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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
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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
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OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-21319
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LIGHTBRIDGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-3065140
(STATE OR OTHER JURISDICTION (I.R.S EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
67 SOUTH BEDFORD STREET 01803
BURLINGTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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Registrant's telephone number, including area code: (781) 359-4000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock,
$.01 par value per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 15, 2000 was $322,022,814, based on a total of 14,551,415
shares held by nonaffiliates and on a closing price of $22.13 as reported on the
Nasdaq National Market.
The number of shares of Common Stock outstanding as of March 15, 2000 was
16,661,984.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1999. Certain portions of such proxy statement are incorporated by reference in
Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 1A. Risk Factors................................................ 12
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 4A. Executive Officers.......................................... 19
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 21
Item 6. Selected Financial Data..................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Item 7A. Quantitative and Qualitative Market Risk Disclosures........ 32
Item 8. Financial Statements and Supplementary Data................. 32
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 32
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 33
Item 11. Executive Compensation...................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 33
Item 13. Certain Relationships and Related Transactions.............. 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 33
SIGNATURES............................................................ 36
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THIS FORM 10-K CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING THE FACTORS SET FORTH BELOW IN "ITEM 1A. RISK FACTORS,"
THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS OF
LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE
FORWARD-LOOKING STATEMENTS.
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PART I
ITEM 1. BUSINESS
Lightbridge, Inc. ("Lightbridge") develops, markets and supports a network
of integrated products and services that enable telecommunications carriers to
improve their customer acquisition, service provisioning, retention and fraud
management processes. Historically, Lightbridge's software-based solutions have
been delivered primarily on an outsourcing and service bureau basis, but with
the acquisition of Coral Systems, Inc. ("Coral") in November 1997 and the
development of Lightbridge Consulting Services, a significant portion of
Lightbridge's revenues are now derived from software licensing transactions and
consulting services. Lightbridge's transaction-based solutions combine the
advantages of distributed access and workflow management, centrally managed
client-specified business policies, and links to carrier and third-party
systems. While its solutions historically have been delivered primarily to
wireless carriers, Lightbridge began providing service to its first wireline
client, a competitive local exchange carrier ("CLEC") in 1998. The open
architecture underlying Lightbridge's software applications supports the
development of flexible, integrated solutions, regardless of the type of
wireless or wireline service provided by a client and independent of the
client's computing environment. Lightbridge's depth of experience as a provider
of these solutions to wireless telecommunications carriers historically, and
more recently to carriers offering converged telecommunications services,
positions Lightbridge to broaden its offerings to other telecommunications
service providers.
Lightbridge offers on-line, real-time transaction processing and call center
services to aid telecommunications carriers in qualifying and activating
applicants for service, as well as software-based point-of-sale support services
for traditional distribution channels, such as dealers and agents, and emerging
distribution channels, such as mass market retail stores and Internet commerce.
Lightbridge develops and implements interfaces that integrate its acquisition
system with carrier and third-party systems, such as those for billing,
point-of-sale, activation and order fulfillment. Lightbridge also maintains and
has access to databases used to pre-screen applicants for fraud and provides
software used to monitor subscriber call activity for fraud. In addition,
Lightbridge has a global telecommunications consulting practice that provides
clients with two distinct types of services: solution development and deployment
consulting and business advisory services.
Lightbridge was incorporated in Delaware in June 1989 under the name Credit
Technologies, Inc. and in November 1994 changed its name to Lightbridge, Inc. In
September 1996, Lightbridge organized a wholly owned subsidiary, Lightbridge
Security Corporation, as a Massachusetts securities corporation to buy, hold and
sell securities. In November 1997, Lightbridge acquired all of the outstanding
capital stock of Coral, a Delaware corporation based in Colorado. In
February 1998, Lightbridge organized Lightbridge Technologies Limited in England
to serve clients in Europe, the Middle East and Africa. During 1999, Lightbridge
organized Lightbridge Tecnologia Ltda. in Brazil to serve clients in South
America. During 1999, Lightbridge also maintained an office in Malaysia to serve
clients in the Asia Pacific region. Unless the context requires otherwise,
references in this Form 10-K to "Lightbridge," the "Company," "We," "Us" and
similar terms refer to Lightbridge, Inc. and its subsidiaries.
ALIAS, FRAUDBUSTER, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo,
PROFILE, and TELESTO are registered trademarks of Lightbridge, and @RISK,
ALLEGRO, CUSTOMER ACQUISITION SYSTEM, CREDIT DECISION SYSTEM, FRAUD CENTURION,
INSIGHT, POPS, and RETAIL MANAGEMENT SYSTEM are trademarks of Lightbridge. All
other trademarks or trade names appearing in this Form 10-K are the property of
their respective owners.
BUSINESS SEGMENT DATA
Information concerning the three distinct segments that we operate in is set
forth in "Item 8. Financial Statements and Supplementary Data" on page F-10 of
"Notes to Consolidated Financial Statements."
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PRODUCTS AND SERVICES
Telesto, Lightbridge's network of software-based acquisition, retention and
fraud solutions permits a telecommunications carrier to select applications and
functions to create an integrated, customized solution addressing the carrier's
particular needs. Lightbridge's products and services are provided in four broad
solutions areas:
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GROUP FUNCTIONS
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CUSTOMER ACQUISITION SERVICES........ On-line, real-time transaction processing services to aid
carriers in qualifying and activating applicants for
service, as well as call center support services to assist
carriers in acquiring and activating applicants for service.
Transaction processing services include proprietary
databases and processing modules to evaluate existing
subscribers and detect potential subscription fraud. Call
center support services include qualification and
activation, analyst reviews, telemarketing to existing and
new subscribers, back-up and disaster recovery for
acquisition and activation services, and customer care.
FRAUD MANAGEMENT..................... On-line, real-time inquiries into proprietary and industry
databases and processing modules to pre-screen applicants
for potential fraud, as well as software products for
on-going monitoring of subscriber call activity from the
carrier's switch to determine likely fraudulent use.
CHANNEL SOLUTIONS.................... Software products and services to support a variety of
distribution channels, including software applications for
in-store use, call centers and Internet commerce.
CONSULTING SERVICES.................. Two distinct types of service: 1) Solution Development and
Deployment consulting and 2) Business Advisory Services.
Solution Development and Deployment consulting provides
systems integration, custom software development, project
management and training services. Business Advisory Services
provide pure management consulting services. These services
are provided in the fields of customer acquisition,
retention and fraud management.
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CUSTOMER ACQUISITION SYSTEM
Lightbridge's Customer Acquisition System ("CAS") includes on-line,
real-time transaction processing services for the qualification and activation
of applicants for telecommunications service.
CAS accepts applicant information on-line from a variety of carrier
distribution points, such as retail stores. Upon receipt of information, the
system begins a series of steps required to determine the applicant's
qualification for the carrier's service through inquiry into Lightbridge
proprietary databases, such as ProFile, and external sources, such as credit
bureaus. The complete applicant file is evaluated by the system and a
determination regarding the applicant's creditworthiness is made based on
centrally managed client-specified business policies. If an issue is raised
regarding qualification of an applicant, the system electronically routes the
application to a Lightbridge or carrier credit analyst for review and action.
The point-of-sale is then notified when a determination is made. If service is
to be activated at that time, the system receives, verifies and translates the
information necessary to establish the billing account and activate service,
transmitting data to the carrier's billing and activation systems. Throughout
the process, Lightbridge's system manages the routing of the application and the
flow of information, both within the system and, as necessary, to appropriate
individuals for their involvement, all in a secure, controlled environment.
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Introduced in 1989 and enhanced over time, CAS typically enables carriers to
qualify applicants and activate service in five to ten minutes while screening
for subscriber fraud, thereby assisting the carriers to close sales at the time
when the customer is ready to purchase. Although CAS typically requires no human
intervention beyond the initial data entry, it permits a carrier to implement
policies requiring analyst intervention in carrier-specified situations. When
intervention is required, CAS facilitates the on-line handling of exceptions by,
among other things, queuing exceptions to manage workflow. CAS includes the
following modules, all of which are fully integrated:
- CREDIT DECISION SYSTEM ("CDS") is an integrated qualification system for
carriers to acquire qualified applicants rapidly. Using redundant,
high-speed data lines to five major credit bureaus, CDS typically provides
consumer and business credit decisions in under 10 seconds, based on
automated analysis of credit information using a credit policy specified
by the carrier. CDS can be integrated with a carrier's existing customer
acquisition and billing systems and can be modified quickly to reflect
changes in a carrier's credit policies.
- INSIGHT is a proprietary database containing information about a carrier's
existing accounts and previous applicants. InSight evaluates existing
subscribers who apply for additional services on the basis of their
payment histories. InSight can decrease costs for carriers by reducing the
number of credit bureau inquiries and the number of applications requiring
manual review.
- WORKSTATION offerings present data electronically to the appropriate
person for decision or action and then automatically route data to the
next step in the process. Workstation offerings are as follows:
CREDIT WORKSTATION allows a carrier's credit analyst to enter information
or to evaluate applications that were entered at a remote location.
ACTIVATION WORKSTATION allows the user to review, correct or reprocess
activation requests returned from the billing system due to an error.
FULFILLMENT WORKSTATION provides the information necessary to fulfill
orders for wireless handsets and accessories at a remote or third-party
fulfillment operation.
Lightbridge's TeleServices Group provides a range of call center support
solutions for the subscriber acquisition and activation process. TeleServices
offerings include a call center solution for credit decisions and activations,
and also analyst reviews, telemarketing to existing and new subscribers, back-up
and disaster recovery for acquisition and activation services, and customer
care. TeleServices solutions can be provided using CAS or a carrier's own
customer acquisition system. Lightbridge's clients typically utilize
TeleServices solutions as part of an overall sales and distribution strategy to
expand or engage in special projects without incurring the overhead associated
with building and maintaining a call center.
Pricing of CAS is on a per qualification or activation basis and varies
substantially with the term of the contract under which services are provided,
the volume of transactions, and the other products and services selected and
integrated with the services. Pricing of TeleServices solutions is on a per
transaction or per minute basis and varies with the term of the contract under
which services are provided, the volume of transactions processed and the other
products and services selected and integrated with the services.
FRAUD MANAGEMENT
Lightbridge's fraud solutions include real-time on-line access to
proprietary and exclusive databases for pre-activation screening and software
for on-going monitoring of subscriber call activity from the switch.
Lightbridge's fraud solutions include:
- FRAUD SENTINEL, a suite of subscription fraud management tools, available
separately or together. Lightbridge believes that Fraud Sentinel is the
most complete pre-screening tool for detection and
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prevention of subscription fraud available in the telecommunications
industry today. The components of Fraud Sentinel are as follows:
PROFILE, a proprietary intercarrier database of accounts receivable
write-offs and service shut-offs, provides on-line pre-screening of
applicants, on-going screening of existing subscribers, and notification
if an application is processed for a subscriber whose account has been
previously written off by a carrier.
FRAUD DETECT, a multifaceted fraud detection tool provided under
agreement with Trans Union Corporation, analyzes data such as an
applicant's Social Security Number, date of birth, address, telephone
number and driver's license information and identifies any discrepancies.
@RISK, a repository for suspect information, enables carriers to access
suspect information, discovered from prior fraud investigations, during
their pre-screening process.
INSTANTID, a multifaceted verification tool provided under agreement with
RiskWise, L.L.C., highlights verified information and potential data
input errors, and alerts carriers to conditions that are often associated
with identity theft.
- FRAUD CENTURION, a suite of back-end fraud management tools, available
separately or together, that are designed to detect fraudulent activity on
provider networks. The components of Fraud Centurion are:
FRAUDBUSTER, a fraud management profiling software product. FraudBuster
is designed to identify most commonly known types of fraud, such as
cloning, subscription, tumbling and cellular theft. FraudBuster collects
subscriber account information and analyzes call usage data from
telecommunication switches and other commonly accepted data sources to
identify fraudulent activity.
ALIAS, the industry's first subscription fraud profiler that detects
suspect account activity. Alias, when used with @Risk in a pre-screening
mode, represents the industry's only integrated front-end to back-end
solution for combating subscription fraud. When Alias detects a change to
the account information or matches against suspect information, an event
is generated. Once an event is generated, an evaluation is done to
determine whether a fraud investigator should take action. The
statistically based scoring logic reduces the number of cases an
investigator needs to work.
Lightbridge's pre-screening fraud solutions are priced on a per inquiry
basis. Monitoring solutions are priced on a licensed or outsourced basis, with
annual maintenance and additional charges per subscriber. Additional fees may
also be charged for consulting, implementation and support requirements of
specific clients.
CHANNEL SOLUTIONS
Lightbridge's Channel Solutions consist of products and services that
support a growing range of distribution channels. The components of Channel
Solutions include:
- POPS, a browser-based application typically used in carrier-owned or
dealer/agent store locations, features a graphical user interface for
Internet or intranet environments that allows even inexperienced sales
staff to conduct qualification and activation transactions quickly via a
dial-up or network connection to CAS. POPS_XPRESS is a version of POPS
requiring no customizations that can be installed quickly in a variety of
sales locations.
- RETAIL MANAGEMENT SYSTEM ("RMS") is a point-of-sale client/server
application designed to help telecommunications retailers manage the sale
of telecommunications products more efficiently. RMS handles credit
screening, transaction and payment processing, service activation, cash
drawer management, inventory and purchasing management and management
reporting.
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- TELESTO PORTAL, a component-based, thin-client architecture that provides
a set of building blocks that can be incorporated into standard browser
architecture or third-party applications in order to allow Web-based
storefronts to perform credit qualification, fraud screening, and
activation functions over an intranet or extranet. In intra-company
installations, Telesto Portal aids in solving data sharing issues among
various applications and physical locations. The thin-client and open
architecture allows sharing and distribution of information more broadly
throughout provider organizations. This allows optimizing workflows
without additional systems development.
POPS, RMS and Telesto Portal are licensed to clients and require
customization and integration with other products and systems to varying
degrees. Pricing of these software products varies with the configurations
selected, the number of locations licensed and the degree of customization
required.
CONSULTING SERVICES
Lightbridge Consulting Services is the only global telecommunications
practice that delivers full-service consulting for customer acquisition, fraud
management and retention. It leverages Lightbridge's in-market expertise and
focus in telecommunications to help carriers bring new services to market
quickly, expedite the process of obtaining and retaining low-risk subscribers
and enhance customer loyalty. Carriers can utilize Lightbridge Consulting
Services to supplement their staff with both domain expertise and project-based
resources. The worldwide practice supports Lightbridge clients in the Asia
Pacific region, Europe, Latin America and North America.
Lightbridge Consulting Services capitalizes on Lightbridge's existing
expertise with multiple carriers, across multiple geographic regions to provide
clients with two distinct types of service: 1) Solution Development and
Deployment consulting, and 2) Business Advisory Services. Solution Development
and Deployment consulting provides systems integration, custom software
development, project management and training services. Business Advisory
Services provide pure management consulting services that leverage best
practices in telecommunications and allied industries.
Lightbridge charges for consulting services on a per diem basis and also
undertakes smaller consulting projects on a fixed-fee basis.
TECHNOLOGY
Lightbridge's development efforts have created a proprietary multi-layered
software architecture that facilitates the development of application products.
This design conforms to the three standard tiers of presentation (front-ends),
business logic and database services, each independent of the others. The
architecture supports the development of Lightbridge's core products and
provides a discrete platform that enables the rapid creation of client-specific
requirements. In addition, the architecture is open in terms of its ability to
interface with third-party systems, as well as with Lightbridge and third-party
Web-based front-ends. Lightbridge can therefore offer its clients the ability to
use and enhance legacy systems and third-party systems (such as billing systems)
while implementing the market-oriented products offered by Lightbridge.
At the most fundamental layer of its architecture, Lightbridge has written a
common, independent library of code that provides a foundation for reusability
and, equally important, independence from hardware platforms and operating
systems. The common library currently supports Windows NT, Unix and OpenVMS. The
Lightbridge products are portable and able to run on the most suitable hardware
platform for the computing needs.
A critical element of Lightbridge's development has been the creation and
enhancement of Allegro, a proprietary peer-to-peer, client/server, transaction
management system. Allegro encapsulates a sequence of independent, application
servers into a complete transaction, customized for the client's customer
acquisition requirements. The solutions may include front-end data capture,
customer qualification, fulfillment of physical distribution and connectivity to
back office systems such as billing. To an individual
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user, however, Lightbridge products offer the front-end appearance of a "single
virtual machine." Allegro features include data validation, exception handling,
process queues, manual review queues and transaction monitors.
Lightbridge servers each perform only a single function, without knowledge
of the other steps in the transaction processes or their computing environment.
Third-party software products are encapsulated so that they are integrated
seamlessly into the Allegro system. As a result, the Allegro network is scalable
and includes software redundancy.
The core technology for FraudBuster allows new applications to be built
using applets and services that were developed for previous releases of other
applications, and includes encapsulation of many of the external links of its
core technology, thus supporting easier porting, rapid development and
scalability.
The telecommunications marketplace continues to grow rapidly and requires
quick reaction to evolving market conditions. To meet this requirement,
Lightbridge has incorporated a set of software and tools and a development
methodology with which its trained staff can provide the rapid customization of
front-ends, business rules, system interfaces and reporting. The customization
is independent of the core products, so that Lightbridge can provide
client-specific enhancements while continuing to develop regular releases of
major product enhancements.
CLIENTS
Lightbridge historically has provided its products and services to wireless
carriers in the United States. In 1998, Lightbridge began to market its products
and services to a broader range of telecommunications carriers operating around
the world.
Revenues attributable to Lightbridge's 10 largest clients accounted for
approximately 66%, 66% and 77% of Lightbridge's total revenues in the years
ended December 31, 1997, 1998 and 1999, respectively. During the years ended
December 31, 1997, 1998 and 1999, one, three and two of Lightbridge's clients
accounted for more than 10% of Lightbridge's total revenues, representing an
aggregate of 29%, 42% and 51% of total revenues in those years, respectively.
AT&T Wireless Services, Inc. accounted for 29%, 17% and 18% of Lightbridge's
total revenues for each of the years ended December 31, 1997, 1998 and 1999,
respectively. Sprint Spectrum L.P. accounted for 15% and 33% of Lightbridge's
total revenues for each of the years ended December 31, 1998 and 1999,
respectively. Nextel Finance Company accounted for 10% of Lightbridge's total
revenues for the year ended December 31, 1998.
Lightbridge's agreements with its clients set forth the terms on which
Lightbridge will provide products and services for the clients, but do not
always require the clients to purchase any particular type or quantity of
Lightbridge's products or services or to pay any minimum amount for products or
services. Lightbridge has agreements with AT&T Wireless and Sprint Spectrum for
the provision of credit decision services. The initial terms of these agreements
expired on December 31, 1999, and each agreement was extended for an additional
one-year term. The agreements with AT&T Wireless and Sprint Spectrum do not
require the purchase of any particular type or quantity of Lightbridge's
products or services, although they do contain provisions requiring payment of
minimum amounts.
SALES AND MARKETING
Lightbridge's sales strategy is to establish, maintain and foster long-term
relationships with its clients. Lightbridge's sales and client services
activities are led by "relationship teams," each of which includes a senior
management team sponsor. Lightbridge employs a team approach to selling in order
to develop a consultative relationship with existing and prospective clients. In
addition to the relationship teams, Lightbridge's sales approach includes direct
sales staff with expertise in particular solutions and sales through channel
partners, particularly internationally. Lightbridge has expanded its sales and
marketing group by hiring additional staff experienced in the telecommunications
industry.
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Lightbridge's software solutions typically require significant investment by
the carrier and involve multilevel testing, integration, implementation and
support requirements. Product managers, as well as other technical, operational
and consulting personnel, are frequently involved in the business development
and sales process. The teams conduct needs assessments and, working with the
client, develop a customized solution to meet the client's particular needs.
The sales cycle for Lightbridge's software products and services is
typically six to twelve months, although the period may be substantially longer
in some cases.
