; and
h) Tenant shall protect, indemnify and save Landlord harmless from all
costs, fines, claims, demands, actions, proceedings, judgments and
damages (including court costs and reasonable attorneys' fees)
resulting from or arising out of any breach or nonperformance by
Tenant of the representations, warranties and agreements contained in
this Section 29 including, without limitation, the cost of removal
and/or remediation of any disposal, discharge, release or
contamination of Hazardous Substances on or about the Leased Premises,
Building or the Project.
i) To the best of Landlord's knowledge, there is no hazardous
substance(s) on or about the Leased Premises, the Building or the real
property on which it is located and that none of the foregoing is
subject to any agreement, order of any court or government agency,
judgement or permit requiring clean up, contribution or other act or
expense as a result of an environmental condition. Landlord shall
indemnify, defend and hold Tenant harmless from any and all costs,
fines, claims, demands, actions, proceedings, judgments, damages or
expenses, including, without limitation, reasonable attorney's fees
and court costs resulting from any environmental liability or
condition, except to the extent that Tenant has caused such condition.
It is expressly acknowledged by Tenant that all of the terms, covenants and
conditions of this Section 29, including, but not by way of limitation, the
indemnification's herein provided shall survive the termination of this Lease.
30. NOTICES. All notices or other communications hereunder shall be in
-------
writing and shall be hand delivered or sent by certified mail, receipt requested
or overnight delivery United States mail to the following address:
Landlord: CENTURY 2000 PARTNERS, LLP
C/o Steiner Development, Inc.
Attention: David Kordonowy
3610 County Road 101
Wayzata, Minnesota 55391
Tenant: A BUSINESS CONFERENCE CALL, INC.
7974-7984 Century Boulevard
Chanhassen, Minnesota 55317
Mailed notice shall be effective the day following the day of mailing;
13
<PAGE>
31. MISCELLANEOUS.
-------------
a) This Lease Agreement is made and executed in the State of Minnesota,
and shall be constructed according to the laws of Minnesota;
b) The invalidity or unenforceability of any provisions of this agreement
shall not affect or impair the validity of any provisions; and section
titles and captions in this Agreement are for convenience only and do
nor define, limit or construe the contents of such paragraphs;
c) If more than one person or entity shall sign this Lease as Tenant, the
obligations set forth herein shall be deemed joint and several
obligations of each such party;
d) This Lease shall be binding upon and inure to the benefit of the
parties thereto and, subject to the restrictions and limitations
herein contained, their respective heirs, successors and assigns;
e) Any modification to this Lease must be in writing and signed by both
Landlord and Tenant.
32. REAL ESTATE BROKERS. Intentionally left blank by Landlord.
-------------------
14
<PAGE>
33. RELOCATION. Landlord and Tenant agree that Landlord may, at
-----------
Landlord's reasonable discretion, relocate Tenant in accordance with the
following: In the event Landlord shall have mutually agreeable like kind space
to the Leased Premises in Arboretum Business Park, Chanhassen, Minnesota to
relocate Tenant to, and providing the base rent, cam and tax for mutually
agreeable like kind space will not result in a higher cost to Tenant than Tenant
is paying for the Leased Premises, Landlord may elect to terminate Tenant's
occupancy of the Leased Premises and relocate the Tenant to the mutually
agreeable like kind space (the "Relocation Clause"). In the event Landlord
elects to relocate the Tenant under this Relocation Clause, then Landlord will
be responsible for the reasonable cost of moving Tenant and Tenant's equipment
inventory and personal property to the mutually agreeable like kind space, and
Tenant shall be responsible for modifications to the mutually agreeable like
kind space which are in excess of those made by Landlord to render the space
like kind. Like kind shall be deemed to be office and warehouse space as
described in the Lease. Tenant agrees to execute a new lease, or an amendment
to the Lease, or such other documents as may be required, in the event of the
Landlord's exercise of the Relocation Clause. Said Relocation, if exercised by
Landlord, and to the extent Landlord has control, shall not result in any down
business time or operational delay for Tenant.
34. RIGHT OF FIRST REFUSAL. Provided Tenant is not in Default of any of
-----------------------
the terms and conditions herein, and subject to the tenant at the north end of
the Building, DRIASI's right to expand, Tenant shall have a one time Right of
First Refusal to lease the adjoining 6,490 square foot bay at 7968 Century
Boulevard. Tenant shall have ten (10) business days to accept Landlord's
offer to lease said adjoining bay. Rates for said adjoining bay shall be at the
then current rate and terms for the Building for similar office and warehouse
space but in no event shall the rates be less than Tenant is currently paying
for said similar space. Improvements and lease term, or extension thereof,
shall be mutually agreed upon between Tenant and the Landlord.
35. OPTION TO RENEW I. Provided Tenant is not in Default of any of the
------------------
terms and conditions herein and, subject to the tenant at the north end of the
Building, DRIASI's right to expand, Tenant shall have the Option to Renew the
Lease Agreement for a period of 3 years by giving Landlord 150 days advance
written notice of it's' intention to renew. Landlord shall respond to Tenants'
request to exercise this Option to Renew within ten (10) business days. All
terms and conditions of said renewal term shall be the same as stated herein
except Base Rent for said renewal term shall be $23,049.00 per month.
36. OPTION TO RENEW II. In the event Tenant exercises Option to Renew I,
-------------------
provided Tenant is not in Default of any of the terms and conditions herein and
subject to the tenant at the north end of the Building DRIASI's right to expand,
Tenant shall have the Option to Renew the Lease Agreement for an additional
period of 3 years by giving Landlord 150 days advance written notice of it's'
intention to renew. Landlord shall respond to Tenants' request to exercise this
Option to Renew within ten (10) business days. All terms and conditions of said
renewal term shall be the same as stated herein except Base Rent for said
additional renewal term shall be $25,354.00 per month.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement this
3rd day of August, 1999.
CENTURY 2000 PARTNERS, LLP A BUSINESS CONFERENCE CALL, INC.
A Minnesota General Partnership A Minnesota Corporation
By: /s/ David Kordonowy By: /s/ RFM
------------------------------------ ------------------------------
Its: Partner Its: ______________________________
------------------------------------
Date: 8-3-99 Date: 8/3/99
------------------------------------ ------------------------------
Federal Tax I.D.#:_________________
State Tax I.D. #:__________________
16
<PAGE>
EXHIBIT "A"
LEASEHOLD IMPROVEMENT SPECIFICATIONS FOR:
A BUSINESS CONFERENCE CALL, INC.
--------------------------------
ARBORETUM BUSINESS PARK II
To Be Based on a Final, Mutually Agreed to Space Plan
July 28, 1999
ARCHITECTURAL : An allowance has been included for all Architectural
drawings including consultation, revisions, delivery
costs and prints.
ENGINEERING : No allowance has been included for Engineering of any
Mechanical, Electrical, Plumbing or Structural
drawings.
BUILDING PERMIT : Provided by Steiner Development, Inc. No SAC or WAC
charges have been included if required.
SUPERVISION : Daily site supervision shall be provided by a Steiner
Development Construction Superintendent or a working
Construction Foreman.
FINAL CLEAN-UP : A one time Final Clean-Up shall be provided by Steiner
--------
Development. Included are vacuum carpets, damp mop any
vinyl flooring. Clean restrooms complete, all glass
surfaces, wipe down Millwork.
COMMON LABOR : Construction clean-up shall be provided for the
duration of the project.
DUMPSTER : Construction dumpsters will be utilized to dispose of
construction related debris and demo materials.
MISC. STEEL : 6" x 7' pipe bollards at and Service Door Stair cases
as required by code
LUMBER : Provide all Lumber, backing, glue and fasteners
required to install all Millwork, Cabinets and Hardware
included in this specification.
CARPENTRY : Provide Carpentry Labor to install all Doors, Millwork,
Shelves, backing, Bathroom Partitions and Hardware
included on the final plan and specification.
CABINETS : 10' Upper Cabinet and Base Cabinet with P.-lam. top in
Break Room. Tenant to share 50% of the cost of upgraded
cabinet over and above the 10' building standard
cabinet as shown per plan.
P.-lam., wall hung ADA approved restroom vanities in
restrooms
MILLWORK : All new doors per the final Architectural plan door
schedule
New doors shall be 3' 0" x 6' 8" Oak flush, solid core,
with Oak Ranch casings on both sides, prepped for 2
3/4" backset Schlage hardware
New rated doors shall be 3' 0" x 6' 8" Hollow Metal
knock down frames with oak flush doors, prepped for 2
3/4" backset Schlage hardware, brushed chrome hinges
and strike.
The following Rooms receive 12" building standard
sidelights: #103, 104, 105, 107, 108 and 125.
<PAGE>
ROOFING : Roofing in all new Mechanical, Electrical and Plumbing
vent penetrations are included.
OVERHEAD DOORS : All new Overhead Doors, if any, per the Architectural
plan door schedule. Overhead doors will be glazed in
with windows per Building Standard window package per
Architectural plan.
HARDWARE : All new Hardware per code and the Architectural plan
door schedule
Door Hardware
-------------
New doors shall receive Schlage lever handle passage
sets in a brushed chrome finish except as shown in
Locksmith Section below.
- Door hinges shall be brushed chrome
- Door closures shall be provided on all exterior
doors, restroom doors and doors with a fire
rating. Any additional door closures can be added
at a cost of $125.00/each
Restroom Hardware
-----------------
Door Hardware as required per code including, closures,
ADA approved grab bars and toilet paper and paper towel
dispensers are included
LOCKSMITH : Rekeying of all perimeter entrance doors included with
10 keys. Room #103, 104, 105, 107, 108 and 125 to
receive Schlage locksets.
DRYWALL : Construct all Drywall walls per final plan and
specifications. Rooms #125 and 136 to receive
fiberglass sound batt insulation in the walls at
Landlord's sole cost and expense. The following Rooms
shall also receive fiberglass sound insulation batts
and the cost of said insulation shall be shared 50%-50%
by Landlord and Tenant: Rooms 103, 104, 105, 107, 108,
109, 110, 117, 128, 135.
Restroom walls to be framed to 1' above suspended
ceiling height and shall receive a drywall ceiling at
8'. All restroom walls and ceiling shall be fully
insulated with fiberglass sound attenuation batts
Vestibule walls to be framed to 1' above suspended
ceiling height and shall receive a drywall ceiling at
8'0" a.f.f.
Warehouse, if any, to be fire taped only
CERAMIC : New Restrooms
-------------
Floors to receive a Group 1, 2" x 2" Ceramic floor tile
New Restroom walls and base to receive a Group 1, 4
1/4" x 4 1/4" Ceramic wall tile. Wall tile to be
installed to 46 3/4" high, with a 24" return at the lav
and a 60" return at the watercloset. A mirror knotch
shall be provided above each lav or vanity (must be
field verified). Restroom walls to receive ceramic tile
accent strip as shown per plan
New entry vestibules to receive a building standard
ceramic tile selected by Steiner Development, Inc.
ACOUSTICAL CEILING : Provide and install an Armstrong 704A, Minatone, 2' x
2' x 5/8", Cortega, Tegular or approved equivalent with
white grid at 10' - 0-1/2" off the floor at the entire
office area
<PAGE>
FLOORING : An allowance of $14.00 per yard for material, tax and
installation has been included for new carpet per the
Architectural plan for the entire office area
VCT as specified below can be substituted for carpet
where desired
VCT Specifications: Tarket Commercial Floor Tile,
standard series including Classics, Keystones and
Structures. 1/8" x 12" x 12" vinyl composition
tile or equivalent
Anti-static 1'x1' VCT is included in Room #117
BASE : 4" New carpet base has been included over all new
carpeted areas
4" Vinyl base has been included over all new VCT floors
PAINT : Custom stain, seal and varnish all doors and millwork
to building standard specifications
All office walls to receive 2 coats of flat latex paint
Warehouse/Storage walls, if any, to receive no finish
FIRE PROTECTION : Office areas to include a wet pipe system in accordance
with NFPA 13, Light Hazard Occupancy
Office sprinklering heads to be chrome semi-recessed
Warehouse areas, if any, to include a wet pipe system
in accordance with NFPA 13 Ordinary Hazard Occupancy
PLUMBING : Install all plumbing including water, waste and vent
per final plan and specification
- All new and existing vent piping in a return air
plenum space shall be cast iron per code
Add 1 - utility sink per plan
Add 1 - cooler type drinking fountain adjacent to each
restroom core
All new water closets to be 1.6 gallon pressure assist
flush per code
Floor drains to be provided at each new restroom, new
utility sink, new water heater
Stainless steel, double basin kitchen style sink with
single handle goose neck faucet and hot/cold water
service is included for the Break Room Area
HVAC : New combination heat / cool rooftop units have been
included to provide HVAC for the office area based on
the final plan
Restroom exhaust fans are included for each restroom
- All new gas pipe blocking shall receive rigid
insulation roof penetration
ELECTRICAL : The following electrical allowances have been included:
<PAGE>
- (1) duplex outlet per 80 square has been included
for the hardwalled office area.
- (2) duplex outlets will be provided for (2) Tenant
provided fax machines. (2) duplex outlets will be
provided for (2) Tenant provided copy machines.
- (250) 2'x4' lay-in 18 cell parabolic fixtures has
been included for the office area per plan.
Janitor closet to receive 2'x4' acrylic lense lay-
in fixture.
- (26) 20 amp circuits in open office landscape for
initial cubicle and workstation installation.
Wiring of workstations and installation of power
poles by Tenant.
- Empty conduit will be provided above the ceiling
grid for future expansion of workstation/cubicle
area. Future wiring through conduit and
workstations by Tenant.
- Restrooms receive 4' acrylic lens wrap fixtures
per plan
- One (1) phone/data opening per office or
conference room
- One (1) GFI outlet in each restroom
- Break Room Area to receive (4outlets for (4)
tenant provided microwave ovens at the cabinets
area, and (4) outlets for tenant provided vending
machines/refrigerators
- (2) 8' strip fluorescent strip fixtures in
warehouse/storage
- Single pole switches as required by plan.
- Emergency and exit lighting to code
NOT INCLUDED : * Any mandated requirements by the City of
Chanhassen Building or Fire Department such as but
not limited to the following:
- Relocating of A Business Conference Call's
equipment including setting, installing,
mechanical, plumbing, communications and
electrical connections are not included unless
specifically called out in this specification.
- Scrubbing or waxing of any floor surfaces
- Soap dispensers or sanitary napkin dispensers
- Signage
- Tenant furniture, reception station or work
stations
<PAGE>
EXHIBIT "B"
[Graphic depiction of Floor Plan]
<PAGE>
EXHIBIT "C"
[Graphic depiction of Site/Landscape Plan]
<PAGE>
EXHIBIT "D"
[Graphic depiction of Site Plan]
<PAGE>
EXHIBIT "E"
[Graphic depiction of Parking Space Allocation]
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Exhibit 10.10
1861 WIEHLE AVENUE
FIRST FLOOR (SUITES 100 & 105)
DEED OF LEASE
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THIS DEED OF LEASE (this "Lease") is made this 30th day of September, 1999,
by and between ROYCO, INC., a Maryland corporation ("Landlord"), and TELEPHONE
BUSINESS MEETINGS, INC., d/b/a Vialog Corporation, formerly d/b/a Access
Conference Call Service, a Delaware corporation ("Tenant").
Landlord, for and in consideration of the rents and all other charges and
payments hereunder and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, demises and leases to
Tenant, and Tenant hereby hires and takes from Landlord, the premises described
below, subject to all matters hereinafter set forth and upon and subject to the
covenants, agreements, terms, provisions and conditions of this Lease for the
term hereinafter stated.
1. TERMS.
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1.1. Premises. Effective as of October 1, 1999 with respect to
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approximately 3,584 rentable square feet on the first floor (the "Bank Space")
currently occupied by Wachovia Bank (the "Bank") in 1861 Wiehle Avenue (the
"Building"), Reston, Virginia 22090, and effective as of February 1, 2000 with
respect to approximately 12,268 square feet of space on the first floor of the
Building (the "EDS Space") currently occupied by Electronic Data Systems
("EDS"), (the Bank Space and the EDS Space are hereinafter collectively referred
to as the "Premises"), Landlord demises to Tenant the Premises together with a
nonexclusive right to use parking and other common areas. The Premises total
approximately Fifteen Thousand Eight Hundred Fifty Two (15,852) rentable square
feet. The location and dimensions of the Premises are shown on Exhibit A
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attached hereto and incorporated herein by reference.
No easement for light or air is included in this Lease. Landlord shall not
intentionally block Tenant's view from the Premises.
1.2. Building. Landlord represents that the total rentable area of
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the Building is approximately 73,685 sq. ft., and Tenant's percentage of the
Building with respect to this Lease only shall be as follows:
<TABLE>
<CAPTION>
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Effective As Of: Tenant's Percentage
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<S> <C>
October 1, 1999 4.86%
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February 1, 2000 21.51%
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</TABLE>
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1.3. Lease Term. The parties agree that the Lease Commencement Date
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and the Lease Expiration Date with respect to the Bank Space and the EDS Space,
collectively comprising the Premises, are as follows:
<TABLE>
<CAPTION>
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Space Lease Commencement Lease
(as defined herein) Date Expiration Date
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<S> <C> <C>
Bank Space October 1, 1999 June 30, 2005
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EDS Space February 1, 2000 June 30, 2005
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</TABLE>
1.4. Base Rent. The basic rent for the Premises ("Base Rent") shall be
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based upon $26.00 per rentable square foot per year (including janitorial,
custodial and maintenance services), commencing on the respective Lease
Commencement Date for the Bank Space and the EDS Space, and thereafter shall
increase three percent (3%) per annum, all as more particularly set forth as
follows:
<TABLE>
<CAPTION>
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Time Period Base Annual Rent Monthly Installment
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<S> <C> <C>
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10/1/99 to 1/31/00 $ 93,184.00 $ 7,765.33
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2/1/00 to 6/30/01 $412,152.00 $34,346.00
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7/1/01 to 6/30/02 $424,516.56 $35,376.38
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7/1/02 to 6/30/03 $437,252.06 $36,437.67
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7/1/03 to 6/30/04 $450,369.62 $37,530.80
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7/1/04 to 6/30/05 $463,880.71 $38,656.73
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</TABLE>
In addition to the Base Rent, Tenant shall pay all amounts designated as
Additional Rent ("Additional Rent") under this Lease, including but not limited
to charges for additional services under Section 8.2, increases in costs of
services and utilities under Article 9, and increases in Property Taxes under
Article 10, all of which shall be deemed rent ("Rent") due under this Lease.