ENGINEERING, RESEARCH AND DEVELOPMENT
Lightbridge believes that its future success will depend in part on its
ability to continue to enhance its existing product and service offerings and to
develop new products and services to allow carriers to respond to changing
market requirements. Lightbridge's research and development activities consist
of both long-term efforts to develop and enhance products and services and
short-term projects to make modifications to respond to immediate client needs.
In addition to internal research and development efforts, Lightbridge intends to
continue its strategy of gaining access to new technology through strategic
relationships and acquisitions where appropriate. Lightbridge spent
approximately $6.1 million, $9.6 million and $12.7 million on engineering,
research and development in the years ended December 31, 1997, 1998 and 1999,
respectively.
COMPETITION
The market for services to wireless and other telecommunications carriers is
highly competitive and subject to rapid change. The market is fragmented, and a
number of companies currently offer one or more services competitive with those
offered by Lightbridge. In addition, many telecommunications carriers are
providing or can provide, internally, products and services competitive with
those Lightbridge offers. Trends in the telecommunications industry, including
greater consolidation and technological or other developments that make it
simpler or more cost-effective for telecommunications carriers to provide
certain services themselves, could affect demand for Lightbridge's services and
could make it more difficult for Lightbridge to offer a cost-effective
alternative to a telecommunications carrier's own capabilities. In addition,
Lightbridge anticipates continued growth in the telecommunications carrier
services industry and, consequently, the entrance of new competitors in the
future.
Lightbridge believes that the principal competitive factors in the
telecommunications carrier services industry include the ability to identify and
respond to subscriber needs, timeliness, quality and breadth of service
offerings, price and technical expertise. Lightbridge believes that its ability
to compete also depends in part on a number of competitive factors outside its
control, including the ability to hire and retain employees, the development by
others of products and services that are competitive with Lightbridge's products
and services, the price at which others offer comparable products and services
and the extent of its competitors' responsiveness to subscriber needs. See "Item
1A. Risk Factors--We Face Competition from a Broad and Increasing Range of
Vendors."
GOVERNMENT REGULATION
The FCC, under the terms of the Communications Act of 1934, regulates
interstate communications and use of the radio spectrum. Although Lightbridge is
not required to and does not hold any licenses or other authorizations issued by
the FCC, the telecommunications carriers that constitute Lightbridge's clients
are regulated at both the federal and state levels. Federal and state regulation
may decrease the growth of the telecommunications industry, affect the
development of the PCS or other wireless markets, limit the number of potential
clients for Lightbridge's services, impede Lightbridge's ability to offer
competitive services to the telecommunications market, or otherwise have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flows. The Telecommunications Act of 1996, which in large
measure deregulated the telecommunications industry, has caused, and is likely
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to continue to cause, significant changes in the industry, including the
entrance of new competitors, consolidation of industry participants and the
introduction of bundled wireless and wireline services. Those changes could in
turn subject Lightbridge to increased pricing pressures, decrease the demand for
Lightbridge's products and services, increase Lightbridge's cost of doing
business or otherwise have a material adverse effect on Lightbridge's business,
financial condition, results of operations and cash flows. The
telecommunications industry outside the United States is also subject to
government regulation which could have an increasing impact on Lightbridge if it
is successful in increasing its penetration of international markets. See "Item
1A. Risk Factors--The Telecommunications Industry is Subject To Government
Regulation and Legal Uncertainties."
PROPRIETARY RIGHTS
Lightbridge's success is dependent upon proprietary technology. Lightbridge
has traditionally relied on a combination of copyrights, the law of trademarks,
trade secrets and employee and third-party non-disclosure agreements to
establish and protect its rights in its software products and proprietary
technology. Lightbridge protects the source code versions of its products as
trade secrets and as unpublished copyrighted works, and has internal policies
and systems designed to limit access to and require the confidential treatment
of its trade secrets. Lightbridge operates its CDS software on an outsourcing
basis for its clients. In the case of its Channel Solutions and Fraud Management
products, Lightbridge provides the software either on an outsourcing basis or
under license agreements that grant clients the right to use, but contain
various provisions intended to protect Lightbridge's ownership of and the
confidentiality of the underlying copyrights and technology. Lightbridge
requires its employees and other parties with access to its confidential
information to execute agreements prohibiting unauthorized use or disclosure of
Lightbridge's technology. In addition, all of Lightbridge's employees are
required as a condition of employment to enter into non-competition and
confidentiality agreements with Lightbridge.
Lightbridge currently has three issued U.S. patents and two applications
pending in the U.S. Patent and Trademark Office, two issued foreign patents and
eight applications pending for foreign patents. There can be no assurance that
any of such pending patent applications will result in the issuance of any
patents, or that Lightbridge's current patent or any future patents will provide
meaningful protection to Lightbridge.
There can be no assurance that the steps taken by Lightbridge to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology. It may be
possible for unauthorized parties to copy certain portions of Lightbridge's
products or reverse engineer or obtain and use information that Lightbridge
regards as proprietary. Existing copyright and trade secret laws and patents
issued to Lightbridge offer only limited protection. Lightbridge's
non-competition agreements with its employees may be enforceable only to a
limited extent, if at all. In addition, the laws of some foreign countries do
not protect Lightbridge's proprietary rights to the same extent as do the laws
of the United States. Lightbridge has been and may be required from time to time
to enter into source code escrow agreements with certain clients and
distributors, providing for release of source code in the event Lightbridge
breaches its support and maintenance obligations, files for bankruptcy or ceases
to continue doing business.
Lightbridge's competitive position may be affected by limitations on its
ability to protect its proprietary information. However, Lightbridge believes
that patent, trademark, copyright, trade secret and other legal protections are
less significant to Lightbridge's success than other factors, such as the
knowledge, ability and experience of Lightbridge's personnel, new product and
service development, frequent product enhancements, customer service and ongoing
product support.
Certain technologies used in Lightbridge's products and services are
licensed from third parties. Lightbridge generally pays license fees on these
technologies and believes that if the license for any such third-party
technology were terminated, it would be able to develop such technology
internally or license
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equivalent technology from another vendor, although no assurance can be given
that such development or licensing can be effected without significant delay or
expense.
Although Lightbridge believes that its products and technology do not
infringe on any existing proprietary rights of others, there can be no assurance
that third parties will not assert such claims against Lightbridge in the future
or that such future claims will not be successful. Lightbridge could incur
substantial costs and diversion of management resources with respect to the
defense of any claims relating to proprietary rights, which could have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flows. Furthermore, parties making such claims could
secure a judgment awarding substantial damages, as well as injunctive or other
equitable relief, which could effectively block Lightbridge's ability to make,
use, sell, distribute or market its products and services in the United States
or abroad. Such a judgment could have a material adverse effect on Lightbridge's
business, financial condition, results of operations and cash flows. In the
event a claim relating to proprietary technology or information is asserted
against Lightbridge, Lightbridge may seek licenses to such intellectual
property. There can be no assurance, however, that such a license could be
obtained on commercially reasonable terms, if at all, or that the terms of any
offered licenses will be acceptable to Lightbridge. The failure to obtain the
necessary licenses or other rights could preclude the sale, manufacture or
distribution of Lightbridge's products and, therefore, could have a material
adverse effect on Lightbridge's business, financial condition, results of
operations or cash flows. The cost of responding to any such claim may be
material, whether or not the assertion of such claim is valid. See "Item 1A.
Risk Factors--Our Proprietary Technology Is Subject to Limited Protection."
EMPLOYEES
As of March 22, 2000, Lightbridge had a total of 530 employees, of which 459
were full-time and 71 were part-time or seasonal. The number of personnel
employed by Lightbridge varies seasonally. None of Lightbridge's employees is
represented by a labor union, and Lightbridge believes that its employee
relations are good.
The future success of Lightbridge will depend in large part upon its
continued ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense, particularly for sales and marketing
personnel, software developers and service consultants.
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ITEM 1A. RISK FACTORS
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF CLIENTS
Because we derive most of our revenues from a limited number of clients, our
business could be harmed if our relationship with any significant client
terminates or changes. Our 10 largest clients accounted for approximately 66%,
66% and 77% of our total revenues in 1997, 1998 and 1999. During 1997, 1998 and
1999, one, three and two of our clients, respectively, accounted for more than
10% of our total revenues. These greater-than-10% clients represented a total of
29%, 42% and 51% of our total revenues in those years. In particular, AT&T
Wireless Services, Inc. accounted for 29%, 17% and 18% of our total revenues in
1997, 1998 and 1999, respectively, and Sprint Spectrum L.P. accounted for 15%
and 33% of our total revenues in 1998 and 1999, respectively. Nextel Finance
Company accounted for 10% of Lightbridge's total revenues for the year ended
December 31, 1998.
Because our revenues are concentrated, our revenues and earnings may
fluctuate significantly from quarter to quarter, based on the volume of
qualification and activation transactions our significant clients generate.
Moreover, our revenues may become more concentrated as a result of consolidation
among wireless telecommunications companies, which has been occurring at a rapid
pace in recent years. We expect that most of our revenues will continue to come
from a relatively small number of clients for the foreseeable future. Our client
contracts generally extend for terms of one or more years and do not typically
require our clients to purchase any particular type or quantity of our products
or services or to pay any minimum amount for products or services. Therefore,
our clients, including our significant clients, may not continue to utilize our
services at levels similar to previous years or at all. If one of our major
clients terminates or significantly reduces its purchases from us for any
reason, our business could be seriously damaged. Our business could also be
harmed if we are unable to collect, or experience delays in collecting, payments
from any major client.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE
Our operating results are difficult to predict and may fluctuate
significantly from quarter to quarter. If our operating results fall below the
expectations of investors or public market analysts, the price of our common
stock could fall dramatically. Our common stock price could also fall
dramatically if investors or public market analysts reduce their estimates of
our future quarterly operating results, whether as a result of information we
disclose, industry trends or other factors.
Our revenues are difficult to forecast for a number of reasons:
- Seasonal and retail trends affect our transaction services revenues, which
historically have represented the majority of our total revenues. For
example, our revenues generally have been highest in the fourth quarter of
each calendar year, particularly in the holiday shopping season between
Thanksgiving and Christmas. In addition, marketing initiatives undertaken
by our clients or their competitors may significantly affect the number of
transactions we process.
- The sales process for our products and services is lengthy, sometimes
exceeding a year. The length of the sales process makes our revenues
difficult to predict. The delay of one or more large orders, particularly
orders for software, which typically result in a substantial amount of
non-recurring revenue, could cause our quarterly revenues to fall
substantially below expectations.
- We ship our software products within a short period after receipt of an
order, and we usually do not have a material backlog of unfilled orders of
software products. Consequently, our revenues from software licenses in
any quarter depend substantially on the orders booked and shipped in that
quarter. As a result, a delay in the consummation of a license agreement
may cause our revenues to fall below expectations for that quarter.
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- Our consulting services revenues can fluctuate based on the timing of
projects we perform for our clients. Many of our consulting engagements
are of a limited duration, so it can be difficult for us to forecast
consulting services revenues accurately more than a few months in advance.
- We are in the process of developing a number of new products and services,
including products based on technology acquired from Coral. If we do not
complete our development efforts on schedule, or if we are not able to
market our new products and services successfully, our revenues could fall
substantially below expectations.
Most of our expenses, particularly employee compensation, are relatively
fixed. As a result, even relatively small variations in the timing of our
revenues may cause significant variations in our quarterly operating results and
may result in quarterly losses.
As a result of these factors, we believe that quarter-to-quarter comparisons
of our results of operations are not necessarily meaningful. You should not rely
on our quarterly results of operations to predict our future performance.
WE NEED TO ENHANCE OUR EXISTING PRODUCTS AND SERVICES AND DEVELOP NEW ONES
The telecommunications industry has been changing rapidly as a result of
increasing competition, technological advances and evolving industry practices
and standards, and we expect these changes will continue. Carriers in the
telecommunications market have also been changing quickly, as the result of
consolidation among existing carriers and the rapid entrance of new carriers
into the market. In order to be successful, we must:
- identify and anticipate emerging technological and market trends;
- enhance our current products and services;
- develop new products and services that address changing client needs,
business practices and technical requirements;
- integrate our current and future products; and
- create and maintain interfaces to changing third party systems.
In addition, we must achieve these goals in a timely and cost-effective
manner and successfully market our new and enhanced products and services to
clients. In the past, we have experienced delays in developing new products and
enhancing existing products, and on occasion we have postponed scheduled
delivery dates for products. In order to be successful, we must meet our
clients' expectations with respect to product development, enhancement and
integration and our software and services must adequately address the needs of
our clients.
WE MUST RESPOND TO CHANGING BUSINESS REQUIREMENTS
Our operations have expanded rapidly in recent years. This expansion has
created significant demands on our executive, operational, development and
financial personnel and other resources. Future growth in our business, if
achieved either domestically or internationally, may further strain our
management, financial and other resources. Our future operating results will
depend on the ability of our officers and key employees to manage changing
business conditions and to continue to improve our operational and financial
control and reporting systems.
WE FACE SIGNIFICANT COMPETITION FOR A LIMITED SUPPLY OF QUALIFIED SOFTWARE
ENGINEERS AND CONSULTANTS
Our business depends on the services of skilled software engineers who can
develop, maintain and enhance our products and consultants who can undertake
complex client projects. In general, only highly
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qualified, highly educated personnel have the training and skills necessary to
perform these tasks successfully. In order to maintain the competitiveness of
our products and to meet client requirements, we need to attract, motivate and
retain a significant number of software engineers and consultants. Qualified
personnel such as these are in short supply and we face significant competition
for these employees, from not only our competitors but also clients and other
enterprises. Other employers may offer software engineers and consultants
significantly greater compensation and benefits or more attractive career paths
or geographic locations than we are able to offer. Any failure on our part to
hire, train and retain a sufficient number of qualified personnel would
seriously damage our business.
WE DEPEND ON THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER
Our future success depends to a significant degree on the skills, experience
and efforts of our executive officers, particularly Pamela D.A. Reeve, our
President and Chief Executive Officer. Ms. Reeve has led us since our
incorporation in 1989. We do not have any employment contract requiring
Ms. Reeve or any of our other executive officers to continue their employment
for any period of time, and we do not maintain key-person life insurance on any
of our executive officers other than Ms. Reeve.
OUR REVENUES ARE CONCENTRATED IN THE DOMESTIC WIRELESS TELECOMMUNICATIONS
INDUSTRY
We derive almost all of our revenues from United States-based companies in
the wireless telecommunications industry, principally cellular and PCS carriers.
While we are seeking to expand our client base to other types of
telecommunications providers, both domestically and internationally, we expect
that U.S. wireless telecommunications companies will continue to account for a
substantial majority of our revenues for the foreseeable future. Although the
wireless industry has experienced significant growth in recent years, we believe
that the growth rate of the domestic wireless industry may begin to slow as the
industry matures. As a result, our success depends on a number of factors:
- continued demand for our products and services by domestic companies in
the wireless telecommunications industry;
- continued growth of the domestic cellular and PCS markets;
- our ability to develop and market new products and services to new and
existing clients;
- our ability to increase sales of our products and services overseas; and
- our ability to increase sales of our products and services to CLECs and
other new classes of clients.
Recently some of our clients have completed or announced mergers with other
of our clients. We currently are unable to predict the effect, if any, that
these consolidations will have on the nature and quantity of products and
services we provide to these clients.
OUR BUSINESS COULD REQUIRE ADDITIONAL FINANCING
It is possible that we will not maintain profitability on either a quarterly
or annual basis in the future or that we will need to raise funds through public
or private financings. Further expansion of our business, including the
acquisition of additional computer and network equipment, the development of new
or enhanced products and services and the international expansion of our
business will require us to make significant capital expenditures. If our
available cash resources prove to be insufficient, due to unanticipated
expenses, revenue shortfalls or otherwise, we may need to seek additional
financing or curtail our expansion activities. If we obtain equity financing or
finance an acquisition with equity securities, our existing stockholders may
experience dilution in their investments. It is possible that, if we need
additional financing, we will not be able to obtain it on acceptable terms, or
at all.
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WE FACE COMPETITION FROM A BROAD AND INCREASING RANGE OF VENDORS
The market for products and services provided to telecommunications carriers
is highly competitive and subject to rapid change. The market is fragmented, and
a number of companies currently offer one or more products or services
competitive with ours. We anticipate continued growth and the formation of new
alliances in the telecommunications carrier services industry, which will result
in the entrance of new competitors in the future. We face potential competition
from several primary sources:
- software vendors that provide one or more customer acquisition, retention
or fraud detection solutions, including GTE Corporation's TSI division,
Systems/Link, Magnum Software Systems, Onyx Software and SLP Infoware;
- telecommunications equipment vendors that market software-based solutions
to complement their hardware offerings, such as Compaq, Ericsson and
Northern Telecom;
- service providers that offer customer acquisition, retention or fraud
detection services in connection with other services, including Equifax,
LHS Group and Amdocs;
- information technology departments within larger carriers that have the
ability to provide products and services that are competitive with those
we offer; and
- consulting firms that may offer competitive services or the ability to
develop customized solutions for customer acquisition, retention or fraud
detection, such as American Management, Andersen Consulting, CAP Gemini
and Deloitte & Touche.
Many of our current and potential competitors have significantly greater
financial, marketing, technical and other competitive resources than we do. As a
result, these competitors may be able to adapt more quickly to new or emerging
technologies and changes in client requirements, or may be able to devote
greater resources to the promotion and sale of their products and services.
In addition, in order to meet client requirements, we must often work
cooperatively with companies that are, in other circumstances, competitors. The
need for us to work cooperatively with such companies may limit our ability to
compete aggressively with them in other circumstances.
WE DEPEND ON OUR SYSTEMS TO PROVIDE TRANSACTION SERVICES AND SUPPORT SERVICES
We provide transaction services and support services using complex computer
and telecommunications systems. Our business could be significantly harmed if
these systems fail or suffer damage from fire, natural disaster, power loss,
telecommunications failure or similar events. Most of our computer and
telecommunications equipment is located at our sites in Burlington and Waltham,
Massachusetts, and, as a result, may be vulnerable to a natural disaster. In
addition, the growth of our client base, a significant increase in transaction
volume or an expansion of our facilities may strain the capacity of our
computers and telecommunications systems and lead to degradations in performance
or system failure. Many of our agreements with carriers contain level of service
commitments which we might be unable to fulfill in the event of a natural
disaster or a major system failure. Our property and business interruption
insurance might not be adequate to compensate us for any losses that may occur
in the event of a natural disaster or system failure. It is also possible that
such insurance might cease to be available to us on commercially reasonable
terms, or at all.
In addition to our own systems, we rely on certain equipment, software,
systems and services from third parties that are also subject to risks,
including risks of system failure or inadequacy. For example, in order to
provide our credit verification service, we need access to third-party credit
information databases. Similarly, delivery of our activation services often
requires the availability and performance of third-party billing systems. If,
for any reason, we were unable to access any such databases or billing systems,
our ability to process credit verification transactions could be impaired. In
addition, our business is materially dependent on service provided by various
local and long distance telecommunications providers. A
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significant increase in the cost of telecommunications services that we cannot
recover through an increase in the price of our services, or any significant
interruption in telecommunications services, could seriously harm our business.
OUR SOFTWARE MAY CONTAIN DEFECTS
The software we develop and use in providing our products and services may
contain errors. Although we test software extensively before it is used to
provide services to clients, we cannot be certain that errors will not be found
in software after we put it into use. Any such error may harm our business in
several ways, including the following:
- we may suffer a loss of revenue if we are unable to provide services to
our clients;
- we may incur additional unexpected expenses to fund further product
development or to add programming personnel to complete a development
project; and
- our clients may terminate their agreements with us.
WE MAY MAKE ACQUISITIONS, WHICH INVOLVE RISKS
We acquired Coral in November 1997. Although we have no current arrangements
to make additional acquisitions in the future, we may do so if we identify
companies, technologies or assets that appear to complement our business.
Acquisitions involve risks that could cause our actual growth to differ from our
expectations. For example:
- In future acquisitions, we may issue equity securities that could be
dilutive to our shareholders. In those acquisitions, we also may incur
additional debt and amortization expense related to goodwill and other
intangible assets. This additional debt and amortization expense may
materially and adversely affect our business and operating results.
- We may be unable to integrate acquired businesses successfully and to
realize anticipated economic, operational and other benefits in a timely
manner. Integration of an acquired business is especially difficult when
we acquire a business in a market in which we have limited or no expertise
or a business with a corporate culture different from ours. If we are
unable to successfully integrate acquired businesses, we may incur
substantial costs and delays or other operational, technical or financial
problems.
- Acquisitions may divert management's attention from our existing business
and may damage our relationships with our key clients and employees.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES
Our telecommunications carrier clients are regulated at both the federal and
state levels, and our international clients are subject to regulation by their
own countries. Government regulation could harm our business in several ways,
for example by:
- decreasing the rate of growth of the wireless industry or other segments
of the telecommunications market;
- affecting the development of emerging telecommunications markets;
- limiting the number of potential clients for our products and services;
- introducing new requirements that would force us to modify our products or
services; or
- increasing competition in the industry, which could subject us to
increased pricing pressures.
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In making credit evaluations of consumers, our clients are subject to
detailed state and federal requirements, including the Fair Credit Reporting Act
and the Equal Credit Opportunity Act. Although most of our products and
services, other than our ProFile product, are not directly subject to these
requirements, we must take these requirements into account in order to meet our
clients' needs. If we fail to reflect these requirements in a timely or accurate
manner, we could incur liability or suffer a loss of business.
OUR PROPRIETARY TECHNOLOGY IS SUBJECT TO LIMITED PROTECTION
Our business could be materially and adversely affected if we are not able
to protect adequately our proprietary software and other proprietary
intellectual property rights. We rely on a combination of copyright, patent,
trademark and trade secret laws, license and confidentiality agreements, and
software security measures to protect our proprietary rights. Although we
currently hold U.S. and foreign registered trademarks and U.S. patents on
certain of our proprietary technology, we may be unable to obtain similar
protection for our other intellectual property. In addition, the laws of certain
countries in which our products are licensed do not protect our products and
intellectual property rights to the same extent as U.S. laws. We generally enter
into non-disclosure agreements with our employees and customers and restrict
access to, and distribution of, our proprietary information. Nevertheless, we
may be unable to deter misappropriation of our proprietary information, detect
unauthorized use and take appropriate steps to enforce our intellectual property
rights. Our competitors also may independently develop technologies that are
substantially equivalent or superior to our technology.
Although we believe that our services and products do not infringe on the
intellectual property rights of others, we cannot prevent someone else from
asserting a claim against us in the future for violating their technology
rights. Even if such a claim is not successful on its merits, we could be
required to incur significant costs in defending the claim. If a claim of this
type is successful, we could be required to pay substantial damages, and we
could also be prevented from selling one or more of our products and services.
OUR INTERNATIONAL EXPANSION STRATEGY INVOLVES RISKS
As part of our business strategy, we are seeking opportunities to expand our
offerings into international markets. As the United States wireless market
matures, we believe that expansion into international markets is important to
our ability to continue to grow and to market our products and services. We have
opened offices in England, Brazil and Malaysia, but to date we have limited
experience in marketing and distributing our products and services
internationally. Expanding our sales efforts outside the United States will
require significant management attention and financial resources. In addition,
our international expansion strategy is subject to risks, including:
- fluctuations in exchange rates may reduce our earnings, particularly if we
denominate arrangements with international clients in the currency of the
country in which our products or services are provided;
- we may experience longer payment cycles and increased difficulties in
collecting accounts receivable;
- tariffs and other barriers may reduce our ability to sell our solutions or
may reduce the profitability of those solutions;
- political and economic instability, such as the economic downturn in Asia
in 1998, may lead to reduced demand for our solutions;
- changes in technology standards, such as interfaces between products, that
are developed by European or other foreign groups may require additional
development efforts by us or may change the buying behavior of some of our
clients;
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- we may experience difficulties in managing a global network of
distributors or representatives and in staffing and managing foreign
subsidiary operations;
- we may encounter difficulties or delays in translating products and
product documentation into foreign languages;
- we may suffer potentially adverse tax consequences from operations abroad;
and
- the adoption and use of the euro, the single European currency introduced
in January 1999, may adversely affect our business in ways we cannot
currently predict.
OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS
Certain provisions of our certificate of incorporation and Delaware law
could be used by our incumbent management to make it more difficult for a third
party to acquire control of us, even if the change in control might be
beneficial to our stockholders. This could discourage potential takeover
attempts and could adversely affect the market price of our common stock.
In particular, we may issue preferred stock in the future without
stockholder approval, upon terms determined by our board of directors. The
rights of holders of our common stock would be subject to, and may be adversely
affected by, the rights of holders of any preferred stock issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding stock.
We have adopted a stockholder rights plan that may deter or delay attempts to
acquire us or to accumulate shares of common stock. Except for the stockholder
rights plan, we have no present plans to designate or issue any shares of
preferred stock.
ITEM 2. PROPERTIES
In March 1997, the Company entered into a seven-year lease for approximately
46,000 square feet in Burlington, Massachusetts. This lease was amended in
October 1997 and in July 1999 to include an additional 11,000 and 8,000 square
feet, respectively, at the same location. This lease, as amended, for the
Burlington facility expires in 2004. In August 1997, the Company relocated its
headquarters from Waltham, Massachusetts to the Burlington facility, and it
currently subleases a portion of its 39,000-square foot facility in Waltham. The
Company's teleservices group is located in a 16,000-square foot leased facility,
also in Waltham, Massachusetts. The leases for both Waltham facilities expire
between 2001 and 2003. In addition, Lightbridge's Colorado operations are
located in a 30,000 square foot leased facility in Broomfield, Colorado. The
lease on the Broomfield premises will expire in 2003. In October 1999, the
Company entered into a five year lease for approximately 16,000 square feet of
additional space in Broomfield, Colorado. This additional space is occupied by a
portion of the TeleServices Group located in Colorado.
ITEM 3. LEGAL PROCEEDINGS
During 1997, an action was brought against the Company and another
defendant, United States Cellular Corp., in the Superior Court of New Jersey,
Law Division, Mercer County (Docket No. MER-L-003436-97) on September 10, 1997
by National Information Bureau Ltd. ("NIB"), a Delaware corporation based in New
Jersey. In January 1998, NIB filed for Chapter 11 bankruptcy protection in
Delaware, and requested that the New Jersey court stay the litigation pending a
determination during the bankruptcy proceedings of whether NIB would pursue the
case. The complaint asserts counts against the Company alleging misappropriation
of trade secrets, interference with contractual relations, civil conspiracy, and
breach of contract. Three other counts of the complaint assert claims only
against United States Cellular Corp. In the complaint, NIB seeks damages,
attorneys' fees, costs, and unspecified other
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relief. The complaint does not identify or specify the amount, if any, of
damages NIB claims to have incurred as a result of any alleged conduct by the
Company. The Company believes that the claims asserted against it by NIB are
without merit. The Company intends to defend the action vigorously, and does not
believe that this claim will have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
March 15, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ------------------------------------------
<S> <C> <C>
Pamela D.A. Reeve......................... 50 President, Chief Executive Officer and
Director
Brian P. Connolly......................... 50 Senior Vice President, Sales and Marketing
Michael A. Perfit......................... 44 Senior Vice President of Technology
Richard H. Antell......................... 51 Vice President, Software Development
Douglas E. Blackwell...................... 43 Vice President, Service Delivery
Carla J. Marcinowski...................... 42 Vice President, Consulting Services
Torrence C. Harder(1)..................... 56 Director
D. Quinn Mills(2)......................... 58 Director
Debora Wilson(1)(2)....................... 42 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Pamela D.A. Reeve has served as the President of the Company since
November 1989, as Chief Executive Officer of the Company since September 1993
and as a director of the Company since November 1989. From November 1989 to
September 1993, Ms. Reeve also served as Chief Operating Officer of the Company.
Prior to joining the Company, Ms. Reeve was employed by The Boston Consulting
Group. Ms. Reeve served as President of the Massachusetts Software Council from
January 1996 to January 1998. She currently serves as a director of WebLink
Wireless, Inc., a provider of wireless messaging services, and Natural
MicroSystems Corp., a provider of hardware and software technology for
developers of high-value telecommunications solutions.
Brian P. Connolly has been Lightbridge's Senior Vice President, Sales and
Marketing since May 1998. Prior to joining Lightbridge, Mr. Connolly was
employed by Computer Sciences Corporation's Intellicom Division, most recently
as its Vice President and Chief Operating Officer.
Michael A. Perfit, a founder of the Company, has served as Senior Vice
President of Technology of the Company since June 1991. From June 1989 to
May 1991, Mr. Perfit served as Vice President of Engineering of the Company.
Prior to joining the Company, Mr. Perfit was Vice President of Appex, Inc. and
held engineering and technical support positions at Interactive Management
Systems.
Richard H. Antell has served as Vice President, Software Development of the
Company since February 1996. From June 1991 to January 1996, Mr. Antell was Vice
President of Engineering of the Company. Prior to joining the Company,
Mr. Antell served as Vice President of Application Development of Applied Expert
Systems, Inc. and Project Leader of Index Systems, Inc.
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Douglas E. Blackwell has served as Vice President, Service Delivery of the
Company since November 1995. From October 1994 to October 1995, Mr. Blackwell
served as Vice President of Operations of the Company. From February 1991 to
September 1994, Mr. Blackwell was employed as Vice President of Operations of
Thomson Financial Services, Inc., an on-line financial transaction and
information services firm. Prior to February 1991, Mr. Blackwell was employed at
Nolan, Norton and Co., an affiliate of KPMG/Peat Marwick.
Carla J. Marcinowski has been Lightbridge's Vice President, Consulting
Services since February 1998. Prior to joining Lightbridge as an employee,
Ms. Marcinowski provided services to Lightbridge as an independent consultant,
from October 1997 to January 1998. Ms. Marcinowski was a founder and Vice
President, Business Development of The Net Collaborative from July 1996 to
August 1997, and prior to March 1996 was employed by Lotus Development
Corporation in various positions, including International Managing Director,
Consulting Services, Managing Director, Worldwide Services Group and Services
Lead, Lotus/IBM Transition Team.
Torrence C. Harder, a founder of the Company, has served as a director of
the Company since June 1989. Mr. Harder has been the President and a director of
Harder Management Company, a registered investment advisory firm, since its
establishment in 1971. He has also been the President and a director of
Entrepreneurial Ventures, Inc., a venture capital investment firm, since 1987
and currently serves as a director of MicroFinancial, Inc., a microticket
leasing firm.
D. Quinn Mills has served as a director of the Company since June 1990.
Since 1976, Dr. Mills has served as the Albert J. Weatherhead, Jr. Professor of
Business Administration at the Harvard Business School.
Debora J. Wilson has served as a director of Lightbridge since May 1998.
Ms. Wilson is currently President and Chief Executive Officer of weather.com, a
position she has held since September 1999. From August 1994 to September 1999,
Ms. Wilson held senior level positions at The Weather Channel, including Senior
Vice President--New Media, Executive Vice President and General Manager and
President--U.S. Products and Distribution. Prior to August 1994, Ms. Wilson was
employed at Bell Atlantic, and held various Product Development, Marketing and
Operations positions.
The Board of Directors is divided into three classes. One class of directors
is elected each year at the annual meeting of stockholders for a term of office
expiring after three years. Ms. Wilson serves in the class whose term expires in
2000; Dr. Mills serves in the class whose term expires in 2001; and Mr. Harder
and Ms. Reeve serve in the class whose term expires in 2002. Each director will
serve until the expiration of his or her term and thereafter until his or her
successor is duly elected and qualified.
The Board of Directors has appointed a Compensation Committee, which
provides recommendations concerning salaries and incentive compensation for
employees of and consultants to the Company, and an Audit Committee, which
reviews the scope and results of the audit and other services provided by the
Company's independent auditors.
Non-employee directors of the Company receive cash compensation for their
services. Under the Company's 1998 Non-Qualified Stock Option Plan, non-employee
directors of the Company are eligible to receive automatic formula grants of
nonqualified options.
Executive officers of the Company are elected annually by the Board of
Directors and serve at its discretion or until their successors are duly elected
and qualified.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of the Company's Common Stock, $.01 par value per share, are quoted
on the Nasdaq National Market under the symbol "LTBG." The following table sets
forth, for the calendar quarters indicated, the high and low sales prices per
share of the Common Stock on the Nasdaq National Market, as reported in
published financial sources:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1998
First Quarter............................................... $20.25 $10.00
Second Quarter.............................................. $19.25 $ 8.41
Third Quarter............................................... $ 9.25 $ 3.38
Fourth Quarter.............................................. $ 6.22 $ 3.13
1999
First Quarter............................................... $ 7.25 $ 4.63
Second Quarter.............................................. $12.56 $ 4.75
Third Quarter............................................... $19.88 $11.88
Fourth Quarter.............................................. $33.25 $15.38
</TABLE>
As of March 15, 2000, there were 198 holders of record of common stock
(which number does not include the number of stockholders whose shares are held
of record by a broker or clearing agency but does include each such brokerage
house or clearing agency as one record holder).
The Company has never declared or paid any cash dividends on its common
stock. The Company currently anticipates that it will retain future earnings, if
any, to fund the development and growth of its business and therefore does not
expect to pay any cash dividends in the foreseeable future. Furthermore, the
terms of the Company's existing borrowing arrangements and bank lines of credit
prohibit the Company from declaring or paying cash dividends on its common
stock.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the Company's
audited historical financial statements, certain of which are included elsewhere
in this Form 10-K. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data."
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED YEARS ENDED DEC. 31,
SEPT. 30, DEC. 31, -----------------------------------------
1995 1995 1996(1) 1997 1998 1999
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues................................... $19,350 $6,512 $29,545 $40,549 $63,352 $89,716
Cost of revenues........................... 12,607 3,484 15,986 19,428 33,108 42,876
------- ------ ------- ------- ------- -------
Gross profit............................... 6,743 3,028 13,559 21,121 30,244 46,840
------- ------ ------- ------- ------- -------
Operating expenses:
Development costs........................ 3,864 1,145 4,380 6,072 9,596 12,659
Sales and marketing...................... 1,902 795 3,673 6,041 6,857 7,481
General and administrative............... 2,584 701 2,769 4,731 8,490 10,878
Amortization of goodwill and acquired
workforce.............................. -- -- -- 497 2,982 1,342
Intangible asset impairment.............. -- -- -- -- 7,385 --
Purchased in-process research and
development............................ -- -- -- 4,000 -- --
------- ------ ------- ------- ------- -------
Total operating expenses................... 8,350 2,641 10,822 21,341 35,310 32,360
------- ------ ------- ------- ------- -------
Income (loss) from operations.............. (1,607) 387 2,737 (220) (5,066) 14,480
Other income (expense)(2).................. (826) (313) (305) 949 682 1,233
------- ------ ------- ------- ------- -------
Income (loss) before income taxes.......... (2,433) 74 2,432 729 (4,384) 15,713
Provision for income taxes................. -- 2 160 892 2,513 5,568
------- ------ ------- ------- ------- -------
Net income (loss).......................... (2,433) 72 2,272 $ (163) $(6,897) $10,145
======= ======= =======
Accretion of preferred stock dividends..... (182) (46) (137)
------- ------ -------
Net income (loss) available for common
stock.................................... $(2,615) $ 26 $ 2,135
======= ====== =======
Basic earnings (loss) per common share..... $ (0.40) $ 0.00 $ 0.33 $ (0.01) $ (0.44) $ 0.62
======= ====== ======= ======= ======= =======
Diluted earnings (loss) per common share... $ (0.40) $ 0.00 $ 0.17 $ (0.01) $ (0.44) $ 0.56
======= ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1995 1995 1996 1997 1998 1999
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 539 $ 58 $27,901 $15,716 $16,437 $ 35,478
Working capital (deficiency)........... $ (3,280) $ (1,967) $30,457 $21,186 $24,519 $ 36,771
Total assets........................... $ 10,214 $ 11,055 $41,766 $63,565 $57,777 $ 75,857
Long-term obligations, less current
portion.............................. $ 3,796 $ 4,515 $ 2,221 $ 2,221 $ 1,181 $ 1,102
Redeemable convertible preferred
stock................................ $ 3,131 $ 3,177 $ -- $ -- $ -- $ --
Stockholders' equity (deficit)......... $ (3,564) $ (3,522) $33,599 $50,716 $44,447 $ 57,292
</TABLE>
- ------------------------
(1) Lightbridge changed its fiscal year end from September 30 to December 31,
effective with the fiscal years ending December 31, 1996.
(2) Consists principally of interest expense for the years ended September 30,
1995 and December 31, 1996 and for the three months ended December 31, 1995.
Consists principally of interest income for the years ended December 31,
1997 and 1998. For the year ended December 31, 1999, consists principally of
interest income and a nonrecurring gain of approximately $415,000 on the
sale of an investment.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Lightbridge develops, markets and supports a network of integrated products
and services that enable telecommunications carriers to improve their customer
acquisition, retention and fraud prevention processes.
Lightbridge's total revenues increased by 363.6% from $19.4 million in
fiscal 1995 to $89.7 million in fiscal 1999. This revenue increase was driven
primarily by increases in volume of wireless customer qualification and
activation transactions processed for wireless carrier clients and in the
utilization of the Company's products and services by carriers. The Company's
revenues consist of transaction revenues, software licensing and maintenance,
and consulting revenues. Transaction revenues account for a majority of the
Company's revenues. Software licensing and maintenance revenues and consulting
revenues have increased during recent periods, primarily as a result of
increased consulting services associated with linking wireless carrier legacy
and third-party systems to the Company's systems and the initial licensing of
certain software products. Software licensing and maintenance and consulting
revenues, which together represented no more than 6.0% of total revenues in
fiscal 1995, increased to an aggregate of 7.0%, 25.0%, 33.7% 34.2% and 29.4% of
total revenues in the three months ended December 31, 1995 and fiscal 1996,
1997, 1998 and 1999, respectively. There can be no assurance that the Company's
software products or its consulting services will achieve market acceptance or
that the mix of the Company's revenues will remain constant.
Lightbridge's transaction services revenues are derived primarily from the
processing of applications for qualification of subscribers for
telecommunications services and the activation of service for those subscribers.
Over time, the Company has expanded its offerings from credit evaluation
services to include screening for subscriber fraud, evaluating carriers'
existing accounts, interfacing with carrier and third-party systems and
providing call center services. These services are provided pursuant to
contracts with carriers which specify the services to be utilized and the
markets to be served. The Company's clients are charged for these services on a
per transaction basis. Pricing varies depending primarily on the volume of
transactions, the type and number of other products and services selected for
integration with the services and the term of the contract under which services
are provided. The volume of processed transactions varies depending on seasonal
and retail trends, the success of the carriers utilizing the Company's services
in attracting subscribers and the markets served by the Company's clients.
Transaction services revenues are recognized in the period in which the services
are performed.
The Company's software licensing and maintenance revenues consist of
revenues attributable to the licensing of the Company's Channel Solutions and
Fraud Management software. Lightbridge's Channel Solutions products are designed
to assist customers in interfacing with the Company's transaction processing
systems as well as to perform other point-of-sale and channel functionality. The
Company's Fraud Management products are designed to assist carriers in
monitoring subscriber accounts to identify activity that may indicate fraud.
While the Company's software products are licensed as packaged software
products, each of these products generally requires insignificant customization
and integration with other products and systems to varying degrees. Software
licensing revenues are recognized when persuasive evidence of an arrangement
exists, delivery of the product has been made, and a fixed fee and
collectibility has been determined. Revenues from software maintenance contracts
are recognized ratably over the term of the maintenance agreement.
The Company's consulting services revenues historically have been derived
principally from providing consulting for customer acquisition and retention.
During the second quarter of 1998, the Company launched Lightbridge Consulting
Services, which provides Solution Development and Deployment consulting and
Business Advisory Services in the areas of customer acquisition, retention and
fraud management. Revenues from consulting services are generally recognized as
the services are performed, using the percentage-of-completion method, measured
by labor hours.
23
<PAGE>
In November 1997, the Company acquired all of the outstanding stock of Coral
in exchange for 892,053 shares of the Company's common stock. The Company also
assumed the obligations under Coral's outstanding stock options and warrants.