1.5. Renewal Option.
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1.5.1. Tenant is granted the right and option (the "Renewal
Option") to extend the term of this Lease for the entire Premises for one (1)
additional period of five (5) years, and if such renewal is effectively
exercised, such renewal term (the "Renewal Term") shall commence upon the
expiration of the previous term of this Lease, provided that:
(a) Such option must be exercised, if at all, by notice
from Tenant to Landlord given at least one hundred eighty (180) days prior to
the expiration of the Lease Term; and
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(b) At the time of exercising such option, this Lease shall
be in full force and effect and there shall exist no default by Tenant that
remains uncured beyond any applicable period of grace.
1.5.2. If Tenant effectively exercises the Renewal Option, all
the terms and conditions contained in this Lease shall continue to apply except
that:
(a) There shall be no further right of renewal beyond the
Renewal Term;
(b) The Renewal Option shall apply to all (and not less than
all) of the Premises, plus any additional space leased by Tenant pursuant to any
option contained herein or otherwise;
(c) If Tenant shall have assigned this Lease or sublet in
excess of twenty-five percent (25%) of the Premises, except to as otherwise
permitted in this Lease, this Renewal Option shall automatically expire and be
null and void with respect to that portion of the Premises so assigned or
sublet;
(d) Tenant shall enter into an amendment to this Lease to set
forth the amount of initial Rent during such Renewal Term;
(e) The Rent during such Renewal Term shall be ninety-five
percent (95%) of the then current fair market rental rate for similar buildings
in the same geographic area including all applicable market concessions and
rental escalations. If Landlord and Tenant are unable to reach agreement on the
current fair market rental rate for the Premises within ten (10) business days
after Tenant's written notice to Landlord of such renewal, then such
determination shall be made using the three broker method as follows: within ten
(10) business days after expiration of the ten (10) business day period for
Landlord and Tenant to reach mutual agreement as contemplated above, Landlord
and Tenant shall each select a commercial real estate broker who is licensed and
in good standing in the Commonwealth of Virginia, who has at least five (5)
years experience, and who is knowledgeable about the Reston area and commercial
leasing therein. To determine the current fair market rental rate, the brokers
shall consider comparable office leases in the Reston area and shall compare all
relevant factors including (1) the age, quality, function, location and
condition of the Building; (2) the time period covered by the Renewal Term; (3)
the amount of space being leased under the comparable leases as compared to the
amount of space within the Premises; and (4) market concession such as, but not
limited to, rental abatement and comparable tenant improvement allowances for
renewals and new leases (as the case may be). Such brokers shall also make
appropriate adjustments in their calculation to account for any costs or
expenses (or savings) which relate to the inclusion or exclusion of specific
operating costs items (i.e., cost of electricity, etc.) and different base years
which may be applicable to such full service lease(s), or which are unique to
the particular comparable office leases in those Reston office buildings used in
arriving at their calculation of the current fair market rental rate
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for the Premises as set forth above. If Landlord's broker and Tenant's broker
are unable to agree upon the current fair market rental rate for the Premises
within thirty (30) days of their selection, they shall mutually select a
similarly qualified third (3rd) broker, and the third (3rd) broker shall
determine the current fair market rental rate for the Premises. If the
determination of the third broker falls between the determination of Landlord's
broker and Tenant's broker, the Rent during the Renewal Term shall be ninety-
five percent (95%) of the third broker's determination of the current fair
market rental rate for the Premises. However, if the determination of the third
broker does not fall between the determinations of Landlord's broker and
Tenant's broker, the Rent during the Renewal Terms shall be ninety-five percent
(95%) of the average of the two closest broker's determinations.
1.5.3. In the event Tenant fails to exercise the foregoing
option in the manner and within the time period set forth herein, the Lease
shall automatically terminate at the end of the then current term, the
applicable Renewal Option shall lapse and Tenant shall have no further right or
option to extend the term of this Lease.
2. DELIVERY OF POSSESSION.
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2.1 Contingency. To accommodate this Lease for the Premises under
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the terms and conditions as provided herein, the existing lease by and between
Landlord and the Bank for the Bank Space is due to expire on September 30, 1999,
and the existing lease by and between Landlord and EDS for the EDS Space is due
to expire on January 31, 2000. Tenant hereby understands, acknowledges and
agrees that Landlord makes no guaranty, representation, warranty, or assurance
that either the Bank or EDS, or both, will timely vacate the Bank Space or the
EDS Space, respectively, so as to enable Landlord to deliver the Premises, or
any part thereof, to Tenant by the dates set forth herein. Landlord shall use
its reasonable and good faith efforts to cause the Bank and EDS to vacate their
respective spaces at the conclusion of their respective lease terms. If the
Bank does not vacate the Bank Space prior to October 31, 1999, or if EDS does
not vacate the EDS Space prior to February 28, 2000, Tenant shall have the right
to terminate (a) this Lease or (b) this Lease only as it pertains to the
portions of the Premises not vacated by EDS or the Bank, by written notice
delivered to Landlord within thirty (30) days following the date upon which
possession of either the Bank Space or the EDS Space was to be delivered to
Tenant by Landlord under the terms of this Lease, and neither Landlord nor
Tenant shall have any further obligation or liability to the other with respect
to this Lease. If Tenant fails to provide any such notice of termination, this
Lease shall continue in full force and effect, and the Commencement Date shall
be the date upon which Landlord delivers possession of the Premises to Tenant.
Notwithstanding any other term in this Lease to the contrary, Tenant
shall not begin paying the Base Rent for the Bank Space until Landlord tenders
possession of the Bank Space to Tenant, and Tenant shall not begin paying the
Base Rent for the EDS Space until Landlord tenders possession of the EDS Space
to Tenant. "Occupancy" for purposes of paying rent shall not occur until the
bank vault, night depository, and the
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automated teller machine (collectively, the "Bank Equipment") have been removed
and all repairs have been completed.
2.2 Condition of Bank Space. Landlord agrees that prior to occupancy
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by Tenant and no later than October 1, 1999, Landlord will use its reasonable
efforts to cause the Bank to remove the Bank Equipment currently housed in the
Bank Space and to make all necessary repairs to the exterior walls and interior
walls, ceilings and floors to return the affected areas to substantially the
same condition that would have existed had the bank vault and automated teller
machine never been installed. Provided that the Bank timely vacates the Bank
Space as set forth in Section 2.1 of this Lease, Landlord agrees that prior to
October 1, 1999, all signs placed on the outside of the Building by Wachovia
Bank will be removed and that portion of the exterior walls where the signs were
located will be repaired at no cost to Tenant. If Bank fails to remove the Bank
Equipment and/or to make necessary repairs to restore the space as required
herein, Lanldord shall, at Landlord's cost, remove the Bank Equipment and/or
make such necessary repairs in a reasonable amount of time. If Bank fails to
make complete repairs by September 30, 1999 as contemplated by this Lease,
Tenant shall have the right to select a contractor reasonably accetpable to
Landlord to perform the uncompleted repairs. Before commencing any such
repairs, Tenant shall obtain Landlord's approval, which approval shall not be
unreasonably withheld, delayed, or conditioned. Landlord shall reimburse Tenant
for the reasonable, verifiable, direct, third party costs actually incurred by
Tenant in causing such repairs to be completed.
2.3 Tenant Improvement Allowance. Except as otherwise provided in
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this Lease, Tenant shall accept the Premises in their "AS IS, WHERE IS, WITH ALL
FAULTS" condition. Landlord shall provide Tenant with a tenant improvement
allowance ("Allowance") of Six Dollars ($6) per rentable square foot, which
Allowance equates to $21,504 for the Bank Space and $73,608 for the EDS Space.
Tenant shall use the Allowance to remodel the Bank Space and the EDS Space to
meet its needs and in accordance with the terms and conditions with respect to
alterations as more particularly set forth in this Lease. The Allowance shall
be provided to Tenant as a credit against the Base Rent payable for the
Premises. Tenant shall pay fifty percent (50%) of the Base Rent payable for the
Premises until the Allowance is exhausted. Landlord shall not charge and hereby
waives imposing a construction management fee for supervising any such initial
tenant improvements.
3. PAYMENT OF RENT. Except as otherwise provided in this Lease, Tenant
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shall pay Landlord the Rent and any other payments due under this Lease without
demand, deduction or offset, in lawful money of the United States in advance on
or before the first day of each month, except that the first month's Base Rent
shall be paid upon the execution hereof, at the address noted in Section 29, or
to such other party or at such other place as Landlord may hereafter from time
to time designate in writing. Rent and other amounts due under this Lease for
any partial month at the beginning or end of the Lease term shall be prorated,
on a per diem basis.
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4. SECURITY DEPOSIT. As security for its full and faithful performance
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of this Lease, Tenant shall pay Landlord a total security deposit of Thirty Four
Thousand Three Hundred Forty Six Dollars ($34,346), constituting one (1) month's
rent, payable immediately on execution of this Lease. Tenant shall provide the
security deposit to Landlord in the form of immediately available funds (i.e.,
cash, certified check, money order). The security deposit shall not be
considered an advance payment of rental or a measure of Landlord's damages in
case of default by Tenant.
If Tenant provides the security deposit in the form of cash or other
immediately available funds, Landlord shall deposit such funds into an interest
bearing account chosen by Landlord in its reasonable discretion and, provided
Tenant is otherwise entitled to repayment of the security deposit hereunder,
Tenant shall be entitled to any and all interest accrued thereon.
Notwithstanding the foregoing, Tenant acknowledges and agrees that Landlord may
commingle the security deposit with other funds in Landlord's possession
provided Landlord otherwise complies with the terms hereof. All direct out-of-
pocket expenses to set up and maintain such account shall be deducted from any
interest earned on the amount of such cash security deposit. If Tenant defaults
with respect to any covenant or condition of this Lease, including but not
limited to the payment of Base Rent, additional rent or any other payment due
under this Lease, and the obligation of Tenant to maintain the Premises and
deliver possession thereof back to Landlord at the expiration or earlier
termination of the Lease Term in the condition required herein, then Landlord
may (without any waiver of Tenant's default being deemed to have occurred) apply
all or any part of the security deposit to the payment of any sum in default or
any other sum that Landlord may be required or deem necessary to spend or incur
by reason of Tenant's default. In such event, Tenant shall, on demand, deposit
with Landlord the amount so applied to replenish the security deposit. If
Tenant shall have fully complied with all of the covenants and conditions of
this Lease, but not otherwise, the amount of the security deposit (including all
interest accrued thereon if any) then held by Landlord shall be repaid to Tenant
within thirty (30) days after the expiration or sooner termination of this
Lease. In the event of a sale or transfer of Landlord's estate or interest in
the Building, Landlord shall have the right to transfer the security deposit to
the purchaser or transferee, and Landlord shall be considered released by Tenant
from all liability for the return of the security deposit, so long as the
transferee acknowledges receipt of the security deposit and Landlord's
obligations under this Lease.
5. USES.
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5.1. Permitted Uses. The Premises are to be used only for general
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office purposes including without limitation the operation of a
telecommunications service business which includes audio, video, graphic and
data telecommunications ("Permitted Uses") and for no other business or purpose
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, delayed, or conditioned. Tenant is a group
communications company serving the trade association, corporate, legal and
government agency market. Initially during the Lease term Tenant's
sophisticated computer-based switches will be connected to the public telephone
network
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via fiber optic cable. No act shall be done in or about the Premises that is
unlawful or that will increase the existing rate of insurance on the Building.
Landlord represents that, to Landlord's knowledge, Tenant's permitted uses shall
not increase the existing rate of insurance in the Building. In the event of a
breach of this covenant, Tenant shall immediately cease the performance of such
unlawful act or such act that is increasing or has increased the existing rate
of insurance and shall pay to Landlord any and all increases in insurance
premiums resulting from such breach. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance or
other act or thing which produces noise or disturbance to the quiet enjoyment of
any other tenant in the Building. If any of the Tenant's office machines or
equipment produces noise or disturbance within the premises of any other tenant
in the Building, then Tenant shall provide adequate insulation, or take such
other action as may be necessary to eliminate the noise or disturbance at its
sole cost and expense. Subject to the provisions set forth in Section 14, Tenant
shall obtain and maintain any required permit for equipment, machine, device,
tank or vessel which is subject to any federal, state or local permitting
requirement. Tenant, at its expense, shall comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements governing the
installation, operation and removal of any such equipment, machine, device, tank
or vessel. Tenant, at its expense, shall comply with all laws, statutes,
ordinances, governmental rules, regulations or requirements, and the provisions
of any recorded documents now existing or hereafter in effect relating to its
use, operation or occupancy of the Premises and shall observe such reasonable
rules and regulations as may be adopted and made available to Tenant by Landlord
from time to time for the safety, care and cleanliness of the Premises or the
Building and for the preservation of good order therein, provided, however, that
in no event shall Tenant be required to perform Alterations (as hereinafter
defined) outside of the Premises or with respect to the structural elements of
the Building within the Premises. Landlord represents that the provisions of any
recorded documents now existing or hereafter in effect relating to Tenant's use,
operation or occupancy of the Premises shall not limit Tenant's use of the
Premises for the permitted uses described in this Section 5.1. Landlord, at its
sole cost and expense, shall be responsible for ensuring all Building
Life/Safety Systems meet the applicable federal, state and local codes and
regulations. Landlord shall be solely responsible for compliance with the ADA
(Americans with Disabilities Act), legislation concerning CFC's and all other
legal requirements not relating exclusively to tenant's use and occupancy of the
Premises. Landlord shall not lease space in the Building to another tenant who
will, within the Building, operate a telecommunication conferencing business.
5.2. Hazardous Materials.
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5.2.1. As used herein, the term "Hazardous Material" shall mean
any substance or material which has been determined by any state, federal or
local governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency (the "EPA"), or any federal agencies that have
overlapping jurisdiction with such state
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agencies, or any other governmental agency now or hereafter authorized to
regulate materials and substances in the environment.
5.2.2. Landlord represents to Tenant that, to Landlord's
knowledge, the Premises and the Building are free from hazardous substances as
of the date of execution of this Lease. In addition, Landlord agrees that should
any hazardous substances be found within the Premises or the Building which were
placed therein by Landlord, its agents, employees or contractors or which were
within the Premises prior to the Lease Commencement Date and were not introduced
by Tenant, its agents, employees and invitees, Landlord shall be responsible for
all costs associated with removing said hazardous substances from the Premises
and the Building and otherwise complying with the applicable federal, state or
local laws with regard thereto. During the term of this Lease, Landlord agrees
that it shall not introduce, dispose of, or store hazardous substances within
the Premises or the Building in violation of applicable law, and shall comply
with all valid orders issued by federal, state and local authorities relating
thereto.
5.2.3. Tenant hereby covenants not to cause or permit any
Hazardous Material to be placed, held, located or disposed of in, on or at the
Premises or any part thereof and hereby covenants that neither the Premises nor
any part thereof shall ever be used as a dump site or storage site (whether
permanent or temporary) for any Hazardous Material during the term of this Lease
(other than incidental office use in compliance with the law). Tenant hereby
agrees to indemnify Landlord and hold Landlord harmless from and against any and
all losses, liabilities, including strict liability, damages, injuries,
expenses, including reasonable attorneys' fees, costs of any settlement or
judgment and claims of any and every kind whatsoever paid, incurred or suffered
by, or asserted against, Landlord by any person or entity or governmental agency
for, with respect to, or as a direct or indirect result of, the presence on, or
the escape, seepage, leakage, spillage, discharge, emission, discharging or
release from, the Premises of any Hazardous Material (including, without
limitation, any losses, liabilities, including strict liability, damages,
injuries, expenses, including reasonable attorneys' fees, costs of any
settlement or judgment or claims asserted or arising under the Comprehensive
Environmental Response, Compensation and Liability Act, any so-called federal,
state or local "Superfund" or "Superlien" laws, statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to or imposing liability,
including strict liability, substances or standards of conduct concerning any
Hazardous Material), provided, however, that the foregoing indemnity is limited
to matters arising solely from Tenant's violation of the covenant contained in
the first sentence of this Section 5.2.3. Tenant hereby agrees fully to
cooperate with Landlord and provide such documents, affidavits and information
as may be reasonably requested by Landlord (i) to comply with any environmental
law, (ii) to comply with the reasonable request of any lender, purchaser or
tenant, and/or (iii) for any other reason deemed necessary by Landlord in its
sole but reasonable discretion. Landlord shall have the right but not the
obligation, and without limitation of Landlord's rights under this Lease, to
enter onto the Premises or to take such other actions as it deems necessary or
advisable to cleanup, remove, resolve or minimize the impact of, or otherwise
deal with, any Hazardous Material following receipt of any
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notice from any person or entity (including without limitation the EPA)
asserting the existence of any Hazardous Material in, on or at the Premises or
any part thereof which, if true, could result in an order, suit or other action
against Tenant or Landlord or both. All reasonable costs and expenses incurred
by Landlord in the exercise of any such rights, which costs and expenses result
from Tenant's violation of the covenant contained in the first sentence of this
Section 5.2.3, shall be deemed Additional Rent under this Lease and shall be
payable by, Tenant upon Landlord's demand therefor. The provisions of this
Section 5.2 shall survive the cancellation, termination or expiration of this
Lease.