The acquisition was accounted for as a purchase and, accordingly, the results of
Coral are included with those of the Company from the date of acquisition.
During 1999, Lightbridge continued its efforts to complete development of
in-process technology obtained through the acquisition of Coral. Lightbridge is
continuing to develop a new version of FraudBuster that is expected to contain
substantial enhancements in performance, scalability and functionality and is
currently scheduled to be released in the second quarter of 2000. Lightbridge is
also continuing to develop Alias and @Risk, which will be complimentary to
FraudBuster and will contain new subscription fraud detection tools. These
products are being deployed in a phased introduction that began in the third
quarter of 1999 and is expected to continue through the second quarter of 2000.
If the Company is unsuccessful in completing these projects, the Company's
business, financial condition, results of operations and cash flows could be
materially adversely affected.
During fiscal 1997, 1998 and 1999, one, three and two of the Company's
clients, respectively, accounted for more than 10% of the Company's total
revenues. Revenues from the one client in fiscal 1997 aggregated 29% of total
revenues. Revenues from the three clients in fiscal 1998 aggregated 17%, 15% and
10% of total revenues. Revenues from the two clients in fiscal 1999 aggregated
18% and 33% of total revenues. See "Item 1A. Risk Factors--Our Business Depends
on a Limited Number of Clients."
Substantially all of the Company's revenues historically have been derived
from clients located in the United States, and the Company expects that domestic
sales will continue to account for a substantial portion of its revenues in
2000.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Transaction........................................... 66.3% 65.8% 70.6%
Software licensing and maintenance.................... 15.6 18.8 14.9
Consulting services................................... 18.1 15.4 14.5
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Transaction........................................... 38.3 36.8 33.7
Software licensing and maintenance.................... 5.0 7.2 5.6
Consulting services................................... 4.6 8.3 8.5
----- ----- -----
47.9 52.3 47.8
----- ----- -----
Gross profit............................................ 52.1 47.7 52.2
----- ----- -----
Operating expenses:
Development costs..................................... 15.0 15.1 14.1
Sales and marketing................................... 14.9 10.8 8.3
General and administrative............................ 11.7 13.4 12.1
Amortization of goodwill and acquired workforce....... 1.2 4.7 1.5
Intangible asset impairment........................... -- 11.7 --
Purchased in-process research and development......... 9.8 -- --
----- ----- -----
Total operating expenses............................ 52.6 55.7 36.0
----- ----- -----
Income (loss) from operations........................... (0.5) (8.0) 16.2
Other income (expense), net............................. 2.3 1.1 1.4
----- ----- -----
Income (loss) before income taxes....................... 1.8 (6.9) 17.6
Provision for income taxes.............................. 2.2 4.0 6.2
----- ----- -----
Net income (loss)....................................... (0.4)% (10.9)% 11.4%
===== ===== =====
</TABLE>
25
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased by 41.6% to $89.7 million in the year ended
December 31, 1999 from $63.4 million in the year ended December 31, 1998.
Transaction revenues increased by 52.0% to $63.3 million in the year ended
December 31, 1999 from $41.7 million in the year ended December 31, 1998, while
increasing as a percentage of total revenues to 70.6% from 65.8%. The increase
in transaction revenues for the year ended December 31, 1999 was primarily due
to increased volume of qualification and activation transactions processed for
carrier clients.
The Company believes that its transaction revenues in 2000 will not increase
at the same rate as they did in 1999. The Company's transaction revenues will
continue to reflect in large part the industry's rate of growth of new
subscribers as well as the rate of switching among carriers by subscribers
(subscriber churn). Lightbridge believes, based in part on reports of wireless
telecommunication industry analysts, that the rate of subscriber growth will
slow in upcoming years and that the rate of subscriber churn will remain fairly
constant.
Software licensing and maintenance revenues increased by 11.7% to $13.3
million in the year ended December 31, 1999 from $11.9 million in the year
ended December 31, 1998, while decreasing as a percentage of total revenues to
14.9% from 18.8%. The increase in software licensing and maintenance revenues
for the year ended December 31, 1999 was principally a result of the increase in
revenues attributable to Lightbridge's Retail Management System product.
The Company currently anticipates that its software licensing and
maintenance revenues in 2000 will increase modestly over those in 1999, as the
Company continues to integrate its Fraud Management products with its other
offerings and to build its international sales capability. Actual results for
2000 will, however, be subject to a number of uncertainties, some of which are
not within the Company's control. In particular, the Company believes that
software licensing revenues at least through 2000 will be subject to fluctuation
and will be more difficult to anticipate than the Company's other types of
revenues, principally due to the relatively long sales cycles and relatively
large dollar size of its software licenses. The sales cycles for domestic
software licenses generally extend from three to six months and may extend as
long as twelve months; sales cycles for software licenses sold to international
clients often are longer. The predictability of software licensing revenues is
further impeded because the Company's licensed software is a discretionary
purchase for most customers. As a result of the foregoing, a small number of
licensing transactions may have a significant effect on the Company's software
licensing revenues in a quarter.
Consulting services revenues increased by 34.0% to $13.1 million in the year
ended December 31, 1999 from $9.7 million in the year ended December 31, 1998,
while decreasing as a percentage of total revenues to 14.5% from 15.4%. The
increase in consulting services revenues for the year ended December 31, 1999
was principally due to increased demand for the consulting services, principally
custom software development and systems integration offered by the Company. The
consulting business was less concentrated in 1999 than 1998, with consulting
work being performed for fifty-eight clients during the year ended December 31,
1999. Lightbridge currently anticipates that its consulting services revenue
will grow modestly in 2000 over 1999 levels as Lightbridge continues to
standardize its consulting services offerings and to build its consulting
capabilities.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of purchasing and maintaining systems and networks used in processing
qualification and activation transactions (including depreciation and
amortization of systems and networks) and amortization of capitalized software
and acquired technology. Cost of revenues may vary as a percentage of total
revenues in the future as a result of a number of factors, including changes in
the volume of transactions processed, in the mix of transaction revenues between
revenues from on-line transaction processing and revenues from processing
transactions through the Company's TeleServices Group and changes in the mix of
total revenues among transaction revenues, software licensing revenues and
consulting services revenues.
Transaction cost of revenues increased by 29.9% to $30.3 million in the year
ended December 31, 1999 from $23.3 million in the year ended December 31, 1998,
while decreasing as a percentage of total
26
<PAGE>
transaction revenues to 47.8% from 55.9%. The increase in transaction cost of
revenues for the year ended December 31, 1999 resulted principally from
increases in transaction volume and costs attributable to expansion of the
Company's staff and systems capacity. The decrease in transaction cost of
revenues as a percentage of total transaction revenues for the year ended
December 31, 1999 principally resulted from an increase in the number of
transactions processed and a change in the mix of transaction services processed
compared to the same period of the prior year.
Software licensing and maintenance cost of revenues increased by 9.9% to
$5.0 million in the year ended December 31, 1999 from $4.6 million in the year
ended December 31, 1998, while decreasing as a percentage of total software
licensing and maintenance revenues to 37.8% from 38.4%. The dollar increase in
software licensing and maintenance cost of revenues for the year ended
December 31, 1999 was primarily due to the additional costs associated with the
increase in software licensing and maintenance revenues during the year. The
decrease in software licensing and maintenance cost of revenues as a percentage
of total software licensing and maintenance cost of revenues for the year ended
December 31, 1999 principally resulted from a decrease in amortization expense
of acquired technology offset in part by the increase in costs associated with
the increase in software licensing revenues during the year. The software
licensing component of software licensing and maintenance revenues generally has
higher margins than the software maintenance component.
Consulting services cost of revenues increased by 45.1% to $7.6 million in
the year ended December 31, 1999 from $5.2 million in the year ended
December 31, 1998, while increasing as a percentage of total consulting services
revenues to 58.1% from 53.6%. The dollar increase in consulting services cost of
revenues was attributable primarily to the increase in consulting staff due to
the expansion of the consulting services group. The increase in consulting
services cost of revenues as a percentage of total consulting revenues for the
year ended December 31, 1999 was principally due to the lower utilization of
consulting resources as compared to the prior year.
The Company expects fluctuations in gross profit may occur primarily due to
fluctuations in revenue generated from the Company's three revenue components,
particularly revenues from software licensing and consulting services.
DEVELOPMENT COSTS. Development expenses include software development costs
consisting primarily of personnel and outside technical services costs related
to developing new products and services, enhancing existing products and
services, and implementing and maintaining new and existing products and
services.
Development expenses increased by 31.9% to $12.7 million in the year ended
December 31, 1999 from $9.6 million in the year ended December 31, 1998, while
decreasing as a percentage of total revenues to 14.1% from 15.1%. The increase
in costs for the year ended December 31, 1999 resulted primarily from the
addition of engineering personnel necessary to support Lightbridge's product
development plans. Included in these development efforts were the development of
an enhanced version of its Fraud Management software product, FraudBuster, the
continued enhancement of its Customer Acquisition System and Retail Management
System and development of its Fraud Management software products, Alias and
@Risk. Lightbridge expects to continue to increase the dollar amount of its
engineering and development efforts in order to continue enhancing its existing
products and services, including its Channel Solutions and Fraud Management
products and services, as well as to develop new products and services. As a
result, Lightbridge expects that its development expenses, as a percentage of
total revenues, for 2000 will be higher than in 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel expenses of direct sales and marketing
personnel, as well as costs associated with advertising, trade shows and
conferences.
Sales and marketing expenses increased by 9.1% to $7.5 million in the year
ended December 31, 1999 from $6.9 million in the year ended December 31, 1998,
while decreasing as a percentage of total revenue to 8.3% from 10.8%. The
increase for the year ended December 31, 1999 was due to the continued
27
<PAGE>
investment in sales and marketing efforts, both domestically and
internationally, in order to increase penetration of existing accounts and to
add new clients and markets. The Company expects to continue to invest in sales
and marketing efforts, both domestically and internationally, in order to
increase its penetration of existing accounts and to add new clients and
markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries of executive, finance, human resources and
administrative personnel and fees for certain outside professional services.
General and administrative expenses increased by 28.1% to $10.9 million in
the year ended December 31, 1999 from $8.5 million in the year ended
December 31, 1998, while decreasing as a percentage of total revenue to 12.1%
from 13.4%. The increase for the year ended December 31, 1999 was primarily due
to increases in general and administrative personnel and fees for professional
services. The Company expects that its general and administrative costs will not
materially change during the year ending December 31, 2000.
AMORTIZATION OF GOODWILL AND ACQUIRED WORKFORCE. Amortization of goodwill
and acquired workforce consists of amortization expense of certain acquired
intangible assets from the acquisition of Coral.
Amortization of goodwill and acquired workforce expense decreased by 55.0%
to $1.3 million in the year ended December 31, 1999 from $3.0 million in the
year ended December 31, 1998 and also decreased as a percentage of total
revenues to 1.5% from 4.7%. Both the dollar decrease and the decrease as a
percentage of total revenues were the result of the goodwill impairment charge
recorded in the fourth quarter of 1998. During the fourth quarter of 1999,
Lightbridge wrote off the remainder of the net goodwill balance and a portion of
the acquired workforce asset to reflect the return of a portion of the shares
escrowed at the time of the Coral acquisition in November 1997 in settlement of
claims made by Lightbridge. As a result, Lightbridge expects that acquired
workforce amortization expense will be approximately $0.6 million in 2000.
INTANGIBLE ASSET IMPAIRMENT. During the year ended December 31, 1998,
Lightbridge expensed approximately $7.4 million of intangible assets recorded in
connection with the acquisition of Coral. No such impairment charge to earnings
was recorded in the year ended December 31, 1999.
OTHER INCOME, NET. Other income, net for the year ended December 31, 1999
consisted predominantly of interest income and expense and a nonrecurring gain
on sale of investments of approximately $0.4 million. Interest expense consists
of interest, commitment fees and other similar fees payable with respect to the
Company's bank lines of credit, subordinated notes and capital leases. Interest
expense decreased to $0.1 million in the year ended December 31, 1999 from
$0.2 million in the year ended December 31, 1998 due to lower outstanding debt
balances during the year ended December 31, 1999. Interest income increased to
$0.7 million in the year ended December 31, 1999 from $0.6 million in the year
ended December 31, 1998 as a result of higher average cash balances during the
year.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 35.4% and
57.3% for the years ended December 31, 1999 and 1998, respectively. The
relatively high effective tax rate for 1998 resulted from the amortization of
goodwill related to the Company's acquisition of Coral, which is recognized as
an expense for accounting purposes, but is not deductible for tax purposes.
Lightbridge anticipates that its effective tax rate will be lower in the future
and estimates that its effective tax rate for the year ending December 31, 2000
will be approximately 40%. The actual effective tax rate for 2000 may vary
significantly from the Company's estimates as the result of a number of factors,
including any and all factors that cause the Company's actual pretax book income
for those years to vary from the Company's internal estimates. The Company has
net operating loss carryforwards for federal income tax purposes which were
acquired with Coral. These net operating loss carryforwards are limited in use
and therefore a valuation allowance was established against a portion of the
deferred tax assets as their full realization is not assured.
28
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased by 56.2% to $63.4 million in the year ended
December 31, 1998 from $40.5 million in the year ended December 31, 1997.
Transaction revenues increased by 55.1% to $41.7 million in the year ended
December 31, 1998 from $26.9 million in the year ended December 31, 1997, while
decreasing as a percentage of total revenues to 65.8% from 66.3%. The dollar
increase in transaction revenues for the year ended December 31, 1998 was
primarily due to increased volume of qualification and activation transactions
processed for carrier clients. The decrease in transaction revenues as a
percentage of total revenues for the year ended December 31, 1998 principally
resulted from a greater increase in software licensing and maintenance revenues
than transaction revenues for the same period.
Software licensing and maintenance revenues increased by 88.4% to
$11.9 million in the year ended December 31, 1998 from $6.3 million in the year
ended December 31, 1997, while increasing as a percentage of total revenues to
18.8% from 15.6%. Both the dollar increase and the increase as a percentage of
total revenues in software licensing and maintenance revenues for the year ended
December 31, 1998 were principally a result of the increase in revenues
attributable to the Company's Channel Solutions and Fraud Management products
and services.
Consulting services revenues increased by 32.8% to $9.7 million in the year
ended December 31, 1998 from $7.3 million in the year ended December 31, 1997,
while decreasing as a percentage of total revenues to 15.4% from 18.1%. The
dollar increase in consulting services revenues for the year ended December 31,
1998 was principally due to increased demand for the consulting services offered
by the Company. The decrease in consulting services revenue as a percentage of
total revenues for the year ended December 31, 1998 principally resulted from a
greater increase in software licensing and maintenance revenues than consulting
services revenues for the same period. Lightbridge's consulting business became
less concentrated in 1998, with consulting work being performed for more than 35
clients during the year ended December 31, 1998.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of maintaining systems and networks used in processing qualification and
activation transactions (including depreciation and amortization of systems and
networks) and amortization of capitalized software and acquired technology. Cost
of revenues may vary as a percentage of total revenues in the future as a result
of a number of factors, including changes in the mix of transaction revenues
between revenues from on-line transaction processing and revenues from
processing transactions through the Company's TeleServices Group and changes in
the mix of total revenues among transaction revenues, software licensing and
maintenance revenues and consulting services revenues.
Transaction cost of revenues increased by 50.0% to $23.3 million in the year
ended December 31, 1998 from $15.5 million in the year ended December 31, 1997,
while decreasing as a percentage of total revenues to 36.8% from 38.3%. The
increase in transaction cost of revenues for the year ended December 31, 1998
resulted principally from increases in transaction volume and costs attributable
to expansion of the Company's staff and systems capacity. The decrease in
transaction cost of revenues as a percentage of total revenues for the year
ended December 31, 1998 principally resulted from an increase in the number of
transactions processed compared to the same period of the prior year.
Software licensing and maintenance cost of revenues increased by 125.3% to
$4.6 million in the year ended December 31, 1998 from $2.0 million in the year
ended December 31, 1997, while increasing as a percentage of total revenues to
7.2% from 5.0%. Both the dollar increase and the increase as a percentage of
total revenues in software licensing and maintenance cost of revenues for the
year ended December 31, 1998 were primarily due to the increased cost of
revenues for Fraud Management products.
Consulting services cost of revenues increased by 181.1% to $5.2 million in
the year ended December 31, 1998 from $1.9 million in the year ended
December 31, 1997, while increasing as a percentage of total revenues to 8.3%
from 4.6%. Both the dollar increase and the increase as a percentage of total
revenues in consulting services cost of revenues were attributable primarily to
the increase in
29
<PAGE>
consulting staff due to the expansion of the consulting services group,
including both newly hired personnel and personnel reallocated from other areas
of the Company's operations, including sales and marketing, as part of the
establishment of Lightbridge Consulting Services.
DEVELOPMENT COSTS. Development expenses increased by 58.0% to $9.6 million
in the year ended December 31, 1998 from $6.1 million in the year ended
December 31, 1997. The increase in costs for the year ended December 31, 1998
resulted primarily from the addition of engineering personnel necessary to
support the Company's product development plans in connection with the
development and deployment of enhanced versions of its Fraud Management software
product, FraudBuster.
SALES AND MARKETING. Sales and marketing expenses increased by 13.5% to
$6.9 million in the year ended December 31, 1998 from $6.0 million in the year
ended December 31, 1997. The increase for the year ended December 31, 1998 was
due principally to the addition of direct sales and product marketing personnel,
increased commissions resulting from the higher level of revenues and an
increase in marketing programs. This increase was offset in part by the
reallocation of certain personnel to Lightbridge Consulting Services as well as
the allocation of certain related expenses to consulting services cost of
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 119.4% to $11.5 million in the year ended December 31, 1998 from
$5.2 million in the year ended December 31, 1997. The increase reflected the
amortization of $3.0 million of goodwill and certain acquired intangible assets
attributable to the Company's acquisition of Coral and an increase in the number
of personnel.
INTANGIBLE ASSET IMPAIRMENT. During the year ended December 31, 1998,
Lightbridge expensed approximately $7.4 million of intangible assets recorded in
connection with the acquisition of Coral. The write-off included approximately
$2.6 million from the abandonment of the ChurnAlert product and an additional
$4.8 million of goodwill, based on a determination that the net book value of
this asset was impaired at December 31, 1998. This determination was based on a
comparison of the undiscounted cash flows associated with the Coral business,
excluding ChurnAlert with the net book value of the related assets. That
comparison indicated that the remaining net book value would not be recovered
through normal operations, and accordingly, a charge was taken to state the
assets at estimated fair value, determined as the net present value of the
estimated cash flows, discounted at a rate of 13%.
OTHER INCOME, NET. Other income, net in the year ended December 31, 1998
consisted predominantly of interest income and expense. Interest expense
decreased to $0.2 million in the year ended December 31, 1998 from $0.4 million
in the year ended December 31, 1997 as a result of lower outstanding debt
balances. Interest income decreased to $0.6 million in the year ended
December 31, 1998 from $1.2 million in the year ended December 31, 1997 as a
result of lower average cash balances during the year.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 57.3% and
122.4% for the years ended December 31, 1998 and 1997, respectively. The
relatively high effective tax rate for 1998 and 1997 resulted from goodwill
attributable to the Company's acquisition of Coral, which is recognized as an
expense for accounting purposes, but is not deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company funded its operations
primarily through private placements of equity and debt securities, cash
generated from operations, bank borrowings and equipment financings. In
October 1996, the Company consummated an initial public offering in which the
proceeds to the Company, net of underwriters' discount and associated costs,
were approximately $27.1 million. These proceeds were used to repay certain debt
obligations of the Company, to repurchase certain shares of the common stock of
the Company and to fund working capital and other general corporate purposes.
During 1999, the Company funded its operations primarily through cash flows from
operations.
30
<PAGE>
The Company has a $5.0 million working capital line of credit and a
$3.0 million equipment line of credit with a bank. The lines of credit are
secured by all of the Company's assets. Borrowing availability on the working
capital line of credit is based on the amount of qualifying accounts receivable.
Advances under the working capital line of credit and equipment line of credit
bear interest at the bank's prime rate (8.5% at December 31, 1999). The working
line of credit also provides for the issuance of letters of credit, which reduce
the amount that may be borrowed under the line of credit and are limited to
$1,250,000 in the aggregate. At December 31, 1999, there were no borrowings
outstanding under the working capital line of credit or the equipment line of
credit. Borrowing availability at December 31, 1999 was $4.0 million and
$3.0 million for the working capital line of credit and equipment line of
credit, respectively. The Company's agreements with the bank contain covenants
that, among other things, prohibit the declaration or payment of dividends and
require the Company to maintain certain financial ratios which the Company
believes are not restrictive to its business operations. The working capital
line of credit expires in June 2000 and the equipment line of credit expires in
June 2001.
The Company's capital expenditures totaled $10.4 million and $6.9 million,
respectively, for the years ended December 31, 1999 and 1998. The capital
expenditures during these periods consisted of purchases of fixed assets,
principally for the Company's services delivery infrastructure and computer
equipment for development activities. Capital expenditures during the year ended
December 31, 1998 also included leasehold improvements and other costs
attributable to the relocation of Coral's facilities to Broomfield, Colorado.
The Company currently estimates that its capital expenditures for 2000 will
total approximately $12.0 million to $14.0 million, although the actual amount
of those expenditures may vary significantly, depending upon, among other
things, the extent to which the Company determines to update the capacity of its
data center and to acquire additional computer equipment. The Company leases its
facilities and certain equipment under non-cancelable operating lease agreements
that expire at various dates through December 2005.
Lightbridge considers earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to be meaningful given the impact on operating income
from non-cash expenses such as depreciation of property and equipment and the
amortization of intangible assets. EBITDA and after-tax cash flow should not be
considered in isolation from, or as a substitute for, operating income, net
income or cash flow and other consolidated income or cash flow statement data
computed in accordance with generally accepted accounting principles or as a
measure of Lightbridge's profitability or liquidity. Although these measures of
performance are not calculated in accordance with generally accepted accounting
principles, Lightbridge believes they are widely used in the telecommunications
industry as a measure of a company's operating performance because they assist
in comparing companies on a more consistent basis without regard to depreciation
and amortization which can vary significantly depending on accounting methods
(particularly when acquisitions are involved). EBITDA increased by 83.0% to
$24.1 million in the year ended December 31, 1999 from $13.2 million in the year
ended December 31, 1998. The increase for the year ended December 31, 1999
resulted primarily from an increase in operating income.
As of December 31, 1999, the Company had cash and cash equivalents of
$35.5 million and working capital of $36.8 million. The Company believes that
the current cash balances and funds available under existing lines of credit
will be sufficient to finance the Company's operations and capital expenditures
for at least the next twelve months.
YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY COSTS
Lightbridge has designed its software to be Year 2000 compliant, and to date
Lightbridge has experienced only minor Year 2000 problems related to these
products. The majority of the computer software and hardware Lightbridge
currently uses in its own internal operations did not require replacement or
modification as a result of any Year 2000 problems experienced.
Lightbridge believes that its significant vendors and service providers are
Year 2000 compliant and has not, to date, been made aware that any of its
significant vendors or service providers have suffered Year 2000 disruptions in
their systems.
31
<PAGE>
Accordingly, Lightbridge does not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
problems. Lightbridge spent approximately $0.6 million on Year 2000 testing and
compliance during the year ended December 31, 1999.
INFLATION
Although certain of the Company's expenses increase with general inflation
in the economy, inflation has not had a material impact on the Company's
financial results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes standards
applicable to the manner in which Lightbridge accounts for derivative
instruments in its annual financial statements commencing with the quarter
beginning after June 15, 2000. The Company has not yet determined the effect
that adoption will have on its consolidated financial statements.
In December 1998, the AICPA released Statement of Position No. 98-9,
("SOP 98-9") "Modification of SOP 97-2, "Software Revenue Recognition, "with
Respect to Certain Transactions." SOP 98-9 amends SOP 97-2 to require that an
entity recognize revenue for multiple elements arrangements by means of the
"residual method" when (1) there is vendor-specific objective evidence ("VSOE")
of fair values of all the undelivered elements that are not accounted for by
means of long-term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of
each delivered element) are satisfied. The provisions of SOP 98-9 that extend
the deferral of certain paragraphs of SOP 97-2 became effective December 15,
1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. The Company has not yet determined
the effect that adoption will have on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
The market risk exposure inherent in the Company's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. The Company is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed and variable rate debt to fund its acquisition of property and
equipment in past years.
Market risk for cash and cash equivalents and fixed-rate borrowings is
estimated as the potential change in the fair value of the assets or obligations
resulting from a hypothetical ten percent adverse change in interest rates,
which would not have been signifcant to the Company's financial position or
results of operations during 1999. The effect of a similar hypothetical change
in interest rates on the Company's variable-rate debt also would have been
insignificant due to the immaterial amounts of borrowings outstanding under the
Company's credit arrangements.
For additional information about the Company's financial instruments and
debt obligations, see Notes to Consolidated Financial Statements in the
accompanying consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are listed in the index included in
Item 14(a)(1) of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information called for by this Item is not applicable.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Certain of the information concerning the Directors of the Company required
under this item is contained in "Item 4A. Executive Officers," and the remainder
of such information is incorporated herein by reference to the information under
the heading "Election of Directors" in the Company's Proxy Statement for the
2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or before April 29, 2000.
EXECUTIVE OFFICERS
Certain of the information concerning the executive officers of the Company
required under this item is contained in "Item 4A. Executive Officers," and the
remainder of such information is incorporated herein by reference to the
information under the heading "Election of Directors" in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information under the heading "Election of Directors" and "Executive
Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 29, 2000 is incorporated by reference herein. Such incorporation by
reference shall not be deemed to specifically incorporate by reference the
information referred to in Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information under the heading "Share Ownership of Principal Stockholders and
Management" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 29, 2000 is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information under the heading "Certain Relationships and Other Transactions"
in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission on or before April 29, 2000
is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
<TABLE>
<S> <C> <C>
(1) Financial Statements
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 1998 and F-2
1999......................................................
Consolidated Statements of Operations for the years ended F-3
December 31, 1997, 1998 and 1999..........................
Consolidated Statements of Stockholders' Equity for the F-4
years ended December 31, 1997, 1998 and 1999..............
Consolidated Statements of Cash Flows for the years ended F-5
December 31, 1997, 1998 and 1999..........................
Notes to Consolidated Financial Statements.................. F-6
(2) Consolidated financial statement schedules
All schedules have been omitted because the required
information either is not applicable or is shown in the
financial statements or notes thereto.
</TABLE>
33
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation of the
Company
3.2* Amended and Restated By-Laws of the Company
3.3+++ Amendment to Amended and Restated By-Laws of the Company,
adopted October 29, 1998
4.1* Specimen Certificate for Common Stock of the Company
4.2** Rights Agreement dated as of November 14, 1997, between
Lightbridge, Inc. and American Stock Transfer and Trust
Company, as Rights Agent
4.3** Form of Certificate of Designation of Series A Participating
Cumulative Preferred Stock of Lightbridge, Inc.
4.4** Form of Right Certificate
10.1* 1991 Registration Rights Agreement dated February 11, 1991,
as amended, between the Company and the persons named herein
10.2* Subordinated Note and Warrant Purchase Agreement dated as of
August 29, 1994 between the Company and the Purchasers named
therein, including form of Subordinated 14% Promissory Notes
and form of Common Stock Purchase Warrants
10.3* Form of Common Stock Purchase Warrants issued August 1995
10.4* Amended and Restated Credit Agreement dated as of June 18,
1996, between the Company and Silicon Valley Bank
10.5++ Loan Modification Agreements, dated from August 19, 1996 to
June 26, 1998, each amending the Amended and Restated Credit
Agreement included as Item 10.4
10.6* Settlement Agreement dated February 2, 1996 between the
Company, BEB, Inc., BEB Limited Partnership I, BEB Limited
Partnership II, BEB Limited Partnership III, BEB Limited
Partnership IV, certain related parties and Brian Boyle
10.7* 1990 Incentive and Nonqualified Stock Option Plan
10.8* 1996 Incentive and Non-Qualified Stock Option Plan
10.9* 1996 Employee Stock Purchase Plan
10.10* Employment Agreement dated August 16, 1996 between the
Company and Pamela D.A. Reeve
10.11* Letter Agreement, dated August 26, 1996, between the Company
and Brian E. Boyle, including form of Common Stock Purchase
Warrant and Registration Rights Agreement
10.12* Office Lease dated September 30, 1994, as amended, between
the Company and Hobbs Brook Office Park
10.13*** Office Lease dated March 5, 1997, between the Company and
Sumitomo Life Realty (N.Y.), Inc.
10.14**** First and Second Amendments dated July 22, 1997 and October
6, 1997, respectively, to the Office Lease included as Item
10.15
10.15+ Office Building Lease, dated March 12, 1998, between 8900
Grantline Road Investors and the Company
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.16++++ 1998 Non-Statutory Stock Option Plan
10.17^ Loan Modification Agreement dated June 28, 1999; amending
the Amended and Restated Credit Agreement included as Item
10.4
10.18 Third and Fourth Amendments dated March 15, 1999 and July
16, 1999, respectively, to the office lease included as Item
10.13
10.19 Office Lease dated October 4, 1999, between the Company and
New Alliance Properties, Inc.
10.20 First Amendment dated September 20, 1999 to the Office Lease
included as Item 10.12
23.1 Independent Auditors' Consent--Deloitte & Touche LLP
27.1 Financial Data Schedule for fiscal year ended December 31,
1999
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (File No. 333-6589)
** Incorporated by reference to the Company's Registration Statement on
Form 8-A, as filed with the Securities and Exchange Commission on
November 21, 1997
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997
+ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998
+++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998
++++ Incorporated by reference to the Company's Registration Statement on Form
S-8, as filed with the Securities and Exchange Commission on November 25,
1998
^ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
(b) Reports on Form 8-K filed in the fourth quarter of 1999
No Current Reports on Form 8-K were filed by the Company during the fourth
quarter of 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the twenty-third
day of March, 2000.
<TABLE>
<S> <C> <C>
LIGHTBRIDGE, INC.
By: /s/ PAMELA D.A. REEVE
-----------------------------------------
President and Chief Executive Officer
</TABLE>
Each person whose signature appears below hereby appoints Pamela D.A. Reeve
and Joseph A. Pignato, and each of them severally, acting alone and without the
other, his or her true and lawful attorney-in-fact with the authority to execute
in the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K necessary or advisable
to enable Lightbridge, Inc., to comply with the rules, regulations, and
requirements of the Securities Act of 1934, as amended, in respect thereof,
which amendments may make such other changes in the Annual Report on Form 10-K
as the aforesaid attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on the twenty-third day of March, 2000.
<TABLE>
<CAPTION>
<C> <S> <C>
President, Chief Executive
Officer and Director
/s/ PAMELA D.A. REEVE (Principal Executive,
------------------------------------------- Financial and Accounting
Officer)
/s/ TORRENCE C. HARDER Director
-------------------------------------------
/s/ D. QUINN MILLS Director
-------------------------------------------
/s/ DEBORA J. WILSON Director
-------------------------------------------
</TABLE>
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Lightbridge, Inc.
Burlington, Massachusetts
We have audited the accompanying consolidated balance sheets of
Lightbridge, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Lightbridge, Inc. and
subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 25, 2000
F-1
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $16,436,995 $35,477,909
Accounts receivable, net.................................. 18,803,230 16,785,873
Accounts receivable from related parties.................. 28,732 --
Deferred tax assets, net.................................. 335,348 843,582
Other current assets...................................... 1,063,848 1,126,811
----------- -----------
Total current assets.................................... 36,668,153 54,234,175
Property and equipment, net................................. 13,454,070 17,367,173
Notes receivable from related parties....................... 67,113 20,329
Deferred tax assets, net.................................... 453,038 1,719,885
Other assets, net........................................... 425,542 99,524
Goodwill, net............................................... 2,145,313 --
Acquired intangible assets, net............................. 4,024,811 2,347,217
Other intangible assets, net................................ 539,239 68,427
----------- -----------
Total assets........................................ $57,777,279 $75,856,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of subordinated
notes payable........................................... $ 652,770 $ 500,000
Current portion of obligations under capital leases....... 44,440 --
Accounts payable.......................................... 5,774,975 7,392,201
Accrued compensation...................................... 1,648,459 4,227,637
Other accrued liabilities................................. 2,401,414 2,262,495
Deferred revenues......................................... 1,460,636 2,914,155
Other current liabilities................................. 166,876 166,876
----------- -----------
Total current liabilities............................... 12,149,570 17,463,364
Subordinated notes payable.................................. 655,484 191,109
Other long-term liabilities................................. 525,124 910,463
----------- -----------
Total liabilities....................................... 13,330,178 18,564,936
----------- -----------
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock; $0.01 par value, 5,000,000 shares
authorized; no shares issued or outstanding at December
31, 1998 and 1999....................................... -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 16,841,823 and 17,510,661 shares issued;
16,014,531 and 16,618,756 shares outstanding at December
31, 1998 and 1999, respectively......................... 168,417 175,105
Additional paid-in capital................................ 54,285,766 58,297,842
Warrants.................................................. 598,875 398,875
Retained earnings (accumulated deficit)................... (8,980,994) 1,164,355
----------- -----------
Total................................................... 46,072,064 60,036,177
Less treasury stock; 827,292 and 891,905 shares at cost at
December 31, 1998 and 1999, respectively................ (1,624,963) (2,744,383)
----------- -----------
Total stockholders' equity.............................. 44,447,101 57,291,794
----------- -----------
Total liabilities and stockholders' equity.......... $57,777,279 $75,856,730
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Transaction......................................... $26,881,516 $41,683,290 $63,340,868
Software licensing and maintenance.................. 6,331,769 11,927,082 13,323,659
Consulting services................................. 7,336,037 9,741,124 13,051,620
----------- ----------- -----------
Total revenues.................................... 40,549,322 63,351,496 89,716,147
----------- ----------- -----------
Cost of revenues:
Transaction......................................... 15,535,143 23,300,910 30,259,147
Software licensing and maintenance.................. 2,034,453 4,583,494 5,038,489
Consulting services................................. 1,858,039 5,223,259 7,578,744
----------- ----------- -----------
Total cost of revenues................................ 19,427,635 33,107,663 42,876,380
----------- ----------- -----------
Gross profit.......................................... 21,121,687 30,243,833 46,839,767
----------- ----------- -----------
Operating expenses:
Development costs................................... 6,072,468 9,596,423 12,659,258
Sales and marketing................................. 6,040,846 6,856,522 7,481,415
General and administrative.......................... 4,731,763 8,489,862 10,877,131
Amortization of goodwill and acquired workforce..... 497,038 2,982,228 1,342,080
Intangible asset impairment......................... -- 7,384,506 --
Purchased in-process research and development....... 4,000,000 -- --
----------- ----------- -----------
Total operating expenses.............................. 21,342,115 35,309,541 32,359,884
----------- ----------- -----------
Income (loss) from operations......................... (220,428) (5,065,708) 14,479,883
----------- ----------- -----------
Other income (expense):
Interest income:
Related parties................................... 18,675 6,945 2,763
Other............................................. 1,163,775 638,834 728,150
Interest expense:
Related parties................................... (18,984) -- --
Other............................................. (351,763) (241,594) (129,588)
Other non-operating income (expense)................ 137,756 277,573 632,141
----------- ----------- -----------
Total other income (expense).......................... 949,459 681,758 1,233,466
----------- ----------- -----------
Income (loss) before provision for income taxes....... 729,031 (4,383,950) 15,713,349
Provision for income taxes............................ 892,000 2,513,000 5,568,000
----------- ----------- -----------
Net income (loss)..................................... $ (162,969) $(6,896,950) $10,145,349
=========== =========== ===========
Basic earnings (loss) per share (Note 10)........... $ (0.01) $ (0.44) $ 0.62
=========== =========== ===========
Diluted earnings (loss) per share (Note 10)......... $ (0.01) $ (0.44) $ 0.56
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TREASURY STOCK
--------------------- ADDITIONAL (ACCUMULATED ----------------------
SHARES AMOUNT PAID-IN CAPITAL WARRANTS DEFICIT) SHARES AMOUNT
---------- -------- --------------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997........ 15,369,697 $153,698 $36,296,969 $605,125 $(1,921,075) 801,148 $(1,536,074)
Issuance of common stock for
cash.......................... 193,704 1,935 266,904 -- -- -- --
Issuance of common stock for
technology acquisition........ 25,000 250 312,250 -- -- -- --
Repurchase of common stock from
related parties............... -- -- -- -- -- 26,144 (88,889)
Exercise of common stock
warrants...................... 12,500 125 31,125 (6,250) -- -- --
Issuance of common stock for
acquisition................... 892,053 8,921 16,511,057 -- -- -- --
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... -- -- 242,686 -- -- -- --
Net loss........................ -- -- -- -- (162,969) -- --
---------- -------- ----------- -------- ----------- ------- -----------
Balance, December 31, 1997...... 16,492,954 164,929 53,660,991 598,875 (2,084,044) 827,292 (1,624,963)
Issuance of common stock for
cash.......................... 18,573 185 143,872 -- -- -- --
Exercise of common stock
options....................... 330,296 3,303 312,903 -- -- -- --
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... -- -- 168,000 -- -- -- --
Net loss........................ -- -- -- -- (6,896,950) -- --
---------- -------- ----------- -------- ----------- ------- -----------
Balance, December 31, 1998...... 16,841,823 168,417 54,285,766 598,875 (8,980,994) 827,292 (1,624,963)
Issuance of common stock for
cash.......................... 38,886 388 181,309 -- -- -- --
Exercise of common stock
options....................... 417,452 4,175 2,120,996 -- -- -- --
Exercise of common stock
warrants (Note 4)............. 212,500 2,125 622,771 (200,000) -- -- --
Return of escrowed shares....... -- -- -- -- -- 64,613 (1,119,420)
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... -- -- 1,087,000 -- -- -- --
Net income...................... -- -- -- -- 10,145,349 -- --
---------- -------- ----------- -------- ----------- ------- -----------
Balance, December 31, 1999...... 17,510,661 $175,105 $58,297,842 $398,875 $ 1,164,355 891,905 $(2,744,383)
========== ======== =========== ======== =========== ======= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1997........ $33,598,643
Issuance of common stock for
cash.......................... 268,839
Issuance of common stock for
technology acquisition........ 312,500
Repurchase of common stock from
related parties............... (88,889)
Exercise of common stock
warrants...................... 25,000
Issuance of common stock for
acquisition................... 16,519,978
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... 242,686
Net loss........................ (162,969)
-----------
Balance, December 31, 1997...... 50,715,788
Issuance of common stock for
cash.......................... 144,057
Exercise of common stock
options....................... 316,206
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... 168,000
Net loss........................ (6,896,950)
-----------
Balance, December 31, 1998...... 44,447,101
Issuance of common stock for
cash.......................... 181,697
Exercise of common stock
options....................... 2,125,171
Exercise of common stock
warrants (Note 4)............. 424,896
Return of escrowed shares....... (1,119,420)
Tax benefit from disqualifying
dispositions of incentive
stock options and
non-qualified stock options... 1,087,000
Net income...................... 10,145,349
-----------
Balance, December 31, 1999...... $57,291,794
===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (162,969) $(6,896,950) $10,145,349
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities (net of effect
of acquisition):
Purchased in-process research and development............. 4,000,000 -- --
Asset impairment.......................................... -- 7,384,506 --
Deferred income taxes..................................... (695,000) (266,390) (1,775,537)
Depreciation and amortization............................. 5,595,151 10,597,194 9,033,071
(Gain) loss on disposal of equipment...................... (43,007) 18,978 --
Gain on sale of investment................................ -- -- (414,725)
Changes in assets and liabilities:
Accounts receivable....................................... (4,727,562) (5,618,910) 2,046,089
Other assets.............................................. (751,258) 1,331,809 88,620
Accounts payable and accrued liabilities.................. 99,814 1,998,165 4,767,942
Other liabilities......................................... 79,452 (177,833) 385,339
Deferred revenues......................................... (1,545,582) (197,770) 1,453,519
----------- ----------- -----------
Net cash provided by operating activities............... 1,849,039 8,172,799 25,729,667
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (10,388,992) (6,928,692) (10,386,118)
Capitalization of software development costs................ (963,499) (155,092) --
Proceeds from sale of equipment............................. 245,996 -- --
Sales of investments........................................ 2,069,323 -- 550,378
Purchase of investments..................................... (2,069,323) -- --
Notes receivable--to related parties........................ (87,000) -- --
Repayments of notes receivable--related parties............. 14,083 61,014 25,328
Cost associated with the acquisition of Coral, net of cash
received of $332,750...................................... (443,504) -- --
----------- ----------- -----------
Net cash used in investing activities................... (11,622,916) (7,022,770) (9,810,412)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reimbursement of leasehold improvements..................... 254,410 -- --
Payments on notes payable................................... (1,270,028) (930,205) (402,769)
Payments under capital lease obligations.................... (1,578,107) (294,818) (44,440)
Proceeds from issuance of common stock...................... 268,839 628,263 2,306,868
Disqualifying dispositions.................................. 242,686 168,000 1,087,000
Stock issuance expenditures................................. (353,999) -- --
Proceeds from exercise of warrants.......................... 25,000 -- 175,000
----------- ----------- -----------
Net cash provided by (used in) financing activities..... (2,411,199) (428,760) 3,121,659
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (12,185,076) 721,269 19,040,914
Cash and cash equivalents, beginning of year................ 27,900,802 15,715,726 16,436,995
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $15,715,726 $16,436,995 $35,477,909
=========== =========== ===========
Cash paid for interest...................................... $ 353,990 $ 232,239 $ 138,943
=========== =========== ===========
Cash paid for income taxes.................................. $ 1,778,026 $ 641,703 $ 8,273,670
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND RECENT ACQUISITIONS
BUSINESS--Lightbridge, Inc. (formerly Credit Technologies, Inc.) (the
"Company") was incorporated in June 1989 under the laws of the state of
Delaware. Effective November 1, 1994, the Company changed its name to
Lightbridge, Inc. The Company develops, markets and supports a network of
integrated products and services that enable telecommunications carriers to
improve their customer acquisition, retention and fraud prevention processes.