6. LATE CHARGES. Tenant hereby acknowledges that late payment to
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Landlord of Rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. If any Rent or other sum due from Tenant is not
received within five (5) business days of its due date, then Tenant shall pay to
Landlord immediately upon Landlord's demand therefor a late charge in an amount
equal to two percent (2%) of such overdue amount, plus any attorneys' fees and
costs incurred by Landlord by reason of Tenant's failure to pay Rent and other
charges when due hereunder. Notwithstanding the foregoing, once per calendar
year, Landlord shall agree to forego the late charge specified above provided
Tenant pay such Rent or other sums due hereunder within five (5) days of
Tenant's receipt of written notice from Landlord that such payment is due.
7. REPAIRS AND MAINTENANCE. Landlord shall maintain, or cause to be
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maintained in first class working condition, the common areas of the Building
and the land upon which it is situated, including without limitation the
lobbies, elevators, stairs, and corridors, the roof, foundations, structural
elements, building systems (including, without limitation, the primary building
HVAC but excluding any supplemental HVAC system serving the Premises), parking
areas and exterior walls of the Building, and the underground utility and sewer
pipes outside the exterior walls of the Building, if any, except any of such
repairs rendered necessary by the negligence or misconduct of Tenant, its
agents, customers, employees, independent contractors, guests or invitees (to
the extent not released by Landlord pursuant to Section 18.2), the repair of
which shall be paid for by Tenant within thirty (30) days of Landlord's written
demand with backup invoices. Landlord shall not alter the existing windows of
the Premises (whether by addition of film or otherwise). Subject to Landlord's
right of access pursuant to Article 17, Tenant shall be exclusively responsible
for the interior of the Premises (other than structural elements of the Building
and portions of the Building systems within the Premises), which shall be
maintained by Tenant in good order and repair, and Landlord shall be under no
obligation to inspect the Premises or, except as otherwise expressly provided in
this Lease, repair the Premises. Tenant shall promptly report in writing to
Landlord any defective condition known to it which Landlord is required to
repair, and failure to so report such defects shall make Tenant responsible to
Landlord for any liability incurred by Landlord by reason of such conditions.
Tenant hereby waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect.
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8. UTILITIES AND SERVICES.
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8.1. Service. From 8:00 a.m. to 6:00 p.m. on weekdays ("Normal
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Business Hours") and from 9:00 a.m. to 12:00 p.m. on Saturday ("Saturday
Mornings") (except for legal holidays), Landlord shall furnish to the Premises
electricity for lighting and operation of low-power usage office machines in an
amount no less than 6.0 watts per square foot, water, heat and air conditioning
in accordance with the HVAC specifications attached hereto as Exhibit B, and
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elevator service. During all other hours, Landlord shall furnish such service
except for heat and air conditioning. Elevator service shall be provided to the
Premises, twenty-four (24) hours per day, seven (7) days per week. Landlord
shall be responsible for maintaining the off site monitoring fire suppression
system for the Building.
8.2. Additional Services. If requested by Tenant, Landlord shall
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furnish heat and air conditioning at times other than Normal Business Hours and
Saturday Mornings and the cost of such services shall be Landlord's actual cost
(which as of the date of this Lease is $25.00 per hour) and shall be paid by
Tenant as Additional Rent, payable within thirty (30) days after receipt of
Landlord's Invoice. Landlord shall also provide toilet room supplies, window
washing at reasonable intervals, and customary Building janitorial service in
accordance with the cleaning specifications attached hereto as Exhibit C. Other
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types of services provided or caused to be provided by Landlord to Tenant which
are in addition to the services ordinarily provided Building tenants shall be
payable as provided in Section 9.1.1.2 of this Lease. Landlord shall not be
liable for any loss, injury or damage to property caused by or resulting from
any variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance. In
no event shall Landlord be liable to Tenant for any damage to the Premises or
for any loss, damage or injury to any property therein or thereon occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes or other
similar cause in, above, upon or about the Premises or the Building. If
restoration of any service is within Landlord's control, Landlord shall use
diligent efforts to restore such service. If HVAC or electrical services to the
Premises are interrupted for more than three (3) business days and Tenant cannot
reasonably conduct its business, then until such service is restored, the Rent
and the Additional Rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof, and this Lease
shall continue in full force and effect, subject however to Tenant's rights at
law or in equity to make a claim for constructive eviction or otherwise.
9. COST OF SERVICES AND UTILITIES.
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9.1. Definitions. In addition to the Base Rent and other Additional
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Rent as set forth in this Lease, Tenant shall pay to Landlord as Additional Rent
increases under this Article 9. Said increases shall be made as provided herein,
using the following definitions:
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9.1.1. "Operating Costs" shall include Costs of Utilities and
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Other Operating Costs.
9.1.1.1. "Costs of Utilities" shall mean all expenses
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paid and incurred by Landlord for electricity, water, gas, sewers, oil and
utility services for the Building, land and parking and other common areas.
9.1.1.2. "Other Operating Costs" shall mean all other
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expenses paid and incurred by Landlord for maintaining, operating, replacing,
repairing, and managing (i) the Building, (ii) the personal property used in
conjunction therewith, (iii) the Building roof, or (iv) the land upon which the
Building is situated, including all curbs and sidewalks adjacent to the same.
Such costs shall include, without limitation, supplies, cleaning services,
garbage and trash collection, personal property taxes, replacement lighting,
maintenance and service contracts, wall and window washing, towel service,
machinery, equipment, a commercially reasonable management fee consistent with
market rates, window glass replacement and repair, landscaping services of
independent contractors (including, without limitation, ice and snow removal),
compensation (including employment taxes and fringe benefits) of all persons who
perform regular and recurring duties in connection with the management,
excluding: (a) Costs of any special services rendered to individual tenants
(including Tenant), for which a special, separate charge shall be made; (b)
Property Taxes (as defined in Section 10.1.1); (c) depreciation or amortization
of costs required to be capitalized in accordance with generally accepted
accounting practices (except for proper depreciation of the costs of energy
savings devices to the extent in any year of the documented annual energy
savings realized therefrom); (d) the costs of all repairs and replacements of
the Premises and the remainder of the Building or portions thereof or fixtures,
equipment and facilities comprising or serving the Premises and building made
necessary as a result of defects in workmanship or materials of initial
construction of the Building; (e) the cost to prepare space for occupancy by any
tenants of the Building and for renovating, painting, repainting, decorating,
redecorating, planning and designing space for any tenants (including the
Tenant); (f) the cost of overtime or other expenses to the Landlord in curing
its default or performing work expressly provided for in this Lease to be borne
at the Landlord's expense (including such work for other tenants in the
Building); (g) other expenses incurred in leasing or for procuring tenants; (h)
debt service payments on any mortgage or on any amortization or debts, points,
commissions and legal fees associated with financing; (i) the cost of materials,
work or utilities separately charged to individual tenants of the Building; (j)
legal fees paid or incurred in connection with litigation with tenants for any
defaults under their leases and any legal fees incurred in leasing space to
tenants; (k) income, net profits, estate, inheritance, gift, franchise,
business, professional, occupational or succession taxes and any similar tax or
assessment imposed upon or measured by the Landlord's income from the Building;
(l) credits, allowances, permits, licenses, inspections, or other payments or
rent waivers or concessions granted to any tenant (including Tenant) or incurred
in completing, fixturing, renovating or otherwise improving, decorating or
redecorating tenant space in the Building; (m) any costs paid to induce tenants
to move into or maintain their tenancy at the Building, such as moving
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<PAGE>
expenses or rental or other concessions to tenants (including specified cleaning
or other services not provided to other tenants of the Building on a regular
basis), including any such costs incurred with respect to the Tenant; (n) all
costs incurred in connection with parking operations of the Building (if any);
(o) the costs of any capital improvement or the cost of leasing any equipment,
fixtures, or trade fixtures where purchase would be considered a capital cost
under generally accepted accounting principles, but including any capital
improvements expressly permitted to be included in Operating Costs pursuant to
the terms of this Section, (p) compensation paid to officers of Landlord or
officers of the management agent; (q) costs directly resulting from the gross
negligence or willful misconduct of Landlord, its employees, agents, contractors
or employees; (r) costs for which Landlord is reimbursed by any insurance
required to be carried hereunder or actually carried by Landlord or the cost for
which Landlord would have been reimbursed by insurance required to be carried
hereunder in the event Landlord fails to diligently pursue the insurance
proceeds; (s) costs for any structural maintenance, replacement or redesign; (t)
costs or expense associated with the enforcement of any leases by Landlord; (u)
costs or fees relating to the defense of Landlord's title or interest in the
real estate containing the Building, or any part thereof; (v) any costs or
expenses relating to Landlord's obligations under any workletter to construct
tenant improvements; (w) expenses in connection with services or other benefits
of a type which are not made available to Tenant but which are provided to
another tenant or occupant; (x) renovation of the Building made necessary by the
exercise of eminent domain; (y) any cost attributable to income received by
Landlord or an affiliate of Landlord for the provision of any goods or services,
to the extent such cost exceeds the cost for such goods and services in the
prevailing market place; (z) ground rent; (aa) legal fees which are not related
to the operation, maintenance and management of the Property or other
professional or consulting fees which are not directly related to the
maintenance, operation and management of the Building, except for any legal fees
incurred by Landlord which are attributed solely to Tenant in accordance with
the terms of this Lease; intentionally deleted; (cc) increased insurance
premiums caused by Landlord's or any tenants' hazardous acts only to the extent
of such increase, except for an increase attributed solely to Tenant's hazardous
acts; (dd) costs arising from the presence of hazardous materials or substances
in or about or below the Building or the land upon which it is situated,
including without limitation, hazardous substances in the groundwater or soil,
except to the extent Tenant is responsible for the presence of such hazardous
materials; (ee) costs incurred for any items to the extent of Landlord's
recovery under a manufacturer's, materialmen's vendors or contractor's warranty;
(ff) wages, salaries or other compensation or benefits for off site employees
applicable to the time spent working at other buildings, other than the Building
manager (provided that with respect to each employee that services the Building
and other buildings, a pro rata portion of such employee's salary shall be
included in operating expenses, as applicable); (qq) excessive and unreasonable
costs of acquisition of sculpture, paintings, or other objects of art; (hh) the
rent or expenses in lieu of rent for any on-site leasing office of Landlord in
the Building, or of any other space (except the management office serving the
Building) in the Building set aside for storage or other facilities for the
benefit of Landlord; (ii) management fees in excess of management fees
specifically allowed above; (jj) any
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special assessments caused by other tenants of the Building, and (kk) subject to
the other provisions of this Section, all costs incurred by Landlord for
replacement of the primary building HVAC system serving the Building or the
Premises (but not any supplemental HVAC system serving the Premises). In the
event that Landlord receives proceeds from insurance that reimburse Landlord for
items previously included in Landlord's operating Costs (even if for a prior
year), the Actual Costs for the year in which such charge was made shall be
recalculated to reflect the receipt of the insurance proceeds (less any
reasonable expense incurred by Landlord to obtain such proceeds) and Tenant's
proportionate share of any overpayment made for Operating Costs for such year,
as recalculated, shall be refunded to Tenant in thirty (30) days.
9.1.2. "Lease Year" shall mean the twelve-month period
----------
commencing January 1 and ending December 31.
9.1.3. "Base Services Year" shall mean calendar year 2000.
------------------
9.1.4. Intentionally Deleted.
9.1.5. "Actual Costs" shall mean the actual expenses paid and
------------
incurred by Landlord for Operating Costs during any Lease Year of the term
hereof.
9.1.6. "Actual Costs Allocable to the Premises" shall mean the
--------------------------------------
Tenant's share of the Actual Costs determined by multiplying Tenant's percentage
of the Building described in Section 1.2 by the Actual Costs.
9.1.7. "Estimated Costs Allocable to the Premises" shall mean
-----------------------------------------
Landlord's reasonable estimate of Actual Costs Allocable to the Premises for the
following Lease Year to be given by Landlord to Tenant pursuant to Section 9.3.
9.2. Base Amount. Operating Costs allocable to the Premises for the
-----------
Bass Services Year shall be deemed the "Base Amount."
9.3. Additional Rent. Prior to the commencement of each Lease Year
---------------
(except the Base Services Year) during the term hereof, Landlord shall furnish
Tenant a written statement of the Estimated Costs Allocable to the Premises for
such Lease Year and a calculation of the portion of Estimated Costs Allocable to
the Premises payable by Tenant as Additional Rent in accordance with this
Section. In advance of or before the first day of each month during the term
hereof commencing on the first day of the first Lease Year following the Base
Services Year, Tenant shall pay as Additional Rent for each month during each
such Lease Year: one-twelfth (1/12th) of the amount, if any, by which the
Estimated Costs Allocable to the Premises exceed the Base Amount. If at any
time or times during any such Lease Year, it appears to Landlord that the
Estimated Costs Allocable to the Premises will vary from Landlord's estimate by
more than five percent (5%) on an annualized basis, Landlord may, by written
notice to Tenant, reasonably revise its estimate for such Lease Year and the
portion of the Estimated Costs Allocable
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to the Promises payable by Tenant as Additional Rent as provided herein for such
Lease Year shall be accordingly adjusted based on such revised estimate.
9.4. Actual Costs. Within ninety (90) days after the close of each
------------
Lease Year during the term hereof, Landlord shall deliver to Tenant a written
statement of the Actual Costs, with a line item breakdown, and the Actual Costs
Allocable to the Premises, during the preceding Lease Year. The first such
statement shall be for the Base Services Year, although no Rent shall be due
from Tenant on account thereof. If such costs for any Lease Year less the Base
Amount exceed the amounts paid by Tenant to Landlord pursuant to Section 9.3,
Tenant shall pay the amount of such excess to Landlord as Additional Rent within
thirty (30) days after receipt of such statement by Tenant. If such statement
shows such costs to be less than the amount paid by Tenant to Landlord pursuant
to Section 9.3, then the amount of such overpayment by Tenant shall be credited
by Landlord to the next Rent payable by Tenant. In the event such overpayment
cannot be fully credited by Landlord to the next Rent payable by Tenant due to
the expiration of the term of this Lease, any remaining overpayment shall be
credited by Landlord to any other charges due under this Lease and, to the
extent no such charges are due, shall be refunded to Tenant by Landlord within
thirty (30) days of the Lease Expiration Date.
9.5. End of Term. If this Lease terminates on a day other than the
-----------
last day of a Lease Year, the amount of any adjustment to Estimated Costs
Allocable to the Premises with respect to the Lease Year in which such
termination occurs shall be prorated on the basis which the number of days from
the commencement of such Lease Year to and including such termination date bears
to 365; and any amount payable by Landlord to Tenant or Tenant to Landlord with
respect to such adjustment shall be payable within thirty (30) days after
delivery by Landlord to Tenant of the statement of Actual Costs Allocable to the
Premises with respect to such Lease Year.
9.6. Tenant's Audit Rights. Tenant shall have the right, with fifteen
---------------------
(15) days written notice to Landlord and at Tenant's sole cost, and expense, to
audit Landlord's books and records pertaining to the Actual Costs for the
preceding year and for the Base Services Year one time per year within one
hundred eighty (180) days of Tenant's receipt of Landlord's reconciliation at
Landlord's or Landlord's property manager's place of business. If a discrepancy
in Tenant's favor is discovered, then Landlord must reimburse Tenant immediately
for any overpayment and must pay for such audit if the discrepancy results in
any overpayment of more than five percent (5%).
10. PROPERTY TAXES.
--------------
10.1. Contribution to Taxes. In addition to the Base Rent and other
---------------------
Additional Rent, Tenant shall pay to Landlord, as Additional Rent, its share of
the increase in Property Taxes under this Article 10. Tenant's share of the
increase of such taxes shall be determined as provided herein, utilizing the
following definitions:
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<PAGE>
10.1.1. "Property Taxes" shall mean any form of assessment,
--------------
license, fee, rent tax, excise, imposition, charge, levy, penalty (if a result
of Tenant's delinquency), or tax (other than net income, profit, business,
professional, estate, succession inheritance, transfer or franchise taxes),
including, without limitation, all ad valorem, sales and use, value added, gross
receipts, sewer, privilege, or similar taxes, imposed by any authority having
the direct or indirect power to tax, or by any city, county, state or federal
government or any improvement or other district or division thereof, on the
Building or any part thereof, the land upon which the Building is situated, the
parking area serving the Building, or any other legal or equitable interest of
Landlord in the same.
10.1.2. The Term "Lease Year" shall mean the period defined in
----------
Section 9.1.2.
10.1.3. The term "Base Tax Year" shall mean calendar year 2000.
-------------
10.1.4. The term "Tenant's Share of Property Taxes" shall mean
--------------------------------
the amount of Property Taxes payable during any Lease Year by Landlord
multiplied by Tenant's percentage of the Building described in Section 1.2.
10.2. Additional Rent for Estimated Increases in Tenant's Share of
------------------------------------------------------------
Property Taxes. Prior to the commencement of each Lease Year (except the Base
- --------------
Tax Year), Landlord shall furnish Tenant with a written statement setting forth
Landlord's reasonable estimate of Tenant's Share of Property Taxes for such
Lease Year. One-twelfth (1/12th) of the amount, if any, by which such estimated
Tenant's Share of Property Taxes exceeds the Tenant's Share of Property Taxes
for the Base Tax Year shall be Additional Rent payable by Tenant as provided in
Article 3.
10.3. Actual Property Taxes. Within ninety (90) days after the close
---------------------
of each Lease Year during the term hereof, Landlord shall deliver to Tenant a
written statement (to include all relevant tax bills and paid receipts) setting
forth the Tenant's Share of Property Taxes during the preceding Lease Year. If
such amount less Tenant's Share of Property Taxes for the Base Tax Year
("Tenant's Actual Share") exceeds the amount of Property Taxes actually paid by
Tenant to Landlord pursuant to Section 10.2 hereof, Tenant shall pay the amount
of such excess to Landlord as Additional Rent within thirty (30) days after
receipt of such statement by Tenant. If such statement shows Tenant's Actual
Share to be less than the amounts paid by Tenant to Landlord pursuant to Section
10.2, then the amount of such overpayment shall be credited by Landlord to the
next Rent payable by Tenant. In the event such overpayment can not be fully
credited by Landlord to the next monthly Rent or subsequent monthly Rent payable
by Tenant due to the expiration of the term of this Lease, any remaining
overpayment shall be credited by Landlord, until such credit is used up, to any
other charges due under this Lease and, to the extent no such charges are due,
shall be refunded to Tenant by Landlord within thirty (30) days of the Lease
Expiration Date.
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<PAGE>
10.4. Taxes on Personal Property Paid for by Tenant and Not
-----------------------------------------------------
Reimbursed by Landlord. Tenant shall pay, prior to delinquency, all personal
- ----------------------
property taxes payable with respect to all property of Tenant located on the
Premises or the Building and shall provide promptly, upon request of Landlord,
written proof of such payment.
10.5. End of Term. If this Lease terminates on a day other than the
-----------
last day of a Lease Year, the amount of any adjustment between the estimated and
actual Tenant's Share of Property Taxes with respect to the Lease Year in which
such termination occurs shall be prorated on the basis of a 365-day year; and
any amount payable by Landlord to Tenant or Tenant to Landlord with respect to
such adjustment shall be payable within thirty (30) days after delivery by
Landlord to Tenant of the statement of Tenant's Share of Property Taxes with
respect to such Lease Year.
10.6. Further Adjustment. In the event the average occupancy level
------------------
of the Building for the Base Services Year and/or any subsequent Lease Year was
not ninety-five percent (95%) or more of full occupancy, then the Property Taxes
for such year shall be proportionately adjusted among the tenants by Landlord to
reflect those costs which would have occurred had the Building been ninety-five
percent (95%) occupied during such year.
11. LIABILITY AND INSURANCE. Tenant shall, at Tenant's expense, obtain
-----------------------
and keep in force during the term of this Lease a policy of comprehensive
general liability insurance, including personal injury liability, contractual
liability, and completed operations liability (if applicable), insuring Landlord
and Tenant against any liability arising out of the use, occupancy or
maintenance of the Premises. Such insurance shall be in the amount of not less
than One Million and no/100ths Dollars ($1,000,000.00) for bodily injury and
property damage for any one accident or occurrence. Fire and casualty insurance
with extended coverage in an amount of not less than Fifty Thousand and
no/100ths Dollars ($50,000.00) covering Tenant's personal property and equipment
shall also be obtained and kept in force during the term of this Lease at
Tenant's expense. The limit of any of such insurance shall not limit the
liability of Tenant hereunder. If Tenant fails to procure and maintain such
insurance Landlord may, after ten (10) days notice and opportunity to cure, but
shall not be required to, procure and maintain the same, at Tenant's expense to
be reimbursed by Tenant as Additional Rent within ten (10) days of written
demand. All insurance required to be obtained by Tenant hereunder shall be
issued by companies reasonably acceptable to Landlord. Thirty (30) days prior to
the Lease Commencement Date, Tenant shall deliver to Landlord certificates of
liability insurance required herein with loss payable clauses satisfactory to
Landlord. Any deductible under such insurance policy in excess of Ten Thousand
and no/100ths Dollars ($10,000.00) must be approved by Landlord in writing prior
to issuance of such policy. No policy shall be cancelable, allowed to lapse
and/or expire and/or be subject to reduction of coverage except upon thirty (30)
days prior written notice to Landlord. All such policies shall name Landlord as
named insureds and Tenant's casualty policies shall be written as primary
policies not contributing with and not in excess of coverage which
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<PAGE>
Landlord may carry. The policy limits set forth herein shall be subject to
periodic review, and Landlord reserves the right to require that Tenant increase
the liability coverage limits if, in the reasonable opinion of Landlord, the
coverage becomes inadequate and is less than commonly maintained by tenants
making similar uses of similar buildings in the vicinity of the Building. Tenant
shall obtain any revised or increased coverage required by Landlord within sixty
(60) days of any such notification from Landlord.
12. FIRE INSURANCE - FIXTURES AND EQUIPMENT.
----------------------------------------
12.1. During the term, Landlord shall carry and maintain all risk
property insurance covering the Building and Landlord's property therein, with
full replacement cost coverage (exclusive of footings and foundations) and in an
amount required by its insurance company to avoid the application of any
coinsurance provision. Landlord's insurance shall be issued by a company that is
licensed to do business in the Commonwealth of Virginia and that has a rating
equal to or exceeding A- from Best's Insurance Guide, and shall be primary and
not contributing.
12.2. Tenant shall maintain in full force and effect on all Tenant's
trade fixtures, equipment and personal property and the Premises, a policy of
all risk property insurance covering the full replacement value of such
property. During the term of this Lease, the proceeds from any such policy of
insurance shall be used for the repair or replacement of the fixtures and
equipment so insured. Landlord shall have no interest in the insurance upon
Tenant's equipment and fixtures and will sign all documents reasonably necessary
or proper in connection with the settlement of any claim or loss by Tenant.
Landlord will not carry insurance on Tenant's possessions. Tenant shall furnish
Landlord with a certificate of insurance evidencing that the requirements set
forth herein are in full force and effect. Any deductible in excess of Ten
Thousand and no/100ths Dollars ($10,000.00) under such insurance must be
approved in writing by Landlord prior to issuance of such policy. The policy
limits set forth herein shall be subject to periodic review, and Landlord
reserves the right to require that Tenant increase the limits if, in the
reasonable opinion of Landlord, the coverage becomes inadequate and is less than
commonly maintained by tenants making similar uses of similar buildings in the
vicinity of the Building. Tenant shall provide Landlord with notice of loss or
damage to property promptly after such loss or damage occurs. Tenant shall
provide and keep in force with companies satisfactory to Landlord, business
interruption and/or loss of rental insurance in an amount equivalent to six (6)
months Rent and Additional Rent which shall not contain a deductible greater
than Ten Thousand Dollars ($10,000.00). Tenant shall furnish Landlord with
certificates of insurance naming Landlord as an additional insured. No policy
shall be cancelable, allowed to lapse and/or expire and/or be subject to
reduction of coverage except upon thirty (30) days prior written notice to
Landlord.
13. DAMAGE OR DESTRUCTION.
---------------------
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<PAGE>
13.1. Casualty Damage - Insured. If the Building or Premises is
-------------------------
damaged by fire or other perils covered by extended coverage insurance the
following provisions shall apply:
13.1.1. Total Destruction. In the event of total destruction
-----------------
of the Building such that the Premises reasonably cannot be rebuilt within one
hundred and eighty (180) days ("Total Destruction"), then, (i) Landlord shall
elect either promptly to commence repair and restoration of the Building and
prosecute the same diligently to completion, in which event this Lease shall
remain in full force and effect (unless Tenant exercises its right to
terminate), or not to repair or restore the Building, in which event this Lease
shall terminate, and/or (ii) Tenant may elect to terminate this Lease. In either
case, each party shall give the other party written notice of its intention
within sixty (60) days after the occurrence of such destruction. If Landlord
elects not to restore the Building, this Lease shall be deemed to have
terminated as of the date of such total destruction.
13.1.2. Partial Destruction. In the event of a partial
-------------------
destruction of the Building to an extent not exceeding twenty-five percent (25%)
of the value thereof and if the damage thereto is such that the Building may be
repaired or restored within one hundred eighty (180) days from the date of such
destruction and Landlord will receive insurance proceeds sufficient to cover the
cost of such repairs (or would have, had Landlord carried the insurance required
in Section 12.1 of the Lease), Landlord shall commence and proceed diligently
with the work of repair and restoration, in which event this Lease shall
continue in full force and effect. If such repair and restoration requires
longer than one hundred eighty (180) days or the cost thereof exceeds twenty-
five percent (25%) of the value thereof or if the insurance proceeds payable to
Landlord will not be sufficient to cover such cost (and would not have been,
even if Landlord had carried the insurance required in Section 12.1 of the
Lease), (i) Landlord may elect either to so repair and restore, in which event
this Lease shall continue in full force and effect (unless Tenant exercises its
right to terminate), or not to repair or restore, in which event this Lease
shall terminate, and/or (ii) Tenant may elect to terminate this Lease. In either
case, each party shall give written notice to the other party of its intention
within sixty (60) days after the destruction occurs. If Landlord elects not to
repair or restore the Building, this Lease shall be deemed to have terminated as
of the date of such partial destruction.
13.2. Termination. Upon any termination of this Lease under any of
-----------
the provisions of this Article, Tenant shall surrender the Premises in
accordance with the provisions of Article 25.
13.3. Rent Abatement. In the event of repair and restoration as
--------------
herein provided, the monthly installments of Rent shall be equitably abated
based on the amount of the Tenant's loss of use of the Premises occasioned
thereby; provided, however, if the damage is due, directly or indirectly, to the
fault or neglect of Tenant, its officers, contractors, licensees, agents,
servants, employees, guests, invitees or visitors,
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<PAGE>
there shall be no abatement of Rent, except to the extent Landlord receives
proceeds from any applicable insurance policy of Tenant to compensate Landlord
for loss of Rent. Tenant shall not be entitled to any compensation or damages
for loss of use of the whole or any part of said Premises and/or any
inconvenience or annoyance occasioned by such damage, repair or restoration.
13.4. Delay. Tenant shall not be released from any of its
-----
obligations under this Lease except to the extent and upon the conditions
expressly stated in this Article. Notwithstanding anything to the contrary
contained in this Article, if Landlord has elected to repair or restore and is
thereafter delayed or prevented from repairing, or restoring within one (1) year
after the occurrence of such damage or destruction by reason of acts of God,
war, governmental restrictions, inability to procure the necessary labor or
materials, or other causes beyond the control of Landlord, Landlord shall, at
the option of Landlord or Tenant, be relieved of its obligation to make such
repairs or restoration and, in the event Landlord or Tenant exercises such
option, Tenant shall be released from its obligations under this Lease as of the
end of such one (1) year period.
13.5. Uninsured Damage. Notwithstanding anything to the contrary
----------------
contained in this Article, if damage to the Building or the Premises is due to
any cause other than fire or other peril covered by extended coverage insurance,
Landlord may elect to terminate this Lease.
13.6. Repair Obligation. If Landlord is obligated to or elects to
-----------------
repair or restore as herein provided, Landlord shall repair or restore only
those portions of the Building and Premises which were originally provided at
Landlord's expense; and the repair and restoration of areas or items not
provided at Landlord's expense shall be the obligation of Tenant.
13.7. End of Term. Notwithstanding anything to the contrary
-----------
contained in this Article, Landlord or Tenant may elect to terminate this Lease
in the event of damage to the Building or the Premises occurring during the last
(12) months of the term of the Lease or any extension thereof; and Landlord
shall not have any obligation to repair or restore the Premises or the Building
during the last twelve (12) months of the term of this Lease or any extension
thereof.
14. ALTERATIONS AND ADDITIONS: REMOVAL OF FIXTURES.
------------------------------------------------
14.1. Consent Required. Tenant shall not make or allow to be made
----------------
any alterations, additions or improvements (including any initial tenant
improvements) (collectively "Alterations") to or on the Premises without first
obtaining the written consent of Landlord, not to be unreasonably withheld,
conditioned or delayed. Tenant shall have the right to construct additional
enclosed offices in the Bank Space and to remove the counters and small enclosed
spaces that exist in the Bank Space as of the date of this Lease; provided,
however, that (a) Landlord reserves the right to approve the plans for such
construction, which approval shall not be unreasonably withheld, delayed, or
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<PAGE>
conditioned, (b) such construction is performed in a good and workmanlike
manner, (c) the construction is performed in accordance with all applicable laws
and all permits, licenses, and authorizations for such construction have been
obtained before the commencement of any such construction, and (d) such
construction is performed in accordance with the terms of this Section 14.
14.2. Request for Alterations. Any request for Alterations to be
-----------------------
made to the Premises by Tenant shall be made in writing, which shall include
detailed plans and specifications of the proposed Alterations prepared by an
architect approved by Landlord and licensed in the jurisdiction in which the
Premises is located, together with the names and addresses of the proposed
contractors and subcontractors, all of whom shall be approved and licensed as
aforesaid. Tenant shall upon demand reimburse Landlord as Additional Rent for
all reasonable cost and expense actually incurred in reviewing the plans and
specifications and inspecting the work on behalf of Landlord (by persons other
than employees of Landlord) including without limitation, the cost of any
engineers and/or architects retained by Landlord to review same and inspect the
work on behalf of Landlord.
14.3. Nature of Alterations. Any Alterations, including, but not
---------------------
limited to, wall covering, paneling and built in cabinet work (but excepting
moveable furniture and trade fixtures), shall be made at Tenant's sole expense,
according to plans and specifications approved in writing by Landlord, in
compliance with all applicable laws, by a licensed contractor, and in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Lease Commencement Date, shall not diminish the value of the Building
or the Premises and (excluding all telecommunications equipment, computer
equipment and cabling, supplemental HVAC equipment and Tenant's generator(s) and
related equipment, which shall be removed by Tenant in accordance with Section
14.5 below, at Tenant's sole cost and expense at the expiration of the Lease
term) shall at once become a part of the realty and shall be surrendered with
the Premises (unless otherwise required by Landlord as set forth in Section 14.5
below).
14.4. Repairs. Tenant shall be responsible for making any and all
-------
repairs and replacements to the Alterations during the term of this Lease (as
same may be extended) and maintaining the same in good order and condition.
Notwithstanding anything to the contrary contained in this Lease, should there
be a fire or other casualty to the Premises, it is agreed by the parties that
the Landlord shall not be responsible to restore any Alterations made by Tenant
regardless of whether such Alterations were approved by Landlord and the Tenant
shall be responsible to restore the same at its sole cost and expense.
14.5. Expiration/Termination of Lease. Upon the expiration or sooner
-------------------------------
termination of the term hereof, Tenant shall, upon written demand by Landlord,
at Tenant's sole expense, with due diligence, remove any Alterations made by
Tenant, which at the time of Landlord's approval of such Alterations were
designated by Landlord to be removed, and repair any damage to the Premises
caused by such removal.
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<PAGE>
In no event shall Tenant be required to remove the Tenant work performed
pursuant to Exhibit D. Notwithstanding the foregoing, Tenant shall be required
---------
to remove Tenant's telecommunications equipment, computer equipment and cabling,
supplemental HVAC equipment and generator at the termination of this Lease and
repair any damage to the Premises caused by such removal. Tenant shall remove
all of Tenant's moveable property and trade fixtures which can be removed
without damage to the Premises at the termination of this Lease, either by
expiration of the term or other cause, and shall pay Landlord any damages for
injury to the Premises or Building resulting from such removal. If Tenant shall
fail to remove any of its property at the time Tenant vacates the Premises, such
property shall be deemed to have been abandoned by Tenant and Landlord may, in
accordance with the provisions of applicable statutes governing commercial
landlord and tenant matters, without liability for the loss thereof or damage
thereto, either remove and store such property, such storage to be for the
account and at the expense of Tenant, or otherwise dispose of such property in
Landlord's sole and absolute discretion, all at the expense of Tenant. If
Landlord elects to store such property and Tenant fails to pay the cost of
storing any such property within thirty (30) days of demand therefor, Landlord
may sell any or all such property at public or private sale, without notice to
Tenant, and shall apply the proceeds of such sale to the following costs in the
following order: (i) the cost and expense of such sale, including reasonable
attorneys' fees, (ii) the payment of the costs or charges for storing any such
property, and (iii) the payment of any other sums which may then be or
thereafter become due Landlord from Tenant under any of the terms of this Lease.
The balance, if any, shall be paid to Tenant.
15. ACCEPTANCE OF PREMISES. Tenant has expressly agreed in this Lease to
----------------------
accept both the Bank Space and the EDS Space, collectively comprising the
Premises, in their "AS IS, WHERE IS, WITH ALL FAULTS" condition (except for work
to be performed under Section 2.2), and has agreed to complete such tenant
improvements as more particularly set forth in Section 2 of this Lease.
16. TENANT IMPROVEMENTS. The provisions governing the planning,
-------------------
construction, scope of work and terms of payment are set forth in Exhibit D,
---------
which is attached hereto and incorporated herein by this reference.
17. ACCESS.
------
17.1. Landlord's Access. Tenant shall permit Landlord to enter the
-----------------
Premises at all reasonable times with reasonable prior notice (except in case of
emergencies) to inspect the same; to show the Premises to prospective Tenants
(within twelve months of the expiration of the term of this Lease), prospective
lenders, purchasers and investors; to exercise its rights under this Lease; to
clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within the time required
under this Lease or within a reasonable time after written notice from Landlord,
whichever is earlier; to post notices of nonresponsibility and similar notices
and "For Sale" signs at any time and to place "For Lease" signs upon or adjacent
to the Building at any time within twelve (12) months of the expiration of the
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term of this Lease. Tenant shall permit Landlord and its agents to enter the
Premises at any time in the event of an emergency. When reasonably necessary,
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities without liability to Tenant by reason of such closure so long as
Landlord provides reasonable access to the Building and the Premises.