ACQUISITION OF CORAL SYSTEMS, INC.--In November 1997, the Company acquired
Coral Systems, Inc. ("Coral"), a Delaware corporation, through the issuance of
892,053 shares of common stock for all of the outstanding shares of Coral's
common stock. In addition, all of Coral's outstanding options were converted
into options to acquire stock of the Company, adjusted only for the exchange
ratio between the stocks of Coral and the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION--These consolidated
financial statements include the accounts of the Company and its subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation.
SIGNIFICANT ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at each reporting date and the amount of revenue and expense
reported each period. These estimates include provisions for bad debts, certain
accrued liabilities, recognition of revenue and expenses, and recoverability of
deferred tax assets. Actual results could differ from these estimates. The
Company does not expect any changes in the near term that would have a
significant impact on its consolidated financial statements.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include short-term,
highly liquid instruments, which consist primarily of money market accounts,
purchased with remaining maturities of three months or less.
PROPERTY AND EQUIPMENT--Property and equipment is recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized over
the term of the lease or the lives of the assets, whichever is shorter.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK--The Company generates
revenue from the processing of qualification and activation transactions;
granting of software licenses; services (including maintenance, installation and
training); development and consulting contracts; and certain hardware sold in
conjunction with certain software licenses. Revenues from processing of
qualification and activation transactions for wireless telecommunications
carriers are recognized in the period when services are performed. The Company's
software license agreements have typically provided for an initial license fee
and annual maintenance based on a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. The
Company has entered into license agreements that provide for either a one-time
license fee or a monthly license fee with no additional fees based on
incremental subscriber growth.
Prior to 1998, revenue from software license sales was recognized upon
shipment of the product. To the extent that insignificant obligations remained
after delivery, costs associated with those obligations were accrued at the time
that revenue was recognized. Effective January 1, 1998, the Company adopted the
provisions of Statement of Position No. 97-2, "Software Revenue Recognition"
("SOP 97-2"). Since that
F-6
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
date, revenue from software license sales continued to be recognized when
persuasive evidence of an arrangement exists, delivery of the product has been
made, and a fixed fee and collectibility has been determined; to the extent that
obligations exist for other services, the Company allocates revenue between the
license and the services based upon their relative fair value. Revenue from
customer maintenance support agreements is deferred and recognized ratably over
the term of the agreements. Revenue from consulting and training services is
recognized as those services are rendered. Hardware is sold in conjunction with
software licenses only when required by the customer and such revenue is
deferred until the related license revenue is recognized.
Substantially all of the Company's customers are providers of wireless
telecommunications service and are generally granted credit without collateral.
The Company's revenues vary throughout the year with the period of highest
revenue generally occurring during the period October 1 through December 31. The
allowance for doubtful accounts at December 31, 1997, 1998 and 1999 was
approximately $219,000, $496,000 and $1,200,000, respectively. The Company
recorded bad debt expense of $151,000, $793,000 and $980,000 and had write-offs,
net of recoveries associated with accounts receivable of $0, $516,000 and
$276,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Customers exceeding 10% of the Company's revenues during the years ended
December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
PERCENT OF REVENUE
------------------------------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31,
------------------------------
CUSTOMER 1997 1998 1999
- ----------------------------------------------------------- -------- -------- --------
A.......................................................... 29% 17% 18%
B.......................................................... * 15 33
C.......................................................... * 10 *
-- -- --
29% 42% 51%
== == ==
</TABLE>
- ------------------------
* For years in which a customer represented less than 10% of revenues, such
customer's percent of revenue for that year is not presented.
F-7
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPORT SALES--The Company had export sales to the following countries during
fiscal 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Brazil................................... $ -- $ 149,200 $1,135,400
Canada................................... 1,301,000 -- 505,100
Chile.................................... 30,000 452,100 471,500
Malaysia................................. -- 676,900 123,200
Netherlands.............................. 84,900 243,100 522,600
Philippines.............................. -- 156,600 42,000
Bolivia.................................. -- -- 7,700
Thailand................................. -- -- 49,000
Taiwan................................... 257,000 757,500 129,000
United Kingdom........................... 410,000 25,300 205,700
---------- ---------- ----------
Total.................................... $2,082,900 $2,460,700 $3,191,200
========== ========== ==========
</TABLE>
ACQUIRED INTANGIBLE ASSETS--Acquired intangible assets, primarily related to
the Coral acquisition, consist of acquired existing technology and workforce.
These assets are being amortized on a straight-line basis over their estimated
useful lives, ranging from five months to five years. Acquired intangible assets
are recorded net of accumulated amortization of approximately $3,088,000 and
$4,556,000 at December 31, 1998 and 1999, respectively.
GOODWILL--Goodwill, representing the excess of the purchase price of the
acquisition of Coral over the fair value of the net assets acquired, was being
amortized on a straight-line basis over five years. Goodwill is recorded net of
accumulated amortization of $2,507,000 and $3,033,000 at December 31, 1998 and
1999, respectively. During the fourth quarter of 1999, Lightbridge wrote off the
remainder of the net goodwill balance and a portion of the acquired workforce
asset to reflect the return of a portion of the shares escrowed at the time of
the Coral acquisition in November 1997. As a result, Lightbridge expects that
acquired workforce amortization expense will be approximately $600,000 in 2000.
INCOME TAXES--The Company provides deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial reporting and tax bases of existing assets and liabilities. Deferred
income tax assets are principally the result of net operating loss
carryforwards, income tax credits and differences in depreciation and
amortization and accrued expenses and reserves for financial purposes and income
tax purposes, and are recognized to the extent realization of such benefits is
more likely than not. (See Note 7.)
DEVELOPMENT COSTS--Development costs, which consist of research and
development of new products and services, are expensed as incurred, except for
software development costs. Software development costs are capitalized after
establishment of technological feasibility which the Company defines as the
point that a "working model" of the software application has achieved all design
specifications and is available for "beta testing."
During the year ended December 31, 1998, the Company capitalized
approximately $155,000 of software development costs associated with the
development of three new products, including the costs of purchasing certain
technology. Amortization is provided proportionately to anticipated revenues or
over
F-8
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the specific release's estimated life, generally two years. The unamortized
balance of capitalized software development costs was approximately $540,000 and
$69,000 at December 31, 1998 and 1999, respectively. Accumulated amortization
was approximately $1,875,000 and $2,346,000 at December 31, 1998 and 1999,
respectively.
SUPPLEMENTAL CASH FLOW INFORMATION--The Company entered into the following
noncash transactions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ------ ----------
Stock issued for the acquisition of the technology for a
point-of-sale software product............................ $ 312,500 $ -- $ --
=========== ====== ==========
Reduction of goodwill due to return of shares from and
settlement of Coral escrow arrangements................... $ -- $ -- $1,119,420
=========== ====== ==========
Stock issued and options and warrants assumed in connection
with the acquisition of Coral Systems, Inc. (1)........... $16,873,977 $ -- $ --
=========== ====== ==========
Application of note to exercise warrants (See Note 4)....... $ -- $ -- $ 250,000
=========== ====== ==========
</TABLE>
- ------------------------
(1) Stock issued and options and warrants assumed in connection with the
acquisition of Coral Systems, Inc. exclude stock issuance costs of
approximately $354,000 recorded as reduction of stockholders' equity.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company periodically assesses the
recoverability of its long-lived assets by comparing the undiscounted cash flows
expected to be generated by those assets to their carrying value. If the sum of
the undiscounted cash flows is less than the carrying value of the assets, an
impairment charge is recognized.
In December 1998, the Company recorded $7,384,506 of expense related to
impairment of certain intangible assets acquired in the Coral acquisition in
1997. In December 1998, the Company decided to abandon sales and development
efforts related to the ChurnAlert product. As a result of this abandonment,
unamortized amounts included in other acquired intangible assets associated with
ChurnAlert, together with an allocation of remaining unamortized goodwill in the
amount of $2,552,000, were charged to expense. Because of factors that indicated
possible impairment of the remaining assets acquired from Coral, the Company
then compared the remaining unamortized long-lived assets and goodwill to the
undiscounted cash flows expected to be generated by the remaining Coral products
and services. Since the undiscounted cash flows were less than the carrying
value of the related assets, a goodwill impairment charge of $4,833,000 was
recorded. In calculating the goodwill impairment charge, the fair value of the
assets related to the remaining Coral products and services was determined using
the present value of the cash flows to be generated by such products and
services discounted using a 13% cost of capital.
STOCK-BASED COMPENSATION--Compensation cost associated with the grant of
options and other stock awards to employees is determined using the intrinsic
value method. Compensation cost associated with the grant of options and other
stock awards to non-employees is determined using the fair value method.
F-9
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME--The Company currently has no items of comprehensive
income other than net income (loss).
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--Based
upon the way management and the Board of Directors monitor the operations, the
Company operates in three distinct segments including the transaction business,
the software license and maintenance business, and the consulting business.
Within these three segments, performance is measured based on gross profit
realized from each segment. Information about costs and expenses other than
costs of revenues and assets and cash flows is not reported by segment.
Information about revenues and cost of revenues of each segment is shown
separately on the statement of operations. Amortization expense of acquired
intangible assets related to the Coral acquisition recorded in software
licensing and maintenance cost of revenues for the years ended December 31,
1997, 1998 and 1999 was approximately $550,000, $1,566,000 and $621,000,
respectively. There are no transactions between segments.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board released Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes standards applicable to the manner in which
the Company accounts for derivative instruments in its annual financial
statements commencing with the quarter beginning after June 15, 2000. The
Company has not yet determined the effect that adoption will have on its
consolidated financial statements.
The Company has adopted Statement of Position No. 98-9 ("SOP 98-9")
"Modification of SOP 97-2," Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for my means of
long-term contract accounting, (d) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for VSOE of the fair value of each delivered
element) are satisfied. The provisions of SOP 98-9 that extend the deferral of
certain paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15,1999. Retroactive
application is prohibited. The Company does not expect the adoption of SOP 98-9
to have a material effect on the consolidated financial position or results of
operations.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1997 and
1998 consolidated financial statements to conform with the 1999 presentation.
F-10
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Furniture and fixtures...................................... $ 1,327,251 $ 1,806,314
Leasehold improvements...................................... 5,466,177 6,868,756
Computer equipment.......................................... 12,187,777 19,296,817
Computer software and equipment and furniture and fixtures
under capital leases...................................... 310,575 --
Computer software........................................... 3,467,298 5,173,306
----------- ------------
22,759,078 33,145,193
Less accumulated depreciation and amortization.............. (9,305,008) (15,778,020)
----------- ------------
Property and equipment--net................................. $13,454,070 $ 17,367,173
=========== ============
</TABLE>
Accumulated amortization of computer software and equipment and furniture
and fixtures under capital leases was $265,454 at December 31, 1998.
4. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Equipment line borrowings........................... $ 152,770 $ --
8% subordinated notes............................... 1,155,484 691,109
----------- ------------
Total............................................... 1,308,254 691,109
Less current portion................................ (652,770) (500,000)
----------- ------------
Long-term portion................................... $ 655,484 $ 191,109
=========== ============
</TABLE>
LINES OF CREDIT--The Company has a $5,000,000 working capital line of credit
and a $3,000,000 equipment line of credit with a bank. The lines of credit are
collateralized by all of the Company's assets. Borrowing availability on the
working capital line is based upon the amount of qualifying accounts receivable.
Advances under the lines of credit bear interest at the bank's prime rate (8.5%
at December 31, 1999). The working capital line of credit expires in June 2000
and the equipment line of credit expires in June 2001.
The working capital line of credit also provides for issuance of letters of
credit of up to $1,250,000. Letters of credit reduce availability under the
line. At December 31, 1998 and 1999, there were no borrowings outstanding under
the working capital line of credit and approximately $153,000 and $0,
respectively, of loans were outstanding under the equipment line of credit. The
entire amount outstanding under the equipment line of credit at December 31,
1998 was paid in 1999. At December 31, 1999, the Company had an outstanding
letter of credit in the amount of $1,000,000 which expires in March 2000.
Borrowing availability at December 31, 1999 was $4,000,000 and $3,000,000 for
the working capital line of credit and equipment line of credit, respectively.
F-11
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
The Company's agreements with the bank contain covenants that, among other
things, prohibit the declaration of payments of dividends and require the
Company to maintain certain financial ratios, principally related to tangible
net worth and leverage.
8% SUBORDINATED NOTES--In August 1994, the Company issued $2,100,000 of
subordinated notes to certain holders of the Company's common and mandatory
redeemable preferred stock, with immediately exercisable warrants for the
purchase of 525,000 shares of the Company's common stock. The warrants are
exercisable through June 30, 2001 at a price of $2 per share and were appraised
and recorded at an aggregate market value of $262,500. The related discount on
the subordinated notes ($262,500 at time of issuance) is being accreted over the
term of the notes. Interest expense for the years ended December 31, 1997, 1998
and 1999 included accretion related to these notes of approximately $43,700,
$43,700 and $35,600, respectively. During 1997, the Company repaid one of the
two notes in the amount of $100,000. Interest on the remaining note is payable
quarterly at an annual rate of 8%. Principal became payable in quarterly
installments of $125,000 on September 30, 1997 through maturity (2001) on the
remaining note. The remaining note is redeemable at the Company's option at par
plus declining premiums at various dates. During the year ended December 31,
1999, the holder of the remaining note elected to apply two principal payments
due of $125,000 each to partially exercise warrants associated with the note.
5. COMMITMENTS AND CONTINGENCIES
LEASES--The Company has noncancelable operating lease agreements for office
space and certain equipment.
Future minimum payments under operating leases and subrental income relating
to certain operating leases consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
OPERATING SUBRENTAL
LEASES INCOME
----------- ----------
<S> <C> <C>
2000........................................................ $ 3,756,400 $1,174,000
2001........................................................ 3,560,300 298,100
2002........................................................ 2,723,400 --
2003........................................................ 2,338,300 --
2004........................................................ 843,900 --
Thereafter.................................................. 26,700 --
----------- ----------
Total minimum lease payments................................ $13,249,000 $1,472,100
=========== ==========
</TABLE>
Rent expense for operating leases was approximately $2,291,000, $2,773,000
and $3,062,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
LITIGATION--On September 10, 1997, an action was brought against the Company
and another defendant, United States Cellular Corp., in the Superior Court of
New Jersey, Law Division, Mercer County by National Information Bureau Ltd.
("NIB"), a Delaware corporation based in New Jersey. The complaint asserts
counts against the Company alleging misappropriation of trade secrets,
interference with contractual relations, civil conspiracy and breach of
contract. Three other counts of the complaint assert claims only against United
States Cellular Corp. In the complaint, NIB seeks damages, attorneys' fees,
costs and unspecified other relief. The complaint does not identify or specify
the amount, if any, of
F-12
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
damages NIB claims to have incurred as a result of any alleged conduct by the
Company. The Company believes that the claims asserted against it by NIB are
without merit. The Company intends to defend the action vigorously, and does not
believe that this claim will have a material adverse effect on the Company's
business, consolidated financial condition, results of operations or cash flows.
6. COMMON STOCK OPTION PLANS, WARRANTS, STOCKHOLDER RIGHTS PLAN
1990 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN--Under the Company's 1990
Incentive and Nonqualified Stock Option Plan, the Company could grant either
incentive or nonqualified stock options to officers, directors, employees or
consultants for the purchase of up to 2,400,000 shares of common stock. Options
were granted with an exercise price equal to the common stock's market value at
the date of grant, as determined by the Board of Directors of the Company (the
"Board"), and expire ten years later. No further grants will be made under the
1990 Incentive and Nonqualified Stock Option Plan.
1996 EMPLOYEE STOCK PLANS--On June 14, 1996, the Board authorized and the
stockholders approved the adoption of the 1996 Incentive and Nonqualified Stock
Option Plan and the 1996 Employee Stock Purchase Plan for the issuance of
options or sale of shares to employees. Both plans became effective immediately
after the closing of the Company's IPO:
--1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN--The 1996 Incentive and
Nonqualified Stock Option Plan provides for the issuance of up to 1,000,000
options to purchase shares of the Company's common stock. Options may be
either qualified incentive stock options or nonqualified stock options at
the discretion of the Board. Exercise prices will be either fair market
value on the date of grant, in the case of incentive stock options, or set
by the Board at the date of grant, in the case of nonqualified options.
--1996 EMPLOYEE STOCK PURCHASE PLAN--The 1996 Employee Stock Purchase Plan
provides for the sale of up to 100,000 shares of the Company's common stock
to employees. Employees will be allowed to purchase shares at a discount
from the lower of fair value at the beginning or end of the purchase periods
through payroll deductions. At December 31, 1999, 18,904 shares were
available for purchase under the 1996 Stock Purchase Plan.
1998 NON-STATUTORY STOCK OPTION PLAN--The 1998 Non-Statutory Stock Option
Plan provides for the issuance of up to 1,000,000 options to purchase shares of
the Company's common stock. Options are granted with an exercise price no less
than the common stock's market value at the date of the grant, as determined by
the Board.
On July 31, 1998, the Board determined that, because certain stock options
held by employees of the Company had exercise prices significantly higher than
the fair market value of the Company's common stock, those stock options were
not providing the desired incentive to employees. Accordingly the Board provided
employees with an opportunity to receive new options in replacement of any
existing options that had exercise prices of more than $7.63 per share (the fair
market value of the Company's common stock at the close of the market on
July 31, 1998). All of the Company's executive officers except the chief
executive officer were eligible to participate in the stock option repricing.
The new options are exercisable for the same number of shares as the options
they replace, but they have exercise prices of $7.63 per share and vesting
schedules commencing as of July 31, 1998. As a result of this stock option
repricing, new options were granted to purchase 843,100 shares of common stock
and the average exercise price of such options was reduced from $12.44 per share
to $7.63 per share. During the execution of the stock option repricing,
F-13
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK OPTION PLANS, WARRANTS, STOCKHOLDER RIGHTS PLAN (CONTINUED)
the fair market value of the Company's common stock fell below $7.63 per share
and therefore no compensation charge was recorded as a result of the repricing.