If any entry or work by Landlord would materially adversely affect
Tenant's ability to operate its business in the Premises, Landlord shall
undertake such entry or work (except in the event of an emergency) after Normal
Business Hours.
17.2. Tenant's Access. Tenant shall have, without additional charge
---------------
to Tenant, unlimited access to the Building and adjacent parking area on a 24
hours per day, 7 days per week basis throughout the term of this Lease.
18. WAIVER OF SUBROGATION.
---------------------
18.1. Tenant's Waiver. Whether due to the negligence of Landlord or
---------------
Landlord's agents or employees, or any other cause and notwithstanding any other
provision of this Lease, Tenant hereby releases Landlord and Landlord's agents
and employees from responsibility for and waives its entire claim of recovery
for (i) any loss or damage to the real or personal property of Tenant located in
the Building, including the Building itself, arising out of any of the perils
which are (or could have been) covered by Tenant's property insurance policy,
with extended coverage endorsements, or (ii) loss resulting from business
interruption or loss of rental income, at the Premises, arising out of any of
the perils which are (or could have been) covered by the business interruption
or by the loss of rental income insurance policy held by Tenant. Tenant shall
cause its insurance carrier(s) to consent to such waiver of all rights of
subrogation against Landlord.
18.2. Landlord's Waiver. Whether due to the negligence of Tenant or
-----------------
Tenant's agents or employees, or any other cause. and notwithstanding any other
provision of this Lease, Landlord hereby releases Tenant and Tenant's agents and
employees from responsibility for and waives its entire claim of recovery for
(i) any loss or damage to the real or personal property of Landlord located in
the Building, including the Building itself, arising out of any of the perils
which are (or could have been) covered by Landlord's property insurance policy,
with extended coverage endorsements or (ii) loss resulting from business
interruption or loss of rental income, at the Premises, arising out of any of
the perils which are (or could have been) covered by the business interruption
or by the loss of rental income insurance policy held by Landlord. Landlord
shall cause its insurance carrier(s) to consent to such waiver of all rights of
subrogation against Tenant.
19. INDEMNIFICATION. Tenant shall defend, indemnify and hold harmless
---------------
Landlord, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action,
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claims, losses, damages, costs and expenses, including reasonable attorneys'
fees and costs, arising out of the negligence or willful misconduct or
negligence of, Tenant, its officers, contractors, licensees, agents, servants,
employees, guests, invitees, or visitors in or about the Building or Premises or
arising from any breach or default under this Lease by Tenant, or arising from
any accident, injury, or damage caused by the willful misconduct or negligence
of Tenant, occurring in or about the Building or Premises. This indemnification
shall survive termination of this Lease. This provision shall not be construed
to make Tenant responsible for loss, damage, liability or expense resulting from
injuries to third parties caused by the sole negligence or willful misconduct of
Landlord, or its officers, contractors, licensees, agents, employees, or
invitees.
Landlord shall defend, indemnify and hold harmless Tenant, its agents,
employees, officers, directors, partners and shareholders from and against any
and all third party liabilities, judgments, demands, causes of action, claims,
losses, damages, costs and expenses, including reasonable attorneys' fees and
costs, arising out of the negligence or willful misconduct of, Landlord, its
officers, contractors, licensees, agents, servants, employees, guests, invitees,
or visitors in or about the Building or the Premises or arising from any breach
or default under this Lease by Landlord, or arising from any accident, injury,
or damage caused by willful misconduct or negligence of Landlord, occurring in
or about the Building or Premises. This indemnification shall survive
termination of this Lease. This provision shall not be construed to make
Landlord responsible for loss, damage, liability or expense resulting from
injuries to third parties caused by the negligence or willful misconduct of
Tenant, or its officers, contractors, licensees, agents, employees, or invitees.
20. ASSIGNMENT AND SUBLETTING.
-------------------------
20.1. Landlord's Consent. Tenant shall not assign this Lease, or
------------------
sublease all or any part of the Premises, or permit the use of the Premises by
any party other than Tenant, without the prior written consent of Landlord, such
consent not to be unreasonably withheld, conditioned or delayed. When Tenant
requests Landlord's consent to such assignment or sublease, it shall notify
Landlord in writing of (i) the name and address of the proposed assignee or
subtenant; (ii) the nature and character of the business of the proposed
assignee or subtenant; (iii) financial information including financial
statements of the proposed assignee or subtenant; and (iv) a copy of the
proposed sublet or assignment agreement. Tenant shall thereafter immediately
provide to Landlord any and all other information and documents reasonably
requested by Landlord in order to assist Landlord with its consideration of
Tenant's request hereunder. Without limitation, it shall not be unreasonable if
Landlord denies its consent to a proposed assignment or sublease to an assignee
or subtenant (i) which in Landlord's reasonable opinion does not have sufficient
financial strength to meet its financial obligations under the assignment or
sublease; (ii) which Landlord can demonstrate has a history of committing lease
defaults or otherwise failing to meet its contractual obligations either with
Landlord, its affiliates, or other landlords; or (iii) to any assignee or
sublessee who proposes to use the Premises other than for the uses specifically
permitted under Section
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5, above. If the proposed sublet or assignment is for more than twenty-five
percent (25%) of the rentable area of the Premises, Landlord shall have the
option (to be exercised within ten (10) business days from the submission of
Tenant's request and receipt of all other information requested hereunder) to
cancel this Lease with respect to the portion of the Premises to be subleased or
assigned as of the commencement date stated in the proposed sublease or
assignment. If Landlord shall not exercise its option within the time set forth
above, Landlord's consent to any proposed assignment or sublease shall not be
unreasonably withheld.
20.2. Approved Subleases and Assignment. If Landlord approves an
---------------------------------
assignment or sublease as herein provided, Tenant shall pay to Landlord, as
Additional Rent due under this Lease, as applicable (i) in the case of a
sublease, an overage amount equal to fifty percent (50%) of the difference, if
any, between the Rent allocable to that part of the Premises affected by such
sublease pursuant to this Lease, and the rent paid by the subtenant to Tenant,
less any reasonable and customary expenses incurred by the Tenant in connection
with the sublease (including without limitation tenant improvement costs, free
rent, brokerage fees, legal costs, moving allowance), and (ii) in the case of an
assignment, an overage amount equal to fifty percent (50%) of the premium, if
any, received by Tenant for such assignment. Such overage amounts shall be due
and payable by Tenant to Landlord within thirty (30) days of Tenant's receipt of
payment from the subtenant or assignee. No consent to any assignment or
sublease shall constitute a further waiver of the provisions of this Section,
and all subsequent assignments or subleases may be made only with the prior
written consent of Landlord. An assignee of Tenant, at the option of Landlord,
shall become directly liable to Landlord for all obligations of Tenant hereunder
and shall assume all such obligations in writing in a form reasonably
satisfactory to Landlord, but, no sublease or assignment by Tenant shall relieve
Tenant of any liability hereunder. Any assignment or sublease without
Landlord's consent shall be void, and shall, at the option of the Landlord,
constitute a default under this Lease. In the event that Tenant requests that
Landlord consider a sublease or assignment hereunder (except with respect to the
exercise by Landlord of its option to cancel as set forth in Section 20.1),
Tenant shall pay (i) Landlord's reasonable fees, not to exceed Five Hundred and
00/100 Dollars ($500.00) per transaction, incurred in connection with the
consideration of such request, and (ii) all reasonable attorneys' fees not to
exceed $1,000.00 per transaction and costs incurred by Landlord in connection
with the consideration of such request or such sublease or assignment.
20.3. Pre-Approval of Integrated Chipware. Notwithstanding the
-----------------------------------
requirements with respect to subleases and assignments set forth in this Section
20 of this Lease, Landlord hereby grants its approval for Tenant to enter into
an additional sublease for all or substantially all of the Premises with
Integrated Chipware only, being the same entity that currently sublets space on
the third (3rd) floor of the Building from Tenant.
21. ADVERTISING. Tenant shall not display any sign, graphics, notice,
-----------
picture, or poster, or any advertising matter whatsoever, anywhere in or about
the Premises or the Building at places visible from anywhere outside or at the
entrance to the
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Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Tenant shall be responsible to
maintain any permitted signs and remove the same at Lease termination. If Tenant
shall fail to do so, Landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amount shall be deemed Additional Rent and
shall be due within ten (10) days of Landlord's demand therefor. Tenant shall be
responsible to Landlord for any damage caused by the installation, use,
maintenance or removal of any such signs.
Tenant shall have the right to install two (2) exterior building
signs, subject however to any applicable governmental laws, ordinances,
regulations, and other requirements including, without limitation, all covenants
and restrictions affecting the Premises or the Building, including those in
favor of the Reston Community Association or its successor entity, all at
Tenant's sole expense. The size, design and placement of such shall require
approval of Landlord, which shall not be unreasonably withheld or delayed, and
all applicable zoning, government regulations, ordinances and licenses.
Immediately upon the expiration or earlier termination of this Lease, Tenant
shall remove, at Tenant's sole cost and expense, its two (2) exterior building
signs as permitted herein, and shall be responsible to Landlord for any damage
caused by the removal of such signs.
22. LIENS. Tenant shall keep the Premises and the Building free from any
-----
liens, including but not limited to liens filed against the Premises by any
governmental agency, authority or organization, arising out of any work
performed, materials ordered or obligations incurred by or an behalf of Tenant,
and Tenant hereby agrees to indemnify and hold Landlord, its agents, employees,
independent contractors, officers, directors, partners, and shareholders
harmless from any liability, cost or expense for such liens. Tenant shall cause
any such lien imposed to be released of record by payment or posting of the
proper bond within ten (10) business days after Tenant learns of same. Tenant
shall give Landlord written notice of Tenant's intention to perform work on the
Premises which might result in any claim of lien, at least ten (10) days prior
to the commencement of such work to enable Landlord to post and record a notice
of nonresponsibility or other notice deemed proper before commencement of any
such work. If Tenant fails to remove any lien within the prescribed ten (10)
day period, then landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amount, including reasonable attorneys' fees
and costs, shall be deemed Additional Rent. Tenant shall have no power to do
any act or make any contract which may create or be the foundation for any lien,
mortgage or other encumbrance upon the reversion or other estate of Landlord, or
of any interest of Landlord in the Premises.
23. DEFAULT.
-------
23.1. Tenant's Default. A default under this Lease by Tenant shall
----------------
exist if any of the following occurs:
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23.1.1. If Tenant fails to pay Rent or any other sum required to be
paid hereunder within five (5) business days after written notice from Landlord,
except as provided in Section 23.1.5 of this Lease; or
23.1.2. If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money, and Tenant fails to
cure such breach within fifteen (15) days after written notice from Landlord
where such breach could reasonably be cured within such fifteen (15) day period,
provided, however, that where such failure could not reasonably be cured within
the fifteen (15) day period, that Tenant shall not be in default if it commences
such performance within the fifteen (15) day period and diligently thereafter
prosecutes the same to completion; or
2.3.1.3. If, to the extent permitted by applicable law, there shall
be filed by or against Tenant, in any court pursuant to any statute either of
the United States or any state, a petition in bankruptcy or insolvency or for
the reorganization of or for the appointment of a receiver, trustee or
liquidator for all or any portion of the assets of Tenant, and, within thirty
(30) days thereafter, Tenant fails to secure a discharge thereof, or if the
Tenant makes an assignment for the benefit of creditors, or if the Tenant admits
in writing its or their inability to pay its or their debts; or
23.1.4. If Tenant shall fail to take possession of and/or occupy the
Premises as set forth in this Lease, or if Tenant shall vacate the Premises or
any part thereof for a period of fifteen (15) days or more (without giving
Landlord notice of such vacancy) at any time following the Lease Commencement
Date with respect to the Bank Space or the EDS Space; or
23.1.5. The chronic delinquency by Tenant in the payment of monthly
Rent, or any other periodic payments required to be paid by Tenant under this
Lease, shall constitute a default. "Chronic delinquency" shall mean failure by
Tenant to pay Rent, or any other periodic payments required to be paid by Tenant
under this Lease within three (3) days after written notice thereof for any
three (3) months (consecutive or nonconsecutive) during any twelve (12) month
period. In the event of a chronic delinquency, at Landlord' option, Landlord
shall have the additional right to require that Rent be paid by Tenant quarter-
annually, in advance.
23.1.6. If a default by Tenant occurs under (i) that certain lease
dated December 6, 1994 by and between Landlord and Tenant, as amended by that
certain Amendment to Lease Agreement dated March 28, 1995, for space located on
the second (2nd) floor of the Building; or (ii) that certain sublease dated
March 13,1998 by and between CMC Data Comm, Inc. and Tenant for space located on
the third (3rd) floor of the Building, which default(s) is not cured within any
applicable notice and cure period set forth in the respective leases.
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<PAGE>
23.2. Remedies. Upon a default, Landlord shall have the following
--------
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
23.2.1. Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent and other charges when due.
23.2.2. Landlord may terminate Tenant's right to possession of
the Premises or any part thereof at any time by giving written notice to that
effect, and relet the Premises or any part thereof. On the giving of the notice,
all of Tenant's rights in the Premises, shall terminate. Upon such termination,
Tenant shall surrender and vacate the Premises in the condition required by
Article 25, and Landlord may re-enter and take possession of the Premises and
all the remaining improvements or property and eject Tenant or any of the
Tenant's subtenants, assignees or other person or persons claiming any right
under or through Tenant or eject some and not others or eject none. This Lease
may also be terminated by a judgment specifically providing for termination. Any
termination under this Section shall not release Tenant from the payment of any
sum then due Landlord or from any claim for damages or Rent or other sum
previously accrued or then accruing against Tenant. Upon such termination Tenant
shall be liable immediately to Landlord for all costs Landlord incurs in
reletting the Premises or any part thereof, including, without limitation,
broker's commissions, expenses of cleaning and redecorating the Premises
required by the reletting and like costs. Reletting may be for a period shorter
or longer than the remaining term of this Lease. No act by Landlord other than
giving written notice to Tenant or executing a judgment for possession shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. When Tenant is evicted or otherwise vacates the Premises,
Landlord has the right, at Tenant's cost and without liability for the loss
thereof or damage thereto, to remove all Tenant's personal property, which shall
be deemed to have been abandoned by Tenant, and either store same or otherwise
dispose of same in Landlord's sole and absolute discretion. Landlord and Tenant
hereby acknowledge that in the event of such a termination, actual damages to
Landlord may be difficult to ascertain and, accordingly, hereby agree that in
such event, the net present value of the Base Rent due from the date of such
termination to the Lease Expiration Date, discounted at eight percent (8%) per
annum, less the fair rental value of the Premises from the date of such
termination or reentry of the Landlord until the Lease Expiration Date,
discounted at eight percent (8%) per annum, shall thereupon be immediately due
and payable to Landlord to compensate Landlord for Tenant's default and such
termination. Tenant waives redemption or relief from forfeiture under any other
present or future law, in the event Tenant is evicted or Landlord takes
possession of the Premises pursuant to judicial process by reason of any default
of Tenant hereunder.
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<PAGE>
23.2.3. Landlord may, except as may otherwise have been agreed
to between the parties pursuant to landlord lien waivers, with or without
terminating this Lease, re-enter the Premises by judicial process and remove all
persons and property from the Premises; such property shall be deemed to have
been abandoned by Tenant and may either be removed and stored in a public
warehouse or elsewhere or otherwise disposed of in the Landlord's sole and
absolute discretion, all at the cost of the Tenant. The parties hereby agree
that Landlord shall not be liable for the loss of such property or any damages
thereto. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section shall be construed as an election to terminate this Lease unless
(i) a written notice of such intention is given to Tenant, or (ii) Tenant is
evicted from the Premises.
23.2.4. Landlord's rights pursuant to this Article, including
without limitation, Landlord's rights to collect Base Rent, Additional Rent and
other charges due under this Lease, shall survive any termination of the Lease,
whether such termination is effected pursuant to this Article or otherwise.
Notwithstanding anything to the contrary contained herein, Landlord, prior to
termination of the Lease or re-entry of the Premises, shall have no obligation
or duty to mitigate or attempt to offset any damages which are or may be
suffered by Landlord as a result of any default of Tenant under the Lease. From
and after termination of the Lease or re-entry of the Premises, Landlord shall
use commercially reasonable efforts to mitigate its damages. Any payment by
Tenant of a sum of money less than the entire amount due Landlord at the time of
such payment shall be applied to the obligations of Tenant then furthest in
arrears. No endorsement or statement on any check or accompanying any payment
shall be deemed an accord and satisfaction and any payment accepted by Landlord
shall be without prejudice to Landlord's right to obtain the balance due or
pursue any other remedy available to Landlord both in law and in equity.
23.2.5. Landlord agrees to use good faith, commercially
reasonable efforts to relet the Premises and otherwise to mitigate its damages
in the event of a default by Tenant. The foregoing notwithstanding (i) Landlord
shall not be obligated to show any preference between the Premises and any other
vacant space in the Building with regard to any such reletting; (ii) Landlord
may make such leasing concession (including but not limited to rental
abatement/free rent, tenant improvement allowances, and the like) as Landlord
deems appropriate in its sole but reasonable judgment; (iii) Landlord shall have
the right to attempt to relet the Premises in whole or in any subdivided part,
or in combination with other vacant space in the Building, and to apportion the
rentals and concessions thereunder in any fashion Landlord deems appropriate, in
its sole, but reasonable judgment; and (iv) Landlord's inability to relet the
Premises or any part thereof, or to collect rent after any such reletting,
despite its good faith efforts, shall not constitute a violation of Landlord's
duty to mitigate under this Section 23.2.5.