The following table presents activity under all stock option plans:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE
OF EXERCISE GRANT DATE
OPTIONS PRICE FAIR VALUE
---------- --------- ----------
<S> <C> <C> <C>
Outstanding at January 1, 1997............... 1,731,300 $ 2.74
Granted.................................... 447,000 12.10 $ 3.94
Assumed.................................... 58,576 6.72
Exercised.................................. (176,775) 1,20
Forfeited.................................. (63,780) 2.46
----------
Outstanding at December 31, 1997............. 1,996,321 4.96
Granted.................................... 2,084,349 9.89 $ 4.06
Exercised.................................. (325,908) 8.07
Forfeited(1)............................... (1,259,413) 12.18
----------
Outstanding at December 31, 1998............. 2,495,349 6.11
Granted.................................... 337,450 10.46 $10.46
Exercised.................................. (417,452) 5.37
Forfeited.................................. (250,171) 8.28
----------
Outstanding at December 31, 1999............. 2,165,176 6.67
==========
</TABLE>
(1) Includes options cancelled and regranted in connection with the repricing
described above.
The number of options exercisable at the dates presented below and their
weighted average exercise price were as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE
EXERCISABLE PRICE
----------- ---------
<S> <C> <C>
December 31, 1997....................................... 941,975 2.69
December 31, 1998....................................... 1,014,703 3.97
December 31, 1999....................................... 1,132,368 5.11
</TABLE>
F-14
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK OPTION PLANS, WARRANTS, STOCKHOLDER RIGHTS PLAN (CONTINUED)
The fair value of options on their grant date was measured using the
Black-Scholes Option Pricing Model. Key assumptions used to apply this pricing
model are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate........................... 5.80%-6.76% 4.18%-5.63% 4.60%-6.19%
Expected life of options grants................... 1-6 years 1-5 years 1-5 years
Expected volatility of underlying stock........... 82% 90% 94%
Expected dividend payment rate, as a percentage of
the stock price on the date of grant............ -- -- --
</TABLE>
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years.
However, management believes that the assumptions used to value the options and
the model applied yield a reasonable estimate of the fair value of the grants
made under the circumstances.
The following table sets forth information regarding options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WEIGHTED REMAINING EXERCISE
NUMBER AVERAGE CONTRACTUAL PRICE FOR
NUMBER OF RANGE OF CURRENTLY EXERCISE LIFE CURRENTLY
OPTIONS EXERCISE PRICES EXERCISABLE PRICE (YEARS) EXERCISABLE
--------- --------------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
313,092 $.05-$0.38 313,092 $ 0.25 3.46 $ 0.25
331,133 $0.46-$2.00 230,670 $ 1.45 6.03 $ 1.40
218,958 $3.44-$7.50 32,231 $ 5.18 8.94 $ 5.01
574,125 $7.63 216,967 $ 7.63 8.58 $ 7.63
236,278 $7.75-$9.813 116,322 $ 8.70 7.6 $ 8.47
16,262 $10.25-$11.625 12,204 $10.49 8.31 $10.51
320,000 $12.13 156,666 $12.13 8.39 $12.13
136,725 $12.375-$17.875 51,198 $14.65 8.8 $13.09
2,853 $25.76 1,443 $25.76 7.85 $25.76
15,750 $28.13 1,575 $28.13 9.96 $28.13
</TABLE>
The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Had the Company used the
fair value method to measure such
F-15
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK OPTION PLANS, WARRANTS, STOCKHOLDER RIGHTS PLAN (CONTINUED)
compensation, reported net income (loss) and basic and diluted earnings (loss)
per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
<S> <C> <C> <C>
1997 1998 1999
------------ ------------ -----------
Income (loss) before provision for income taxes...... $ (83,555) $(10,378,058) $13,264,486
Provision for income taxes........................... 7,000 475,000 4,642,570
------------ ------------ -----------
Net income (loss).................................... $ (90,555) $(10,853,058) $ 8,621,916
============ ============ ===========
Basic earnings (loss) per share...................... $ (0.01) $ (0.73) $ 0.53
============ ============ ===========
Diluted earnings (loss) per share.................... $ (0.01) $ (0.73) $ 0.48
============ ============ ===========
</TABLE>
COMMON STOCK WARRANTS--The Company has issued warrants to purchase 1,270,038
shares of the Company's common stock at exercise prices ranging from $0.793 to
$2.00 per share. At December 31, 1999, outstanding warrants to purchase shares
of common stock aggregated 622,016 (522,016 shares at an exercise price of $2.00
and 100,000 shares at an exercise price of $10.00). Such shares are subject to
certain antidilution provisions. Pursuant to the acquisition of Coral, all
warrants to purchase shares of Coral's common stock became exercisable, when
vested, to purchase shares of Lightbridge common stock. Warrants converted to
purchase Lightbridge common stock aggregated 38,373 at exercise prices ranging
from $0.05 to $34.35 at December 31, 1999.
RESERVED SHARES--The Company has reserved 3,577,016 shares of common stock
for issuance for the stock purchase plan and the exercise of stock options and
warrants.
STOCKHOLDER RIGHTS PLAN--In November 1997, the Board of Directors of
Lightbridge declared a dividend of one right (each a "Right" and collectively
the "Rights") for each outstanding share of common stock. The Rights will be
issued to the holders of record of common stock outstanding on November 14,
1997, and with respect to common stock issued thereafter until the Distribution
Date (as defined below) and, in certain circumstances, with respect to shares of
common stock issued after the Distribution Date. Each Right, when it becomes
exercisable will entitle the registered holder to purchase from Lightbridge one
one-hundredth (1/100(th)) of a share of Series A participating cumulative
preferred stock, par value $0.01 per share, of Lightbridge at a price of $75.00.
The Rights will be issued upon the earlier of the date which Lightbridge learns
that a person or group acquired, or obtained the right to acquire, beneficial
ownership of fifteen percent or more of the outstanding shares of common stock
or such date designated by the Board following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
outstanding shares of the Company's common stock that could result in the
offeror becoming the beneficial owner of fifteen percent or more of the
outstanding shares of the Company's common stock (the earlier of such dates
being called the "Distribution Date").
F-16
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The income tax provision for the years ended December 31 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ---------- -----------
Current:
Federal............................... $ 1,333,000 $2,105,000 $ 5,153,000
State................................. 254,000 554,000 2,190,000
Deferred:
Federal............................... (530,000) 2,000 (1,389,000)
State................................. (165,000) (148,000) (386,000)
----------- ---------- -----------
Income tax provision.................. $ 892,000 $2,513,000 $ 5,568,000
=========== ========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
<S> <C> <C>
1998 1999
----------- -----------
Current Items:
Assets:
Allowance for doubtful accounts.................. $ 198,400 $ 480,000
Accrued expenses................................. 115,478 337,163
Tax credits...................................... 200,970 26,876
Valuation allowance.............................. (179,500) --
Liabilities:
Accrued expenses................................. -- (457)
----------- -----------
Net current deferred tax assets.................... $ 335,348 $ 843,582
=========== ===========
Long-Term Items:
Assets:
Depreciation and amortization.................... $ 202,932 $ 697,797
Accrued expenses................................. 267,439 484,906
Acquired loss carryforwards...................... 5,555,431 4,878,481
Valuation allowance.............................. (3,508,466) (2,702,113)
Liabilities:
Acquired intangible assets....................... (2,046,965) (1,623,594)
Other............................................ (17,333) (15,592)
----------- -----------
Net long-term deferred tax assets.................. $ 453,038 $ 1,719,885
=========== ===========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1997, 1998 and 1999 was an increase (decrease) of approximately $2,002,000,
$960,000 and ($986,000), respectively. Pursuant to the acquisition of Coral, the
Company acquired net operating loss carryforwards for federal income tax
purposes. At December 31, 1999, the Company had $11,800,000 of net operating
loss carryforwards which expire, if unused, in years 2010 through 2012.
F-17
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (Continued)
During the year ended December 31, 1999, the Company reduced the valuation
allowance related to acquired net operating loss carryforwards as it was
determined to be more likely than not that the credits could be utilized due to
improved profitability and a change in the tax law relating to the usage of
acquired net operating loss carryforwards. The amount of the valuation allowance
reversed was $986,000.
The following is a reconciliation of income taxes at the federal statutory
rate to the Company's effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
<S> <C> <C> <C>
1997 1998 1999
--- --- --
Statutory federal income tax rate................... (34)% (34)% 35%
In-process research and development................. 186 -- --
Non-deductible goodwill, including goodwill written
off as impaired................................... -- 74 1
State taxes, net of federal benefit................. 36 7 8
Change in valuation allowance....................... (37) 20 (6)
Other, net.......................................... (29) (10) (3)
--- --- --
Effective tax rate.................................. 122% 57% 35%
=== === ==
</TABLE>
8. EMPLOYEE PROFIT SHARING PLAN
The Company has a 401(k) Employee Profit Sharing Plan (the "Plan"). Under
the Plan, the Company, at its discretion, may make contributions to match
employee contributions. All employees of the Company are eligible to
participate, subject to employment eligibility requirements. Vesting of employer
contributions occurs at the end of each year over a three-year period. Employer
contributions amounted to approximately $129,000, $142,000 and $175,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
The Company's 401(k) expense was approximately $133,000, $235,000 and
$382,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
During October 1999, the Company's Board of Directors voted to approve
enhancements to the Company's 401(k) plan. The enhancements included making the
Company's matching payments non-discretionary and increasing the amounts to be
paid by the Company to participating employees from 25% of the first 6% of
contributions to 50% of the first 6% of contributions.
9. RELATED-PARTY TRANSACTIONS
Under an agreement dated February 28, 1990, the Company granted an exclusive
license to RentGrow, Inc. ("RentGrow"), a company having certain common
investors with the Company, to use the Company's Credit Decision System in the
rental real estate market. Under the terms of the agreement, the Company was to
receive $250,000, comprised of five installments in varying amounts through
August 1996. The final payment was not made in August 1996. In 1997, the Company
received from RentGrow a three-year 11.25% promissory note in the principal
amount of $75,584, representing the final payment and other amounts owed to the
Company. In addition, this agreement provides for the Company to maintain the
F-18
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
licensed software, at RentGrow's option, at an annual amount equal to 15% of the
license amount, which the Company believes exceeds the cost of providing such
maintenance.
During 1997, the Company entered into notes receivable agreements with two
officers totaling $87,000. Interest on the notes accrues monthly at the prime
rate. One of the notes which aggregated $12,000 was repaid during 1997. The
second note which aggregated $75,000 was repaid during 1999.
10. EARNINGS PER SHARE
Basic EPS is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock.
A reconciliation of the items used to compute basic income (loss) per share
to those used for diluted income (loss) per share is as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Shares for basic computation............................. 14,802,012 15,833,635 16,234,822
Options and warrants (treasury stock method)............. -- -- 1,756,298
---------- ---------- ----------
Shares for diluted computation........................... 14,802,012 15,833,635 17,991,120
========== ========== ==========
</TABLE>
Stock options and warrants convertible into common stock have been excluded
from the diluted computation, in 1997 and 1998 as they are anti-dilutive. Had
such shares been included, shares for diluted computation would have increased
by approximately 1,900,000 and 1,632,000 for the years ended December 31, 1997
and 1998, respectively.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1998
Revenues................................................ $13,303 $15,145 $15,604 $19,299
Income (loss) from operations........................... $ (867) $ (108) $ 769 $(4,859)
Net income (loss)....................................... $ (722) $ (159) $ 264 $(6,279)
Basic earnings (loss) per share......................... $ (0.05) $ (0.01) $ 0.02 $ (0.39)
Diluted earnings (loss) per share....................... $ (0.05) $ (0.01) $ 0.02 $ (0.39)
1999
Revenues................................................ $19,343 $22,240 $23,816 $24,317
Income from operations.................................. $ 2,682 $ 3,011 $ 4,374 $ 4,413
Net income.............................................. $ 1,429 $ 1,838 $ 2,327 $ 4,552
Basic earnings per share................................ $ 0.09 $ 0.11 $ 0.14 $ 0.28
Diluted earnings per share.............................. $ 0.08 $ 0.10 $ 0.13 $ 0.24
</TABLE>
F-19
<PAGE>
Exhibit 10.181
Burlington Business Center
67 South Bedford Street
Burlington, Massachusetts
("the Building")
THIRD AMENDMENT
Dated as of March 15, 1999
LANDLORD: Gateway Rosewood, Inc., successor-in-interest to
Sumitomo Life Realty (N.Y.), Inc.
TENANT: Lightbridge, Inc.
EXISTING
PREMISES: An area on the first (1st) floor East Pod of the
Building, containing 21,055 rentable square
feet, substantially as shown on Lease Plan,
Exhibit F, Sheet 1; an area on the second (2nd)
floor East Pod of the Building, containing
21,892 rentable square feet, substantially as
shown on Lease Plan, Exhibit F, Sheet 2; an area
on the third (3rd) floor East Pod of the
Building, containing 3,411 rentable square feet,
substantially as shown on Lease Plan, Exhibit F,
Sheet 3; and an area on the fourth (4th) floor
West Lobby of the Building, containing 11,226
square feet of Rentable Floor Area,
substantially as shown on Exhibit A, Second
Amendment, dated October 6, 1997
GENERATOR
PREMISES: An area adjacent to the Building, more
particularly shown on Exhibit A, First
Amendment, dated July 22, 1997
ORIGINAL LEASE
LEASE EXECUTION
DATA: DATE: March 5, 1997
TERMINATION
DATE IN RESPECT
OF EXISTING
PREMISES: May 31, 2004
-1-
<PAGE>
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated July 22, 1997
Second Amendment dated October 6, 1997
THIRD
AMENDMENT
PREMISES: An area on the second (2nd) floor, Pod C of the
Building, containing 220 square feet of Rentable
Floor Area, substantially as shown on Exhibit A,
Third Amendment, a copy of which is attached
hereto as Exhibit A and incorporated by
reference herein
WHEREAS, Tenant desires to lease additional premises located in the
Building, to wit, the Third Amendment Premises;
WHEREAS, Landlord is willing to lease the Third Amendment Premises to
Tenant upon the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties hereby agree tat the above-described lease, as
previously amended ("the Lease"), is hereby further amended as follows:
1. DEMISE OF THE THIRD AMENDMENT PREMISES
Landlord hereby leases and demises to Tenant, and Tenant hereby hires and
takes from Landlord, the Third Amendment Premises. Said demise of the Third
Amendment Premises shall be upon all of the terms and conditions of the Lease
applicable to the Existing Premises, except as follows:
A. The Term Commencement Date in respect of the Third Amendment Premises
shall be March 15, 1999.
B. The Rent Commencement Date in respect of the Third Amendment Additional
Premises shall be March 15, 1999.
C. The Termination Date in respect of the Third Amendment Premises shall
be March 14, 2000.
D. The Third Amendment Premises shall be used in connection with Tenant's
use of the Existing Premises.
-2-
<PAGE>
E. Annual Fixed Rent in respect of the Third Amendment Premises shall be
Five Thousand Two Hundred Eighty and 00/100 ($5,280.00) Dollars (i.e., a monthly
payment of $440.00).
F. Tenant's Operating Expense Base in respect of the Third Amendment
Additional Premises shall be the actual amount of Operating Expenses Allocable
to the Third Amendment Premises for calendar year 1999.
G. Tenant's Tax Base in respect of the Third Amendment Premises shall be
the actual amount of Tax Expenses Allocable to the Third Amendment Premises for
fiscal/tax year 2000.
H. Tenant's Annual Electricity Charge in respect of the Third Amendment
Premises shall be Two Hundred Nine and 04/100 ($209.04) Dollars, based upon a
charge of $.95 per square foot of Rentable Floor Area in respect of the Third
Amendment Premises (i.e., $17.42 per month). Tenant's obligation to commence
paying the Annual Electricity Charge in respect of the Third Amendment Premises
shall commence as of the Term Commencement Date in respect of the Third
Amendment Premises.
I. Landlord shall have no obligation to provide any services to the Third
Amendment Premises other than electricity for Tenant's lights in the Third
Amendment Premises.
J. In the event of any conflict between the provisions of the Lease and
the provisions of this Amendment, the provisions of this Amendment shall
control.
2. CONDITION OF THIRD AMENDMENT PREMISES
Notwithstanding anything to the contrary herein or in the Lease contained,
Tenant shall lease the Third Amendment Premises "as-is", in the condition in
which the Third Amendment Premises are in as of the Term Commencement Date in
respect of the Third Amendment Premises without any obligation on the part of
Landlord to prepare or construct the Third Amendment Premises for Tenant's
occupancy, and without any representation or warranty by Landlord as to the
condition of the Third Amendment Premises.
3. INAPPLICABLE LEASE PROVISIONS
Articles XI and XII of the Lease shall have no applicability to nor any
force or effect in respect of the Third Amendment Premises.
-3-
<PAGE>
4. LETTER OF CREDIT
The parties hereby acknowledge that Landlord is presently holding a Letter
of Credit in an amount equal to One Million and 00/100 ($1,000,000.00) Dollars,
pursuant to Article X of the Lease. The parties hereby further acknowledge that
Landlord shall continue to hold said Letter of Credit during the term of the
Lease in respect of the Existing Premises, Second Amendment Premises and Third
Amendment Premises.
5. BROKER
Landlord and Tenant each warrant that they have had no dealings with any
broker or agent in connection with this Third Amendment and covenant to defend,
hold harmless and indemnify each other from and against any and all cost,
expense or liability for any compensation, commissions and charges claimed by
any broker or agent claiming by or through them with respect to dealings in
connection with this Third Amendment or the negotiation thereof.
6. NOTICES
For all purposes of the Lease, the notice address for Landlord is as
follows:
Gateway Rosewood, Inc.
c/o Lincoln Property Company
One Burlington Business Center
67 South Bedford Street
Burlington, Massachusetts 01803
7. As herein amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above written.
<TABLE>
<S> <C>
LANDLORD: TENANT:
GATEWAY ROSE WOOD, INC. LIGHTBRIDGE, INC.
/s/AP By: /s/ Michael Kirby By: /s/ Joseph S. Tibbetts, Jr. SR. VP and CFO
------------------------- ------------------------------------------
(Name) Michael Kirby (Name) (Title)
(Title) Vice President Hereunto Duly Authorized
Hereunto Duly Authorized
Date Signed: 4-15-99 Date Signed: 3-29-99
---------------- ----------------------
</TABLE>
-4-
<PAGE>
Exhibit 10.182
Burlington Business Center
67 South Bedford Street
Burlington, Massachusetts
("the Building")
FOURTH AMENDMENT
July 16, 1999
LANDLORD: Gateway Rosewood, Inc., successor-in-interest to
Sumitomo Life Realty (N.Y.), Inc.
TENANT: Lightbridge, Inc.