24. SUBORDINATION. Upon request of Landlord, Tenant will, in writing,
-------------
subordinate its rights hereunder to any holder of the lien of any mortgage, deed
of trust, ground lease or underlying lease hereafter in force against the
Premises (the "Landlord's Mortgage"), and to all advances made or hereafter to
be made upon the security thereof;
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provided, however, that Tenant shall grant such subordination only if Tenant
simultaneously receives in a form reasonably acceptable to Tenant and Landlord,
a non-disturbance agreement from and executed by Landlord's Mortgagee for the
benefit of Tenant. Tenant shall execute and return to Landlord any such
subordination documents within twenty (20) business days of Landlord's written
request. Such non-disturbance agreement shall provide in the event any
proceedings are brought for foreclosure, or in the event of the exercise of the
power of sale under any mortgage or deed of trust made by the Landlord covering
the Premises, that Tenant shall attorn to the purchaser at any such foreclosure,
or to the grantee of a deed in lieu of foreclosure, and recognize such purchaser
or grantee as the Landlord under this Lease, provided such purchaser or grantee
assumes in writing Landlord's obligations under this Lease. On receipt of
Tenant's written request, Landlord will use its reasonable and good faith
efforts to obtain a non-disturbance agreement from the holder of any first lien
indebtedness encumbering the Building, provided that Landlord shall not be
responsible for incurring any out of pocket expenses in so obtaining such
agreement and such agreement shall be on such holder's standard form of non-
disturbance agreement.
25. SURRENDER OF POSSESSION. Upon expiration of the term of this Lease or
-----------------------
as otherwise provided hereunder, Tenant shall promptly and peacefully surrender
the Premises to Landlord in as good condition as when received by Tenant from
Landlord or as thereafter improved, reasonable use and wear and tear (to the
reasonable satisfaction of Landlord) and damage by storm, fire, lightning,
earthquake or other casualty excepted. If the Premises are not surrendered in
accordance with the terms of this Lease, Tenant shall indemnify Landlord and its
agents, employees, independent contractors, officers, directors, partners, and
shareholders against any loss or liability including reasonable attorneys' fees
and costs, and including liability to succeeding tenants, resulting from delay
by Tenant in so surrendering the Premises. This indemnification shall survive
termination of this Lease.
26. NON-WAIVER. Waiver by Landlord of any breach of any term, covenant or
----------
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition(s); or any subsequent breach of the same or any other
term, covenant or condition of this Lease, other than the failure of Tenant to
pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such Rent. No provision of
this Lease shall be deemed to have been waived or modified by Landlord or Tenant
unless such waiver or modification shall be in writing and signed by the party
against whom such waiver or modification is sought to be enforced.
27. HOLDOVER. If Tenant shall, without the written consent of Landlord,
--------
hold over after the expiration of the term of this Lease such tenancy shall be
deemed a month-to-month tenancy, which tenancy may be terminated by either party
upon thirty (30) days written notice to the other party. During such tenancy,
Tenant agrees to pay to Landlord, each month, the greater of the fair market
rental value for the Premises or one
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hundred fifty percent (150%) of the Rent payable by Tenant for the last month of
the term of this Lease.
28. CONDEMNATION. If twenty (20) percent or more of the Premises or of
------------
such portions of the Building as may be required for the reasonable use of the
Premises, are taken by eminent domain or sale under threat of condemnation by
eminent domain, this Lease shall automatically terminate as of the date title
vests in the condemning authority, and all Rent and other payments shall be paid
to that date. Landlord reserves all rights to damages to the Premises for any
partial or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with Tenant's business.
Tenant shall have the right to claim and recover from the condemning authority
compensation for any loss which Tenant may incur for Tenant's moving expenses,
business interruption or taking of Tenant's personal property (not including
Tenant's leasehold interest).
29. NOTICES. All notices and demands which may be required or permitted
-------
to be given to either party hereunder shall be in writing, and shall be sent by
overnight courier or United States mail, postage prepaid, certified or
registered with return receipt requested, to the addresses set forth below, or
to such other person or place as each party may from time to time designate in a
notice to the other. Notice shall be deemed received upon delivery, if sent by
overnight courier, or upon the earlier of, if sent by mail, actual receipt or
the third day after deposit in the United States mail, postage prepaid. Notices
shall be addressed as follows:
If to Landlord: Royco, Inc.
The World Building
8121 Georgia Avenue, Suite LL2
Silver Spring, Maryland 20910
FAX: (301) 608-2214
with a copy to: Kevin L. Shepherd, Esquire
Venable, Baetjer and Howard, LLP
Two Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201
FAX: (410) 244-7742
If to Tenant: Telephone Business Meetings, Inc.
ATTN: Mr. John Novack
1861 Wiehle Avenue
Suite 200
Reston, Virginia 22090
FAX:(703)736-7101
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with a copy to: Michael E. Savage
Chief Financial Officer
Vialog Corporation
35 New England Business Center
Andover, MA 01810
30. MORTGAGEE PROTECTION. Tenant agrees to give any mortgagee(s) and/or
--------------------
trust deed holder(s), by overnight courier or certified or registered mail,
return receipt requested, a copy of any notice of default served upon the
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of notice of assignment of rents and leases, or otherwise) of the
addresses of such mortgagee(s) and/or trust deed holder(s). Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagee(s) and/or trust deed holder(s)
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary if within such thirty (30) days any mortgagee and/or trust deed
holder(s) has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
31. COSTS AND ATTORNEYS' FEES. If Tenant or Landlord shall employ an
-------------------------
attorney with regard to any act, omission or activity of the other with regard
to this Lease, including any suit by Landlord for the recovery of Rent or other
payments due hereunder or possession of the Premises, the losing party shall pay
the prevailing party a reasonable sum for attorneys' fees and costs, including
without limitation those incurred in connection with any litigation, at trial
and on appeal, and such attorneys' fees and costs shall be deemed to have
accrued on the commencement of such action.
32. BROKERS. Tenant represents and warrants to Landlord that neither it
-------
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker in the negotiating or making of this Lease, and Tenant agrees
to indemnify and hold Landlord, its agents, employees, partners, directors,
shareholders and independent contractors harmless from all liabilities, costs,
demands, judgments, settlements, claims, and losses, including reasonable
attorneys' fees and costs, incurred by Landlord in conjunction with any such
claim or claims of any other broker or brokers claiming to have interested
Tenant in the Building or Premises or claiming to have caused Tenant to enter
into this Lease.
33. LANDLORD'S LIABILITY.
--------------------
33.1 Anything in this Lease to the contrary notwithstanding,
covenants, undertakings and agreements herein made on the part of Landlord are
made and intended not for the purpose of binding Landlord personally or the
assets of Landlord but are made and intended to bind only the Landlord's
interest in the Premises and Building (including
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<PAGE>
the rent account, insurance proceeds and any condemnation award), as the same
may, from time to time, be encumbered and no personal liability shall at any
time be asserted or enforceable against Landlord or its stockholders, officers
or partners or their respective heirs, legal representatives, successors and
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease.
33.2 Landlord shall not be liable for any damage or injury which may
be sustained by Tenant or any other person from water by reason of the breakage,
leakage or obstruction of the roof, roof drains, sprinkler systems, water or
soil pipes or any other leakage in or about the Premises, or resulting from the
sole negligence or willful misconduct on the part of any of Landlord's other
tenants, their agents or employees. Landlord shall not be liable for any loss of
property from any cause whatsoever, including not by way of limitation, theft,
vandalism or burglary from the Premises, and Tenant covenants and agrees to make
no claim for any such loss at any time.
34. ESTOPPEL CERTIFICATES.
---------------------
34.1 Tenant shall, from time to time, within ten (10) days of
Landlord's written request, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: the date the Lease was executed and the
date it expires; the date Tenant entered occupancy of the Premises; the amount
of Base Rent, Additional Rent and other charges due hereunder and the date to
which such amounts have been paid; that this Lease is in full force and affect
has not been assigned, modified, supplemented or amended in any way (or
specifying the date and terms of any agreement so affecting this Lease); that
this Lease represents the entire agreement between the parties as to this
leasing; that all conditions under this Lease to be performed by the Landlord
have been satisfied (or specifying any such conditions that have not been
satisfied); that all required contributions by Landlord to Tenant an account of
Tenant's improvements have been received (or specifying contributions that have
not been received) that on the date of such statement there are no existing
defenses or offset which the Tenant has against the enforcement of this Lease by
the Landlord (or if so, specifying the same); that no Rent has been paid more
than one (1) month in advance; that no security has been deposited with Landlord
(or, if so, the amount thereof) for any other matters evidencing the status of
the Lease, as may be reasonably required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage against the Building, or a
purchaser of the Building. It is intended that any such statement delivered
pursuant to this Article may be relied upon by a prospective purchaser of
Landlord's interest or a mortgagee of Landlord's interest or assignee of any
mortgage upon Landlord's interest in the Building. If Tenant fails to respond
within ten (10) days of receipt by Tenant of a written request by Landlord as
herein provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee.
34.2 Landlord shall, from time to time, within ten (10) days of
Tenant's written request, execute, acknowledge and deliver to Tenant or its
designee a written
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<PAGE>
statement stating: the date the Lease was executed and the date it expires; the
date Tenant entered occupancy of the Premises; the amount of Base Rent,
Additional Rent and other charges due hereunder and the date to which such
amounts have been paid; that this Lease is in full force and affect has not been
assigned, modified, supplemented or amended in any way (or specifying the date
and terms of any agreement so affecting this Lease); that this Lease represents
the entire agreement between the parties as to this leasing; that all conditions
under this Lease to be performed by Tenant have been satisfied (or specifying
any such conditions that have not been satisfied); that all required
contributions by Landlord to Tenant an account of Tenant's improvements have
been received (or specifying contributions that have not been received); that on
the date of such statement there are no existing defenses or offset that
Landlord has against the enforcement of this Lease by Tenant (or if so,
specifying the same); that no Rent has been paid more than one (1) month in
advance; that no security has been deposited with Landlord (or, if so, the
amount thereof) for any other matters evidencing the status of the Lease, as may
be reasonably required in connection with Tenant's normal business operations.
If Landlord fails to respond within ten (10) days of receipt by Landlord of a
written request by Tenant as herein provided, Landlord shall be deemed to have
given such certificate as above provided without modification.
35. FINANCIAL STATEMENTS. Within ten (10) days after Landlord's request
--------------------
but no more than once per year, Tenant shall deliver to Landlord the current
financial statements of Tenant's parent corporation, Vialog Corporation, and
financial statements of each of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied. Tenant also agrees, within five (5) days of Landlord's
request, to provide such further financial information (such as quarterly
statements) as Landlord may request. Landlord shall keep confidential all
financial information received from Tenant, and shall not disclose any such
financial information to any third party individual or entity other than
current or prospective lenders, current or prospective investors or partners,
and any licensed commercial real estate appraiser so long as such parties agree
to keep Tenant's financial information confidential.
36. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer(s) of
-------------------------------
Landlord's interest in the Premises or the Building, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer so long as the transferee assures in writing
Landlord's obligation under this Lease, and Tenant agrees to attorn to the
transferee.
37. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of money, other
----------------
than Rent, required to be paid by it hereunder, or if Tenant shall fail to
perform any other act on its part to be performed hereunder which such failure
shall continue for fifteen (15) days, then, in addition to a default if provided
by Section 23.1, Landlord may,
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<PAGE>
but shall not be obligated so to do, and without waiving or releasing Tenant
from any obligations of Tenant, make any such payment or perform any such other
act on Tenant's part to be made or performed as provided in this Lease.
Notwithstanding the foregoing, in the event of an emergency, if Tenant shall
fail to pay any sum of money, other than Rent, required to be paid by it
hereunder or shall fail to perform any other act on its part to be performed
hereunder, Landlord may, but shall not be obligated so to do, and without
waiving or releasing Tenant from any obligations of Tenant, immediately make any
such payment or perform any such other act on Tenant's part to be made or
performed as provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
the nonpayment of sums due under this Article as in the case of default by
Tenant in the payment of Rent. All sums paid by Landlord and all penalties,
interest and costs in connection therewith, shall be due and payable by Tenant
as Additional Rent on the next day after such payment by Landlord, together with
interest thereon equal to the prime rate of interest as published in The Wall
--------
Street Journal (or any successor publication thereto) from time to time, plus
- --------------
two percent (2%).
38. SUBSTITUTED PREMISES. INTENTIONALLY DELETED.
--------------------
39. SALES AND AUCTIONS. No retail sales may be conducted at, upon or in
------------------
the Premises. Tenant may not use the exterior walls and doorways of the Premises
for storage. Tenant agrees not to install any exterior lighting, amplifiers or
similar devices in or about the Premises. Tenant shall not conduct or permit to
be conducted any sale by auction in, upon or from the Premises whether said
auction be voluntary, involuntary, pursuant to any assignment for the payment of
creditors or pursuant to any bankruptcy or other insolvency proceeding.
40. ROOFTOP EQUIPMENT. Tenant may install, at its sole cost,
-----------------
telecommunications equipment (the "Rooftop Equipment") on the roof of the
Building, subject to Landlord's prior written approval, not to be unreasonably
withheld, conditioned or delayed, of plans and specifications for the Rooftop
Equipment and the type and placement of all cabling and wiring ancillary
thereto. Tenant shall be responsible for paying all reasonable out-of-pocket,
third party costs associated with Landlord's review of such plans and
specifications for the Rooftop Equipment (if any). Landlord shall not charge
Tenant additional rent for the use of space on the roof for the Rooftop
Equipment. Tenant shall be responsible for obtaining and maintaining all
approvals, permits and licenses required by Fairfax County, Reston or any
federal, state or local government for installation and operation of the Rooftop
Equipment and shall pay all fees attendant thereto. If the Rooftop Equipment is
installed, Tenant shall have sole responsibility for the maintenance, repair and
replacement thereof and of all cabling and wiring ancillary thereto and Tenant
will be responsible for bearing the costs to repair any damage caused to the
roof or Building by the installation of the Rooftop Equipment. At the
expiration or earlier termination of this Lease, Tenant shall remove the Rooftop
Equipment and all cabling and wiring ancillary thereto and shall be responsible
to repair any damage caused to the roof or Building in connection with such
removal.
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<PAGE>
Notwithstanding the foregoing, Tenant covenants and agrees that:
(a) The Rooftop Equipment shall not unreasonably interfere with the
standard use of the building by other tenants;
(b) Tenant shall pay any increase in Landlord's insurance rates occasioned
by the installation or operation of the Rooftop Equipment;
(c) Tenant shall fully insure against damage occasioned by the
installation and/or operation of the Rooftop Equipment (subject to the
provisions of sections 12.1 and 18.2 of the Lease);
(d) Landlord shall retain the right to designate the placement of the
Rooftop Equipment and to require such reasonable "screening" type
improvements to the building as may be required to maintain its
cosmetic appearance; and
(e) If Tenant accesses the roof without a designated representative of
Landlord, the burden of proof for any damages subsequent to such
access shall be upon Tenant.
41. SECURITY. Tenant hereby agrees to the exercise by Landlord and its
--------
agents and employees, within their sole discretion, of such security measures as
it deems necessary for the Building so long as such measures do not adversely
affect Tenant's use of the Premises or the Building for its business operations.
The Building shall be open during Normal Business Hours and Landlord shall
provide Tenant with access to the Building during other than Normal Business
Hours through a card-key (or equivalent) system.
42. AUTHORITY OF TENANT. Tenant warrants to Landlord that Tenant, if
-------------------
other than an individual, is a validly existing legal entity under the laws of
the state of its formation, that it is duly qualified to do business in the
State in which the Premises are located, that its entry into and performance of
this Lease has been duly authorized, that, if Tenant is not an individual, the
officer(s), partner(s) or trustee(s), as applicable, executing this Lease on
Tenant's behalf are duly authorized to do so, and that this Lease is binding
upon Tenant.
43. NO ACCORD OR SATISFACTION. No payment by Tenant or receipt by
-------------------------
Landlord of a lesser amount than the Rent and other sums due hereunder shall be
deemed to be other than on account of the earliest Rent or other sums due, nor
shall any endorsement or statement on any check or accompanying any check or
payment 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
Rent or other sum and to pursue any other remedy provided in this Lease.
-35-
<PAGE>
44. MODIFICATIONS FOR LENDER. If in connection with obtaining financing
------------------------
for the Building or any portion thereof, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay, or defer its consent to such
modification provided such modifications do not increase the Rent or Tenant's
obligations under this Lease or adversely affect Tenant's rights hereunder.
45. PARKING. Tenant shall have the right to free surface parking in the
-------
Building parking facilities in common with other tenants of the Building during
the term of this Lease. Tenant agrees not to overburden the parking facilities
and agrees to cooperate with Landlord and other tenants in use of the parking
facilities. Landlord reserves the right in its reasonable discretion to
determine whether the parking facilities are becoming overburdened and to
allocate and assign parking spaces among Tenant and other tenants, and to
reconfigure the parking area and modify the existing ingress to and egress from
the parking area as Landlord shall deem appropriate.
46. GENERAL PROVISIONS.
------------------
46.1. Acceptance. The submission of this Lease by Landlord does not
----------
constitute an offer by Landlord or other option for, or restriction of, the
Premises, and this Lease shall only become effective and binding upon Landlord,
upon full execution hereof by Landlord and delivery of a signed copy to Tenant.
46.2. Joint Obligation. If there be more than one Tenant, the
----------------
obligations hereunder imposed shall be joint and several.
46.3. Marginal Headings, Etc. The marginal headings, Table of
-----------------------
Contents, lease summary sheet and titles to the articles and sections of this
Lease are not a part of the Lease and shall have no effect upon the construction
or interpretation of any part hereof.
46.4. Choice of Law. This Lease shall be governed by and construed
-------------
in accordance with the laws of the State in which the Premises are located.
46.5. Successors and Assigns. The covenants and conditions herein
----------------------
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
46.6. Recordation. Neither Landlord nor Tenant shall record this
-----------
Lease, but a short-form memorandum hereof may be recorded at the request of
Landlord or Tenant.
46.7. Quiet Possession. Upon Tenant's paying the Rent and other
----------------
charges due hereunder and, observing and performing all of the covenants,
conditions and
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<PAGE>
provisions on Tenant's part to be observed and performed hereunder, Tenant shall
have quiet possession of the Premises for the term hereof, subject to all the
provisions of this Lease.
46.8. Partial Invalidity. Any provision of this Lease which shall
------------------
prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof and such other provision(s) shall remain
in full force and effect.
46.9. Cumulative Remedies. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
46.10. Entire Agreement. This Lease contains the entire agreement of
----------------
the parties hereto and no representations, inducements, promises or agreements,
oral or otherwise, between the parties, not embodied herein, shall be of any
force or effect.
46.11. Labor Disputes. Tenant agrees that it will not at any time,
--------------
either directly or indirectly, employ or permit the employment of any
contractor, mechanic or laborer, or permit any materials in the Premises, in
connection with any services, provisions, alterations or maintenance, if the use
of such contractor, mechanic or laborer or such materials creates any
difficulty, strike or jurisdictional dispute with other contractors, mechanics
or laborers engaged by Landlord or others, or disturbs the construction,
maintenance, cleaning, janitorial services, repair, management, security or
operation of the Building or any part thereof. In the event of any interference
or conflict, Tenant, upon demand of Landlord, shall cause all contractors,
mechanics or laborers, or all materials causing such interference, difficulty or
conflict, to leave or be removed from the Building immediately.
46.12. Waiver of Counterclaim. Tenant hereby waives the right to
----------------------
interpose any counterclaim (other than a compulsory counterclaim) of whatever
description in any summary proceeding.
46.13. Time is of the Essence. Time is of the essence of this Lease.
----------------------
Unless specifically provided otherwise, all references to terms of days or
months shall be construed as references to calendar days or calendar months,
respectively.
46.14. Execution. This Lease may be executed in any number of
---------
counterparts, each of which shall be deemed an original, and any of which shall
be deemed to be complete in itself and may be introduced into evidence or used
for any purpose without the production of the other counterparts.
46.15. Force Majeure. A party to this Lease shall be excused from
-------------
the performance of its duties and obligations under this Lease, except
obligations for the payment of money such as Base Rent, for the period of delay,
but in no event longer than ninety (90) days, caused by labor disputes,
governmental regulations, riots, war,
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<PAGE>
insurrection, acts of God or other causes beyond the control of the party whose
performance is being excused (but such causes shall not include insufficiency of
funds).
46.16. No Joint Venture. This Lease does not and shall not be
----------------
construed to create a partnership, joint venture or any other relationship other
than that of landlord and tenant.
47. RULES AND REGULATIONS. Tenant agrees to comply with such reasonable
---------------------
rules and regulations as Landlord may adopt from time to time for the orderly
and proper operation of the Building and parking and other common areas. Such
rules may include but shall not be limited to the following: (i) restricting of
employee parking to a limited, designated area or areas; and (ii) regulation of
the removal, storage and disposal of Tenant's refuse and other rubbish at sole
cost and expense of Tenant. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenants or occupants of the Building. Landlord shall
not discriminate against Tenant in the enforcement of any rule or regulation.
48. NO WARRANTIES OR REPRESENTATIONS BY LANDLORD. Tenant acknowledges and
--------------------------------------------
agrees that, except as expressly set forth in this Lease, neither Landlord nor
any agent or representatives of Landlord have made, and Landlord is not liable
or responsible for or bound in any manner by any express or implied
representations, warranties, covenants, agreements, obligations, guarantees,
statements, information or inducements pertaining to the Premises or any part
hereof the title and physical condition thereof, the quantity, character,
fitness and quality thereof, merchantability, fitness for particular purpose,
the income, expenses or operation thereof, the value and profitability thereof,
the uses which can be made thereof or any other matter or thing whatsoever with
respect thereto. Tenant acknowledges, agrees, represents and warrants that it
has had the opportunity and has in fact inspected the Premises, and that it has
had access to information and data relating to all of same as Tenant has
considered necessary, prudent, appropriate or desirable for the purposes of this
transaction and, without limiting the foregoing, that Tenant and its agents and
representatives have independently inspected, examined, analyzed and appraised
all of same, including the condition, value and profitability thereof. Without
limiting the foregoing, Tenant acknowledges and agrees that, except as expressly
set forth in this Lease, Landlord is not liable or responsible for or bound in
any manner by (and Tenant has no relief upon) any oral or written or supplied
guarantees, statements, information or inducements pertaining to the Premises or
any part hereof, such condition and such operation and any other information
respecting same furnished by or obtained from Landlord or any agent or
representative of Landlord.
49. LANDLORD'S CONSENT OR APPROVAL. With respect to any provision of this
------------------------------
Lease which provides that Tenant shall obtain Landlord's prior consent or
approval, Landlord may withhold such consent or approval for any reason at its
sole
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<PAGE>
discretion, unless the provision specifically states that the consent or
approval will not be unreasonably withheld.
50. WAIVER OF TRIAL BY JURY. LANDLORD AND TENANT WAIVE THE RIGHT TO A
-----------------------
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY
MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON
ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT
FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER
ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF
THIS WAIVER PROVISION AND AS EVIDENCE OF SAME HAS EXECUTED THIS LEASE.
Initials:
Landlord:_______________________ Tenant:_______________________
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day
and year first above written.
WITNESS: LANDLORD:
ROYCO, INC.
/s/ Natalie Hull BY: /s/ Joseph J. Kelly
- -------------------------- ------------------------------------
NAME: Joseph J. Kelly
----------------------------------
TITLE: Vice President
---------------------------------
TENANT:
TELEPHONE BUSINESS MEETINGS, INC.
d/b/a Vialog Corporation
/s/ Natalie Hull BY: /s/ John Novack
- -------------------------- ------------------------------------
NAME: John Novack
----------------------------------
TITLE: Chief Financial Officer -
Telephone Business Meeting, Inc.
---------------------------------
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<PAGE>
EXHIBIT A
---------
PREMISES
Description of Premises pursuant to a Lease dated September __, 1999,
by and between Royco, Inc. (Landlord) and Telephone Business Meetings, Inc.
d/b/a Vialog Corporation (Tenant). Suite 100 with approximately 3,584 rentable
square feet and Suite 105 with approximately 12,268 rentable square feet of the
73,685 rentable square foot building located at 1861 Wiehle Avenue, Reston,
Virginia 22090.
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<PAGE>
EXHIBIT B
---------
HVAC SPECIFICATIONS
-41-
<PAGE>
EXHIBIT C
---------
CLEANING SPECIFICATIONS
-42-
<PAGE>
Exhibit 10.16
June 3, 1999
Mr. Kim Mayyasi
12 Commonwealth Avenue #401
Boston, MA 02116
Dear Kim:
Vialog is pleased to offer you the position of Chief Executive Officer,
reporting to the Board of Directors at a bi-weekly salary of $13,461.54, which
is equivalent to an annual rate of $350,000. You will be eligible to
participate in Vialog's bonus compensation program up to an annual potential of
$100,000. The details of this performance-based bonus will be determined no
later than 30 days after your start date with the company. In addition, Vialog
will grant you a stock option to purchase 250,000 shares of Vialog Common Stock
subject to the approval of the Board of Directors at the first scheduled Board
of Director's meeting after your hire date. Your Vialog stock options will vest
over a three-year period, with an equal, proportionate share of the total
options vesting quarterly. These options will be granted at the market price
for Vialog stock effective as of the date on which this offer letter is signed.
You will also be eligible to participate in Vialog's health, dental, executive
disability and additional benefit plans offered to other employees on similar
terms. You will be required to execute a copy of Vialog's standard Invention,
Non-Disclosure and Non-Competition Agreement.
Upon acceptance of the terms and conditions outlined in this letter, we will
begin preparation of an Employment Agreement. If Vialog terminates your
employment with the company for reasons unrelated to "cause", you will receive
separation pay for a period of six months after your last day of work. Further,
as this offer is contingent upon the completion of a successful background
check, please provide me with the names of three professional references.
This offer expires at 5:00 pm on Monday, June 7, 1999. Assuming you accept this
offer, we would like you to start on or before Monday, July 5, 1999.
<PAGE>
Letter to Kim Mayyasi
June 3, 1999
Page 2 of 2
We are confident that you will lead Vialog closer to its vision of being a world
class organization that consistently exceeds the expectations of its employees,
clients and shareholders. I personally look forward to working with you to help
create a dynamic and rewarding enterprise for all of our stakeholders.
Please indicate your acceptance of this offer by signing below.
Sincerely,
/s/ Clarissa A. Peterson
Clarissa A. Peterson
Vice President-Human Resources
/s/ Kim Mayyasi
- -------------------
Agreed and accepted
6/3/99
- ------
Date
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
--------------------
This Agreement is entered into as of August 30, 1999 by and between VIALOG
Corporation, a Massachusetts corporation (the "Company") and MICHAEL SAVAGE
("Mr. Savage").
FACTS
The Company desires to employ Mr. Savage as CHIEF FINANCIAL OFFICER with
the duties, responsibilities, rights and obligations set forth below, and Mr.
Savage desires to be so employed.
In Mr. Savage's capacity as Chief Financial Officer of the Company, Mr.
Savage will obtain access to, and be in a position to adversely affect, the
confidential information and good will of VIALOG and its subsidiaries (VIALOG
and the subsidiaries collectively and each individually referred to as the
"VIALOG Group").
AGREEMENT
In consideration of the foregoing and of the covenants and agreements set
forth in this Agreement, the Company and Mr. Savage agree as follows:
1. Term. The term of this Agreement commenced on August 30, 1999 (the
"Effective Date"), and will continue until terminated in accordance with the
provisions of Section 6 of this Agreement (the "Term").
2. Duties and Responsibilities. The Company agrees to employ Mr. Savage,
and Mr. Savage agrees to be employed, as Senior Vice President and Chief
Financial Officer, and Mr. Savage will perform all of the duties and
responsibilities of said office, subject to direction by the Chief Executive
Officer and the Board of Directors of the Company. In addition, Mr. Savage will
perform such other specific tasks and responsibilities, consistent with Mr.
Savage's position as Senior Vice President and Chief Financial Officer, as may
be assigned
<PAGE>
to Mr. Savage from time to time by the Chief Executive Officer and the Board of
Directors of the Company. However, Mr. Savage will not be required to locate
outside the Greater Boston metropolitan area without Mr. Savage's consent. Mr.
Savage will carry out his duties in a professional and competent manner and will
devote his full business time, labor, skill and best efforts to carrying out his
duties and responsibilities under this Agreement. Mr. Savage shall not engage in
any other business activity during the term of this Agreement, except as may be
approved by the Board of Directors. Mr. Savage will travel to whatever extent
may be reasonably necessary in the conduct of the VIALOG Group's business and
his duties and responsibilities under this Agreement.
3. Compensation. Subject to Mr. Savage's adherence to the
responsibilities and obligations under this Agreement, the Company agrees to pay
Mr. Savage a base compensation at the bi-weekly rate of seven thousand five
hundred dollars ($7,500.00), less all lawful holdings and deductions, which if
annualized would equal one hundred ninety-five thousand dollars ($195,000.00).
Mr. Savage will be eligible for such increases in base compensation, and to
participate in the Company's annual bonus compensation program up to fifty
percent (50%) of his annual base salary (approximately $97,500.00). Mr. Savage
will also receive a signing bonus in the amount of thirty-five thousand
($35,000.00) payable within thirty (30) days of the effective date of this
Agreement.
4. Benefits, Vacation and Stock Options. Mr. Savage will be eligible to
participate in and/or receive such group retirement plans (qualified and non-
qualified), health, dental and executive disability insurance plans, other
benefit plans and vacation the Company generally makes available to other
executive employees on similar terms. Subject to the approval of the Board of
Directors, Mr. Savage will be granted a stock option to purchase 100,000 shares
of the Company's Common Stock, pursuant to the provisions of a Stock Option
Agreement to be entered into between the Company and Mr. Savage on the form
attached hereto as Exhibit A.
2
<PAGE>
5. Expense Reimbursement.
-- ---------------------
(a) Business Expenses. Mr. Savage will be entitled to reimbursement
for all reasonable and necessary business expenses properly incurred by
Mr. Savage in connection with the performance of his duties and
responsibilities under this Agreement upon submission of documentation in
accordance with such procedures as the Company may establish from time to
time.
(b) Relocation Expenses. The Company will reimburse Mr. Savage for
all reasonable and customary expenses incurred in connection with his
relocation. Such reimbursement shall include the cost of airline
transportation between Leesburg, VA and Boston, MA and a rental car and
interim housing for a period of six (6) months from the Effective Date of
this Agreement. Mr. Savage acknowledges that he must submit all receipts or
appropriate documentation within six (6) months from the date of his
employment in order to receive reimbursement from the Company. Mr. Savage
further acknowledges that should he voluntarily leave his employment with
the Company other than for good reason less than one (1) year from the date
of his employment with the Company, he will reimburse the Company the full
amount he has received under this Agreement; and, he hereby authorizes the
Company to deduct any monies owing to the Company for expenses reimbursed
to him under this Agreement, from his final paycheck and severance payments
if applicable. Mr. Savage acknowledges that any amount remaining due to the
Company shall be a debt owed by him to the Company. Mr. Savage further
agrees that if any taxing authority determines taxes, penalties or interest
to be due or owing with respect to any monies paid to him under this
Section, he will be solely responsible for the payment of such taxes, and
agrees further to indemnify and hold harmless the Company in the event any
such taxing authority alleges that the Company should pay such taxes,
penalties or interest.
6. Termination. The Company may terminate Mr. Savage's employment at any
time during the Term for any reason as follows:
3
<PAGE>
(a) By the Company for Cause. The Company has the right to terminate
Mr. Savage's employment immediately for "Cause." For purposes of this
Agreement only, the term "Cause" means material breach of any provision of
this Agreement; material misconduct; substantial nonperformance of Mr.
Savage's duties or responsibilities; incompetence; inability to perform the
essential functions of the office of Chief Financial Officer with or
without reasonable accommodation as defined by the Americans With
Disabilities Act ("ADA"), other than on account of short term illness;
conviction of, or admission to, a felony or other crime involving moral
turpitude; any act involving theft, embezzlement or fraud; or a material
violation of any written policy of the Company. If Mr. Savage's employment
is terminated for Cause, the Company will only be obligated to pay his base
compensation through the date of such termination, together with such other
benefits or payments to which Mr. Savage may be entitled (in the event of a
Cause termination) by law or pursuant to benefit plans of the Company then
in effect. Mr. Savage will remain bound by his obligations under Sections
7, 8 and 9 of this Agreement.
(b) Death. In the event of Mr. Savage's death, the Company will pay
to Mr. Savage's estate, designated beneficiary, or legal representative his
base compensation and other benefits through the date of termination and
also will pay them such base compensation and provide such comparable group
health insurance benefits as Mr. Savage would have received had he remained
alive and employed by the Company (at such times as Mr. Savage would have
received them) for a period equal to six (6) months after the end of the
Term, together with such other benefits or payments to which Mr. Savage may
be entitled by law or pursuant to benefit plans of the Company then in
effect. For purposes of this Agreement, Mr. Savage's death shall terminate
the Agreement.
(c) Resignation and Termination by the Company Other than for Cause
or Death. The Company has the right to terminate Mr. Savage's employment
other than for cause or death without prior notice. Mr. Savage may
terminate his employment upon thirty (30) days' prior written notice to the
Company. Mr. Savage will in any event remain bound by his obligations under
Sections 7, 8 and 9 of this Agreement. If Mr. Savage's employment is
terminated by Mr. Savage other than for good reason, then he will be
entitled to his base
4
<PAGE>
compensation and other benefits through the date of termination, however,
he will not be entitled to any severance payments. If Mr. Savage's
employment is terminated by the Company pursuant to this Section 6 (c) or
if Mr. Savage terminates his employment for good reason, he will be
entitled to the following: (i) a severance payment equal to six (6) months
pay at his then current base rate of compensation, less all lawful
withholdings and deductions, such severance payment to be paid in
accordance with the regular pay periods of the Company; and (ii)
continuation, at the Company's sole expense, of health insurance benefits
comparable to those he was receiving at the time of termination, provided
such health insurance is still being offered to Company employees, for a
period of six (6) months after the end of the Term. For purposes of this
Agreement only, the term "good reason" means a material breach of this
Agreement by the Company, including, without limitation, the Company's
failure to pay any compensation owed to Mr. Savage after written notice
that the amount was due or the assignment to him of duties which are
significantly inconsistent with the second and third sentences of Section 2
hereof.
7. Confidentiality. Mr. Savage will not at any time, without the
Company's prior written consent, reveal or disclose to any person outside of the
VIALOG Group, except in pursuit of the VIALOG Group's business, or use for his
own benefit or the benefit of any other person or entity, any confidential
information concerning the business or affairs of the VIALOG Group, or
concerning the customers, clients or employees of the VIALOG Group
("Confidential Information"). For purposes of this Agreement, Confidential
Information includes, but is not limited to, financial information or plans;
sales and marketing information or plans; business or strategic plans; salary,
bonus or other personnel information of any type; information concerning methods
of operation; proprietary systems or software; legal or regulatory information;
cost and pricing information or policies; information concerning new or
potential products or markets; models, practices, procedures, strategies or
related information; research and/or analysis; and information concerning new or
potential investors, customers, or clients. Confidential Information does not
include information already available to the public or to the trade through no
act of Mr. Savage, nor does it include salary, bonus or other personnel
information specific to Mr. Savage.
5
<PAGE>
Mr. Savage further understands and agrees that all Confidential
Information, however or whenever produced, will be the VIALOG Group's sole
property. Upon the termination of Mr. Savage's employment, Mr. Savage will
promptly deliver to the Company all copies of all documents, equipment, property
or materials of any type in Mr. Savage's possession, custody or control, that
belong to the VIALOG Group, and/or that contain, in whole or in part, any
Confidential Information.
8. Inventions. During the Term of this Agreement, Mr. Savage will
promptly disclose to the Company or any successor or assign, and grant to the
Company and its successors and assigns (without any separate remuneration or
compensation other than that received by Mr. Savage in the course of
employment), Mr. Savage's entire right, title and interest in and to any and all
inventions, developments, discoveries, models, or any other intellectual
property of any type or nature whatsoever ("Intellectual Property") developed
during the Term of this Agreement, whether developed by Mr. Savage during or
after business hours, or alone or in connection with others, reasonably related
to the business of the Company, the Subsidiaries and their respective successors
or assigns, determined as such business is constituted at the time of the
invention. Mr. Savage agrees, at the Company's expense, to take all steps
necessary or proper to vest title to all such Intellectual Property in the
Company, its affiliates, successors, assigns, nominees or designees, and to
cooperate fully and assist the VIALOG Group in any litigation or other
proceedings involving any such Intellectual Property.
9. Restrictive Covenants. During the Restricted Period (defined below),
Mr. Savage will not, directly or indirectly, for Mr. Savage's own account or for
or on behalf of any other person or entity, whether as an officer, director,
employee, partner, principal, joint venturer, consultant, investor, shareholder,
independent contractor or otherwise:
(a) engage in any business in competition with the then business of
the VIALOG Group, or in competition with any business that the VIALOG
Group, to Mr. Savage's knowledge, actively was planning to enter at the
time of the termination of Mr. Savage's employment;
6
<PAGE>
(b) solicit or accept business in competition with the VIALOG Group
from any (i) clients of the VIALOG Group who were clients of the VIALOG
Group at the time of the termination of Mr. Savage's employment, or who
were clients during the two (2) year period preceding such termination, or
(ii) any prospective clients of the VIALOG Group who, within two (2) years
prior to such termination, had been solicited directly by Mr. Savage or
where Mr. Savage supervised or participated in such solicitation
activities;
(c) hire or employ, or attempt to hire or employ, in any fashion
(whether as an employee, independent contractor or otherwise), any employee
of the VIALOG Group or independent contractor who renders or rendered
services solely to the VIALOG Group, or solicit or induce, or attempt to
solicit or induce, any of the VIALOG Group's employees, consultants,
clients, customers, vendors, suppliers, or independent contractors to
terminate their relationship with the VIALOG Group; or
(d) make any disparaging remarks about the VIALOG Group, its present
or former officers, directors, employees, affiliates, or agents, in either
their personal or official capacities, or about VIALOG Group's business or
reputation.
For purposes of this Agreement, the Restricted Period will be a period
beginning on the Effective Date and ending on the later of (i) two (2) years
after this Agreement terminates or (ii) the last day of the Severance Period.
Mr. Savage may own not more than 5 percent of any class of securities
registered pursuant to the Securities Exchange Act of 1934, as amended, of any
corporation engaged in competition with the VIALOG Group so long as Mr. Savage
does not otherwise (i) participate in the management or operation of any such
business, or (ii) violate any other provision of this Agreement.
Mr. Savage understands and agrees that, by virtue of his position with the
Company, he will have substantial access to and impact on the good will,
confidential information and other legitimate business interests of the VIALOG
Group, and therefore will be in a position to have a substantial adverse impact
on the VIALOG Group's business interests should Mr. Savage engage
7
<PAGE>
in business in competition with the VIALOG Group. Mr. Savage acknowledges that
his adherence to the restrictive covenants set forth in this Section is an
important and substantial part of the consideration that the Company is
receiving under this Agreement, and agrees that the restrictive covenants in
this Section are enforceable in all respects. Mr. Savage consents to the entry
of injunctive relief to enforce such covenants, in addition to such other relief
to which the Company may be entitled by law, and he shall pay reasonable
attorney's fees incurred by the Company to enforce this Section of the
Agreement.
10. Specific Performance. Mr. Savage acknowledges that the VIALOG Group's
remedy at law for breach of Sections 7, 8 and 9 of this Agreement would be
inadequate, and agrees that, for breach of such provisions, the VIALOG Group is
entitled to injunctive relief and to enforce its rights by an action for
specific performance.
11. Enforcement of Agreement. If either party brings suit to enforce any
provision of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees.
12. Choice of Law. This Agreement, and all disputes arising under or
related to it, will be governed by the law of the Commonwealth of Massachusetts.
13. Choice of Forum. All disputes arising under or out of this Agreement
will be brought in courts of competent jurisdiction located within the
Commonwealth of Massachusetts.
14. Assignment. This Agreement, and the rights and obligations of Mr.
Savage and the Company, inures to the benefit of and is binding upon, Mr.
Savage, his heirs and representatives, and upon the Company, the Subsidiaries
and their respective successors and assigns. This Agreement may not be assigned
by Mr. Savage. This Agreement may be assigned to any member of the VIALOG Group.
15. Notices. All notices required by this Agreement will be in writing and
will be deemed to have been duly delivered when delivered in person or when
mailed by certified mail, return receipt requested, or nationally recognized
next day delivery service, as follows:
8
<PAGE>
(a) If to Mr. Savage, to the address which appears below Mr. Savage's
signature to this Agreement, and
(b) If to the Company, at:
Vice President, Human Resources
35 New England Business Center, Suite 160
Andover, MA 01810
or to such other address as a party specifies in writing given in accordance
with this Section.
16. Severability. If any one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired. Moreover, if any one or more of the provisions contained in this
Agreement is held to be excessively broad as to duration, activity or subject,
such provision will be construed by limiting or reducing it so as to be
enforceable to the maximum extent compatible with applicable law.
17. Consultation with Counsel; No Representations. Mr. Savage acknowledges
that he has had a full and complete opportunity to consult with counsel of his
own choosing concerning the terms, enforceability and implications of this
Agreement, and that the Company has made no representations or warranties to Mr.
Savage concerning the terms, enforceability or implications of this Agreement
other than are as reflected in this Agreement.
18. Completeness of Agreement. This Agreement contains all the terms and
conditions agreed upon by the parties with reference to the subject matters
contained in this Agreement. No other agreement, oral or otherwise, will be
deemed to exist or to bind either of the parties to this Agreement. No
representative of any party to this Agreement had, or has, any authority to make
any representation or promise not contained in this Agreement, and each of the
parties to this Agreement acknowledges that such party has not executed this
Agreement in reliance upon any such representation or promise. This Agreement
cannot be modified, except by a written instrument signed by both parties.
9
<PAGE>
EMPLOYEE VIALOG CORPORATION
/s/ Michael Savage By: /s/ Kim Mayasi
- ------------------------- -------------------------------------
Michael Savage Kim Mayasi
President and Chief Executive Officer
Address:
- -------------------------
- -------------------------
Date: Date:
------------------------- ------------------------------
10
<PAGE>
Exhibit 10.19
June 8, 1999
Glenn D. Bolduc
21 Derby Lane
Tyngsboro, MA
Dear Glenn:
This letter is intended to confirm our mutual understanding and agreement
with respect to your transition from the position of President and Chief
Executive Officer of Vialog Corporation (the "Company" or "Vialog") to new
employment. In order to assist you in this transition and in recognition for
your past services, we would like to offer to you the following separation terms
and benefits.
1. Severance Date. Your last day of employment will be Wednesday, June
--------------
30, 1999 (the "Severance Date"). Except as provided elsewhere in this letter,
your employment benefits will cease in accordance with the terms of the specific
benefit plans at issue on the Severance Date. Notice of your rights with
respect to continuation of health and dental benefits and unemployment will be
provided under separate cover.
2. Salary Continuation. Vialog will provide you with severance payments
-------------------
at your present base salary for a period of eighteen (18) months from July 1,
1999, through December 31, 2000, (the "Severance Period"), less all lawful
withholdings and deductions. The severance payments will be made in accordance
with Vialog's regular pay schedule.
3. Vacation; Car Allowance. Vialog will compensate you for all accrued
-----------------------
unused vacation leave as of your Severance Date. You will not continue to
accrue vacation after the Severance Date. Vialog will continue to provide you
with a monthly car allowance in the amount of one thousand dollars ($1,000)
during the Severance Period.
4. Medical and Dental Insurance Benefit Continuation. Your medical and
-------------------------------------------------
dental group coverage will be continued until June 30, 1999. After this date,
you may elect to continue your group medical and dental coverage under the terms
of COBRA. If you do choose to continue your benefits under the terms of COBRA,
the Company will reimburse you for the cost of continuation coverage through the
Severance Period or such time as you obtain alternate coverage.
<PAGE>
Glenn D. Bolduc
June 8, 1999
Page 2
5. Stock Options. The Board of Directors has voted to accelerate the
-------------
vesting schedule of certain Incentive Stock Options ("ISO") previously granted
to you; specifically, the ISO for 75,000 shares dated October 14, 1997, and the
ISO dated October 29, 1998, for 40,000 shares are now fully vested.
Notwithstanding the foregoing, this letter agreement is not intended to alter or
restrict any rights or benefits you have accrued under the Company's stock
option plan; rather, your rights will continue to be governed by the terms of
your stock option agreements.
6. Company Property. You acknowledge that you have returned to the
----------------
Company all property of the Company. For purposes of this Section, "property of
the Company" includes, but is not limited to, automobiles, keys, corporate
credit cards, equipment, books, supplies, computer programs, computers,
originals and copies of all corporate documents, including financial records and
information, and any other materials, whether prepared by you or by others, but
excludes anything owned by you individually. Notwithstanding the foregoing, the
Company agrees to transfer ownership to you of the personal computer provided to
you by the Company, provided, however, that all files, programs and information
relating to the Company have been permanently transferred to the Company or
permanently removed.
7. Limited Release and Waiver. In consideration of the payment to you of
--------------------------
salary continuation and in consideration of the other additional benefits
described in this letter agreement, you hereby agree to release and forever
discharge the Company and its affiliates or subsidiaries, and all of its or its
affiliates' or its subsidiaries' past and present officers, directors,
stockholders, managers, supervisors, employees, agents and attorneys, whether
directly or indirectly, and whether individually or in their official capacities
(collectively, the "Releasees") from any and all debts, actions, causes of
action, damages and any and all claims, demands and liabilities as limited
below, whether directly or indirectly, personally or derivatively through
others, and whether known or unknown to, or suspected or unsuspected by the
Employee (collectively, the "Claims"), both in law and in equity.
This release of Claims is limited to all claims under Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C. (S)2000e, et seq., Chapter 151B
of the Massachusetts General Laws, the Massachusetts Civil Rights Act, M.G.L. c.
12, (S)(S)11H-11I, the Age Discrimination in Employment Act, and any other claim
under any other state or federal discrimination law which you may have against
the Releasees as of the date of this Agreement, or ever had against the
Releasees from the beginning of the world through the execution date of this
Agreement, including any charge alleging prohibited discrimination, or any claim
of emotional distress in connection with your employment, or separation from
employment, with the Company.
In further consideration of the terms and conditions herein, you agree to
waive the right to assert any claim, cause of action, complaint or other action
against the Releasees in any forum arising
<PAGE>
Glenn D. Bolduc
June 8, 1999
Page 3
out of your separation from employment with the Company, and you agree to waive
any right of reemployment.
This release and waiver does not apply to any claims arising after the
execution date of this letter agreement.
8. Confidentiality. You agree to maintain the terms of this letter
---------------
agreement in strict confidence, and you agree not to release or divulge either
orally or in writing any of the terms to any person, firm or entity, with the
exception of your spouse, your attorney, your accountant, or management
personnel of Vialog, or as may be required by law.
9. Opportunity to Consult Counsel; Effective Date. You acknowledge that
----------------------------------------------
you have been given a reasonable period of at least twenty-one (21) days in
which to consider this letter agreement.
You represent that you have read carefully and fully understand the terms
of this letter agreement.
You acknowledge that you have been advised to and, to the extent that you
have wished to do so, have consulted counsel of your choice prior to signing
this letter agreement.
You represent that you have read this letter agreement and understand it
and that you are entering into this letter agreement freely and voluntarily.
You will have up to seven (7) days following your signing of this letter
agreement to revoke your acceptance by so notifying Vialog in writing. This
letter agreement will take effect on the eighth (8/th/) day following your
signing of it, which date will be the Effective Date.
10. Non-Competition. You acknowledge that any agreements entered into by
---------------
you with Vialog relating to non-competition, restrictive covenants, and
confidential and/or proprietary information remain in full force and effect and
survive your separation from employment.
11. Protection of Good Name. You agree that you will not in any way
-----------------------
disparage or harm the name or reputation of Vialog, or its past or present
officers, directors, employees, agents or attorneys, in either their personal or
official capacities, either directly or indirectly or otherwise portray any of
the foregoing in a negative manner. Similarly, Vialog agrees that its past or
present officers, directors, agents and attorneys will not in any way disparage
or harm your name in either a personal or official capacity, either directly or
indirectly or otherwise portray you in a negative manner. Additionally, Vialog
will cooperate with you in the preparation of a mutually agreeable public
statement regarding your transition to new employment.
<PAGE>
Glenn D. Bolduc
June 8, 1999
Page 4
12. Complete Agreement. Except as otherwise contemplated by this letter
------------------
agreement and a Consulting Agreement between Vialog and you dated June __, 1999,
this letter agreement represents the complete agreement between you and Vialog
regarding your employment and separation of employment and supersedes any prior
and contemporaneous agreements, whether oral or written.
13. Severability. Any provision of this letter agreement or attachments,
------------
if any, which is found to be prohibited or unenforceable will be treated as
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
14. Interpretation of Agreement. If any dispute regarding the
---------------------------
interpretation or application of this letter agreement arises, you agree that it
will be interpreted and construed for all purposes under the internal laws of
the Commonwealth of Massachusetts. All disputes arising under or out of this
letter agreement will be brought in courts of competent jurisdiction located
within the Commonwealth of Massachusetts.
If this letter agreement correctly sets forth our agreement with respect to
the foregoing matters, please so indicate by signing below.
Sincerely yours,
VIALOG CORPORATION
By: /s/ David L. Lougee
-------------------------
David L. Lougee, Director
Agreed to and Accepted:
/s/ Glenn D. Bolduc
- --------------------------
Glenn D. Bolduc
Date: June 14, 1999
--------------
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors and Shareholders
VIALOG Corporation:
We consent to the incorporation by reference in the registration statements
(No. 333-76369 and 333-86319) on Form S-8 of VIALOG Corporation of our report
dated February 29, 2000, relating to the consolidated balance sheets of VIALOG
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1999, which
report appears in the December 31, 1999 annual report on Form 10-K of VIALOG
Corporation.
KPMG LLP
Boston, Massachusetts
March 30, 2000
<PAGE>
Independent Auditors' Consent
The Board of Directors and Shareholders
VIALOG Corporation:
We consent to the incorporation by reference in the registration statements
(No. 333-76369 and 333-86319) on Form S-8 of Telephone Business Meetings, Inc.
of our report dated July 2, 1998, relating to the balance sheets of Telephone
Business Meetings, Inc. as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1994, the period January 1, 1995 to April 9, 1995, the
period April 10, 1995 to December 31, 1995, the year ended December 31, 1996
and for the period January 1, 1997 to November 12, 1997, which report appears
in the December 31, 1999 annual report on Form 10-K of VIALOG Corporation.
KPMG LLP
Boston, Massachusetts
March 30, 2000
<PAGE>
Independent Auditors' Consent
The Board of Directors and Shareholders
VIALOG Corporation:
We consent to the incorporation by reference in the registration statements
(No. 333-76369 and 333-86319) on Form S-8 of Conference Source International,
Inc. of our report dated July 2, 1998, relating to the balance sheets of
Conference Source International, Inc. as of December 31, 1995 and 1996, and
the related statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996 and for the
period January 1, 1997 to November 12, 1997, which report appears in the
December 31, 1999 annual report on Form 10-K of VIALOG Corporation.
KPMG LLP
Boston, Massachusetts
March 30, 2000
<PAGE>
Independent Auditors' Consent
The Board of Directors and Shareholders
VIALOG Corporation:
We consent to the incorporation by reference in the registration statements
(No. 333-76369 and 333-86319) on Form S-8 of A Business Conference-Call, Inc.
of our report dated February 26, 1999, relating to the balance sheets of A
Business Conference-Call, Inc. as of December 31, 1997 and 1998, and the
related statements of income and retained earnings and cash flows for each of
the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1999 annual report on Form 10-K of VIALOG
Corporation.
KPMG LLP
Boston, Massachusetts
March 30, 2000
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