EXISTING
PREMISES: An area on the first (1st) floor East Pod of the
Building, containing 21,055 rentable square
feet, substantially as shown on Lease Plan,
Exhibit F, Sheet 1; an area on the second (2nd)
floor East Pod of the Building, containing
21,892 rentable square feet, substantially as
shown on Lease Plan, Exhibit F, Sheet 2; an area
("Third Amendment Premises") on the second (2nd)
floor, Pod C of the Building, containing 220
square feet of Rentable Floor Area,
substantially as shown on Exhibit A, Third
Amendment; an area on the third (3rd) floor East
Pod of the Building, containing 3,411 rentable
square feet, substantially as shown on Lease
Plan, Exhibit F, Sheet 3; and an area on the
fourth (4th) floor West Lobby of the Building,
containing 11,226 square feet of Rentable Floor
Area, substantially as shown on Exhibit A,
Second Amendment, dated October 6, 1997; and an
area, known as the Generator Premises, adjacent
to the Building more particularly shown on
Exhibit A, First Amendment dated July 22, 1997
ORIGINAL LEASE
LEASE EXECUTION
DATA: DATE: March 5, 1997
-1-
<PAGE>
TERMINATION
DATE IN RESPECT
OF EXISTING
PREMISES: May 31, 2004
TERMINATION
DATE IN RESPECT
OF THIRD
AMENDMENT
PREMISES: March 14, 2000
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated July 22, 1997
Second Amendment dated October 6, 1997
Third Amendment dated as of March 15, 1999
FOURTH
AMENDMENT
PREMISES: An area on the third (3rd) floor, Pod C of the
Building, containing 7,733 square feet of
Rentable Floor Area, substantially as shown on
Exhibit A, Fourth Amendment, a copy of which is
attached hereto as Exhibit A and incorporated by
reference herein
WHEREAS, Tenant desires to lease additional premises located in the
Building, to wit, the Fourth Amendment Premises;
WHEREAS, Landlord is willing to lease the Fourth Amendment Premises to
Tenant upon the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties hereby agree that the above-described lease, as
previously amended ("the Lease"), is hereby further amended as follows:
1. DEMISE OF THE FOURTH AMENDMENT PREMISES
Landlord hereby leases and demises to Tenant, and Tenant hereby hires and
takes from Landlord, the Fourth Amendment Premises. Said demise of the Fourth
Amendment Premises shall be upon all of the terms and conditions of the Lease
applicable to the Existing Premises (including, without limitation, Tenant's
Option to Extend the Term of the Lease, pursuant to Article XI of the Lease and
Tenant's Right of First Offer Rights
-2-
<PAGE>
with respect to a portion of the third (3rd) floor of Pod C of the Building,
pursuant to Article XII of the Lease) except as follows:
A. The Term Commencement Date in respect of the Fourth Amendment Premises
shall be the later of: (i) January 1, 2000, or (ii) the date that the current
tenant in the Fourth Amendment Premises vacates the Fourth Amendment Premises
and Landlord delivers possession of the Fourth Amendment Premises to Tenant.
B. The Rent Commencement Date in respect of the Fourth Amendment Premises
shall be the earlier of: (i) the later of (a) March 1, 2000, or (b) sixty (60)
days after the Term Commencement Date in respect of the Fourth Amendment
Premises, or (ii) the date that Tenant first commences to use the Fourth
Amendment Premises for business purposes.
C. The Termination Date in respect of the Fourth Amendment Premises shall
be May 31, 2004.
D. Annual Fixed Rent in respect of the Fourth Amendment Premises shall be
Two Hundred Twelve Thousand Six Hundred Fifty-Seven and 50/100 ($212,657.50)
Dollars (i.e., a monthly payment of $17,721.45).
E. Tenant's Operating Expense Base in respect of the Fourth Amendment
Premises shall be the actual amount of Operating Expenses Allocable to the
Fourth Amendment Premises for calendar year 2000.
F. Tenant's Tax Base in respect of the Fourth Amendment Premises shall be
the actual amount of Tax Expenses Allocable to the Fourth Amendment Premises for
fiscal/tax year 2000.
G. Tenant's Annual Electricity Charge in respect of the Fourth Amendment
Premises shall be Seven Thousand Three Hundred Forty-Six and 35/100 ($7,346.35)
Dollars, based upon a charge of $.95 per square foot of Rentable Floor Area in
respect of the Fourth Amendment Premises (i.e., $612.20 per month). Tenant's
obligation to commence paying the Annual Electricity Charge in respect of the
Fourth Amendment Premises shall commence as of the Term Commencement Date in
respect of the Fourth Amendment Premises.
H. In the event of any conflict between the provisions of the Lease and
the provisions of this Amendment, the provisions of this Amendment shall
control.
2. CONDITION OF FOURTH AMENDMENT PREMISES
Notwithstanding anything to the contrary herein or in the Lease contained,
Tenant shall lease the Fourth Amendment Premises "as-is", in the condition in
which the Fourth
-3-
<PAGE>
Amendment Premises are in as of the Term Commencement Date in respect of the
Fourth Amendment Premises without any obligation on the part of Landlord to
prepare or construct the Fourth Amendment Premises for Tenant's occupancy, and
without any representation or warranty by Landlord as to the condition of the
Fourth Amendment Premises. In implementation of the foregoing, Exhibit B to the
Lease shall have no applicability to nor any force or effect in respect of the
Fourth Amendment Premises.
3. LANDLORD'S CONTRIBUTION IN RESPECT OF FOURTH AMENDMENT PREMISES
Landlord shall provide to Tenant up to Seventy-Seven Thousand Three
Hundred Thirty and 00/100 ($77,330.00) Dollars as a "Landlord's Fourth Amendment
Contribution" towards the cost of leasehold improvements to be installed by
Tenant in the Fourth Amendment Premises ("Tenant's Work"). Landlord's Fourth
Amendment Contribution shall be disbursed to Tenant in the same manner and
subject to the same conditions and limitations as set forth on Exhibit B to the
Lease, except:
A. For the purpose of clause (iii) of Paragraph D of Exhibit B to the
Lease, wherever the date "September 30, 1997" is used, the date "June 30, 2000"
shall be substituted therefor.
B. Landlord's Fourth Amendment Contribution may be used only for leasehold
improvements to the Fourth Amendment Premises.
C. In no event shall Landlord's Fourth Amendment Contribution be used for
cabling, wiring, furniture, fixtures or equipment.
4. DELETED LEASE PROVISIONS
Any reference to the "fourth (4th) floor" in Article XII of the Lease is
hereby deleted in its entirety.
5. BROKER
Landlord and Tenant each warrant that they have had no dealings with any
broker or agent other than Meredith & Grew ("Broker") in connection with this
Fourth Amendment and covenant to defend, hold harmless and indemnify each other
from and against any and all cost, expense or liability for any compensation,
commissions and charges claimed by any broker or agent other than Broker
claiming by or through them with respect to dealings in connection with this
Fourth Amendment or the negotiation thereof. Landlord is responsible for
compensating Broker for its services in connection with this Fourth Amendment.
-4-
<PAGE>
6. LETTER OF CREDIT
The parties hereby acknowledge that Landlord is presently holding a Letter
of Credit in an amount equal to One Million and 00/100 ($1,000,000.00) Dollars,
pursuant to Article X of the Lease. The parties hereby further acknowledge that
Landlord shall continue to hold said Letter of Credit during the term of the
Lease in respect of the Existing Premises, Third Amendment Premises and Fourth
Amendment Premises.
7. TENANT'S TERMINATION RIGHT UPON LATE DELIVERY OF THE FOURTH AMENDMENT
PREMISES
Tenant may terminate this Fourth Amendment by written notice to Landlord
in the event that Landlord does not deliver possession of the Fourth Amendment
Premises to Tenant by no later than May 1, 2000.
8. As herein amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above written.
LANDLORD: TENANT:
GATEWAY ROSEWOOD, INC. LIGHTBRIDGE, INC.
/s/AP By: /s/ Michael Kirby By: /s/ Joseph S. Tibbetts, Jr. SRVP & CFO
------------------------- --------------------------------------
(Name) Michael Kirby (Name) (Title)
(Title) Vice President Hereunto Duly Authorized
Hereunto Duly Authorized
Date Signed: 8-12-99 Date Signed: 7-22-99
---------------- -----------------------------
Michael Kirby
Vice President
-5-
<PAGE>
Exhibit 10.19
OFFICE LEASE
BETWEEN
NEW ALLIANCE PROPERTIES, INC.
a Delaware corporation
"LANDLORD"
AND
LIGHTBRIDGE, INC.,
a Delaware corporation
TENANT
FOR SPACE AT
THE BUILDING KNOWN AS
295 INTERLOCKEN BOULEVARD
Dated: October 4, 1999
<PAGE>
Page
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TABLE OF CONTENTS
OFFICE LEASE
Page
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1. PREMISES; BUILDING; BUILDING COMPLEX; COMMON AREAS .............. 3
2. LEASE TERM ...................................................... 3
3. RENT; SECURITY DEPOSIT .......................................... 3
A. Base Rent ................................................. 3
B. Security Deposit .......................................... 3
4. TENANT FINISH AND ACCEPTANCE OF THE PREMISES .................... 4
A. Landlord's Work ........................................... 4
B. Postponement of Lease Commencement Date ................... 4
C. Acceptance of Premises .................................... 4
D. Partial Months; Lease Commencement Certificate ............ 4
5. OPERATING EXPENSES .............................................. 4
A. Definitions Regarding Operating Expenses .................. 4
B. Payment of Operating Expenses ............................. 7
C. Partial Years ............................................. 7
D. Survival of Tenant's Obligation ........................... 7
E. Tenant's Right to Question Operating Expenses ............. 7
F. Operating Expense Adjustments ............................. 8
6. TENANT'S EXPENSES ............................................... 8
7. SERVICES ........................................................ 8
A. Landlord's Services ....................................... 8
B. Additional Services to Tenant ............................. 8
C. Interruption of Services .................................. 8
D. Notice to Landlord ........................................ 8
E. Year 2000 Compliance ...................................... 9
8. QUIET ENJOYMENT ................................................. 9
9. USE AND OCCUPANCY ............................................... 9
10. MAINTENANCE AND REPAIRS ......................................... 9
A. Landlord's Obligations .................................... 9
B. Tenant's Obligations ...................................... 10
11. ALTERATIONS AND ADDITIONS ....................................... 10
A. Alterations by Tenant ..................................... 10
B. Ownership and Removal of Alterations ...................... 11
C. Landlord's ADA Alterations ................................ 11
12. ENTRY BY LANDLORD ............................................... 11
13. MECHANICS LIENS ................................................. 12
i
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Page
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14. SUBLETTING AND ASSIGNMENT ....................................... 12
A. Tenant's Right ............................................ 12
B. Other Restrictions; What Constitutes an Assignment ........ 13
C. Certain Subleases ......................................... 13
D. Related Corporation Assignment............................. 13
15. DAMAGE TO PROPERTY; CLAIMS ...................................... 14
A. Landlord Not Liable ....................................... 14
B. Tenant's Indemnity ........................................ 14
16. INSURANCE ....................................................... 14
A. Landlord's Insurance ...................................... 14
B. Tenant's Insurance ........................................ 14
C. Waiver of Claims and Subrogation .......................... 15
17. DAMAGE OR DESTRUCTION TO BUILDING ............................... 15
A. Repair of Damage .......................................... 15
B. Termination of Lease ...................................... 15
18. CONDEMNATION .................................................... 16
19. ESTOPPEL CERTIFICATE ............................................ 16
A. Duty to Provide ........................................... 16
B. Tenant's Failure to Deliver ............................... 16
20. DEFAULT BY TENANT ............................................... 17
A. Event of Default .......................................... 17
B. Remedies of Landlord ...................................... 17
C. Late Charges and Interest ................................. 19
D. Mitigation ................................................ 19
E. No Waiver ................................................. 19
F. Landlord's Lien ........................................... 19
21. SUBORDINATION AND ATTORNMENT .................................... 20
A. General ................................................... 20
B. Lease Modifications ....................................... 20
22. SURRENDER AND HOLDING OVER ...................................... 20
A. Surrender ................................................. 20
B. Property Not Removed ...................................... 20
C. Holding Over .............................................. 20
23. LANDLORD DEFAULT ................................................ 21
24. NOTICE .......................................................... 22
25. RULES AND REGULATIONS ........................................... 22
26. PARKING ......................................................... 22
27. RIGHT TO RELOCATE TENANT ........................................ 22
28. MISCELLANEOUS ................................................... 22
A. Limitation of Landlord's Liability ........................ 22
B. No Merger ................................................. 22
ii
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Page
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C. Landlord's Use of Common Areas ............................ 22
D. Covenants are Independent ................................. 23
E. Severability .............................................. 23
F. Captions and Terms ........................................ 23
G. Binding Effect; Governing Law ............................. 23
H. Tenant's Authority ........................................ 23
I. Joint and Several ......................................... 23
J. Acts Binding Landlord ..................................... 23
K. Change in Light or View ................................... 23
L. No Other Agreements; Amendments ........................... 23
M. Brokers ................................................... 24
N. Recordation ............................................... 24
O. Execution Required ........................................ 24
P. Attorney's Fees ........................................... 24
Q. Time of Essence; Effective Dates .......................... 24
29. OPTION TO EXTEND ................................................ 24
A. Exercise of Option......................................... 24
B. Rent Determination......................................... 24
30. RIGHT OF FIRST OFFER ............................................ 26
A. Exercise .................................................. 26
B. No Default ................................................ 27
31. SIGNAGE ......................................................... 27
32. FUEL TANK/UNINTERRUPTED POWER SOURCE ............................ 27
Exhibits;
EXHIBIT A - Floor Plan of Leased Premises
EXHIBIT A-1 - Offer Space
EXHIBIT B - Legal Description of Building
EXHIBIT C - Tenant Improvement Agreement (Work Letter)
EXHIBIT D - Rules and Regulations
EXHIBIT E - Lease Commencement Certificate
iii
<PAGE>
OFFICE LEASE
PART I
BASIC LEASE TERM SHEET
BUILDING: 295 Interlocken Boulevard, Broomfield, Colorado 80021.
LEASE DATE: October 4, 1999
LANDLORD: New Alliance Properties, Inc., a Delaware corporation
12800 Whitewater Drive, Suite 170
Minnetonka, MN 55343
TENANT: Lightbridge, Inc., a Delaware corporation
Address: 295 Interlocken Boulevard, Suite 200
Broomfield, Colorado 80021
With a copy to: 67 S. Bedford St
Burlington, MA 01803
Attn:President or General Counsel
BUILDING MANAGER: The Highline Group
1425 Market Street, Suite 205
Denver, Colorado 80202
LANDLORD'S BROKER: Cushman Realty Corporation
TENANT'S BROKER: Frederick Ross Company
PREMISES: Suite Number: 200
295 Interlocken Boulevard
Broomfield, Colorado 80021
Tenant's Rentable Area: 16,034 RSF Premises
LEASE TERM: Lease Commencement Date: The earlier to occur of: (a) the date the
Premises are Substantially Complete (as
defined in the Work Letter); or (b)
December 1, 1999
Lease Expiration Date: Anticipated as December 31, 2004
Lease Term: Commencement Date to Expiration Date (i.e.,
approximately 5 years plus 1 month)
<PAGE>
BASE RENT: Payable in monthly installments as follows:
Period Monthly Per Sq. Ft. Periods
------ ------- ----------- -------
Month 1 $18,038.25 $13.50 See Paragraph
3.A
Months 2-13 $18,038.25 $13.50 $216,459.00
Months 14-25 $18,492.55 $13.84 $221,910.56
Months 26-37 $18,946.84 $14.18 $227,362.12
Months 38-49 $19,427.86 $14.54 $233,134.36
Months 50-61 $19,908.88 $14.90 $238,906.60
TENANT'S PRO RATA SHARE: 25.06%
SECURITY DEPOSIT: $19,000.00
PARKING SPACES: Number of Parking Spaces: 64 surface parking spaces (i.e., 4
spaces per 1,000 rentable square feet leased) at no cost to
Tenant.
OPTIONS: See Paragraphs 29 & 30 below
GUARANTOR: None
THIS BASIC LEASE TERM SHEET, together with the General Provisions in Part II and
any Exhibits as Part III, all constitute the entire lease between Tenant and
Landlord for the Leased Premises, made and entered into as of the Lease Date.
2
<PAGE>
PART II
GENERAL PROVISIONS
1. PREMISES; BUILDING; BUILDING COMPLEX; COMMON AREAS. In consideration of
the payment of the Rent and the performance of Landlord and Tenant's obligations
under the Lease, Landlord hereby leases to Tenant and Tenant leases from
Landlord the premises as described on the Basic Lease Term Sheet and as depicted
on Exhibit A (the "Premises") located in the building on the land described on
Exhibit B (the "Building"), together with a non-exclusive right to use all
common areas designated by Landlord for non-exclusive use of the tenants of the
Building. The Building, real property, landscaped and parking areas, drives and
related easements, common areas, and appurtenances are hereinafter collectively
sometimes called the "Building Complex" whether all or a part of it. The "Common
Areas" include the Building entrances, walkways, driveways to the Building,
stairways, common lobbies and corridors, electrical and telephone rooms, and
other areas designated from time-to-time by Landlord for the use of all tenants
of the Building.
All entry of the Premises or Building Complex during construction under
the Work Letter (defined in Paragraph 4) by Tenant its employees, architects,
agents or representatives shall be at Tenant's sole risk, and Tenant shall
indemnify and hold Landlord and its employees, partners, contractors, and
Building Manager harmless from and against any and all injuries, death, damages,
loss, claims, suits and liability arising out of any such inspection, except to
the extent caused by the gross negligence or willful misconduct of Landlord, its
agents or employees. Tenant shall, subject to all conditions and terms of this
Lease exclusive of the payment of Rent, have access to the Premises prior to
lease commencement for the purposes of completion of the Tenant Work, as set
forth in the Work Letter attached hereto, installing phones, cabling and
furniture, however, Tenant shall not prior to the Lease Commencement Date,
occupy the Premises or permit others to do so, for any other purpose.
2. LEASE TERM. The term of the Lease shall commence at 12:01 a.m. on the
Lease Commencement Date and shall terminate at 12:00 midnight on the Lease
Expiration Date, as specified on the Basic Lease Term Sheet (the "Primary Lease
Term"). The Primary Lease Term, as it may be extended, is referred to as the
"Lease Term."
3. RENT; SECURITY DEPOSIT.
A. Base Rent. Tenant shall pay to Landlord base rent for the
Premises ("Base Rent") as specified on the Basic Lease Term Sheet during the
Primary Lease Term. All installments of Base Rent shall be payable in advance,
on the first day of each calendar month during the Lease Term, except that the
first monthly installment of Base Rent which Tenant shall be obligated to pay
hereunder, shall be due and payable upon execution of this Lease by Tenant. All
Base Rent and Additional Rent (as hereinafter defined), (collectively, "Rent")
shall be paid without notice, demand, deduction, offset, or abatement (except as
otherwise expressly provided in this Lease), at Landlord's address or at such
other place as Landlord from time-to-time designates in writing. In no event
will the total Rent to be paid by Tenant during any Lease Year ever be less than
the Base Rent plus Tenant's Pro Rata Share of Operating Expenses under Paragraph
5. Notwithstanding anything to the contrary set forth herein, Tenant may occupy
the Premises and payment of Base Rent and Tenant's Pro Rata Share of Operating
Expenses shall be abated for a period commencing on the Commencement Date and
terminating on the last day of the first month of the Lease Term (the "Abatement
Rent Period"). If at any time during the Primary Term, an Event of Default
occurs, Tenant owes Landlord, in addition to all other amounts, Base Rent and
Tenant's Pro Rata Share of Operating Expenses abated pursuant to this Paragraph
during the Abatement Rent Period. Tenant, however, has no obligation to pay the
abated amounts if no Event of Default occurs prior to the expiration of the
Primary Term.
B. Security Deposit. It is agreed that Tenant, concurrently with the
execution of this Lease, shall deposit with Landlord, and shall keep on deposit
at all times during the Lease Term, the security deposit specified on the Base
Lease Term Sheet (the "Security Deposit") as security for the payment by Tenant
of the Rent and for the faithful performance of all other provisions of this
Lease which are to be performed by Tenant. If, at any time during the Lease
Term, Tenant shall be in default
3
<PAGE>
in the performance of any provision of this Lease, Landlord shall have the
right, but shall not be obligated, to use the Security Deposit, or so much as
necessary, in payment of any Rent or in performance of Tenant's other
obligations under this Lease, and in payment of any damages incurred by the
Landlord by reason of Tenant's defaults, which shall not waive or cure any such
default. In that event, Tenant shall, on written notice of Landlord, forthwith
remit to Landlord a sufficient amount in cash to restore the Security Deposit to
its original amount. The Security Deposit which has not been so utilized, shall
be refunded to Tenant, without interest, within 60 days after the termination of
this Lease upon full performance of this Lease by Tenant and vacation and
surrender of the Premises by Tenant as required by this Lease. Landlord shall
not be obligated to hold the Security Deposit in a segregated account and Tenant
shall be entitled to no interest on it. Landlord may deliver the Security
Deposit to or credit the Security Deposit to the purchase price paid by any
purchaser of Landlord's interest in the Premises, and thereupon Landlord shall
be discharged from further liability with respect to the Security Deposit. If a
Mortgagee (as hereinafter defined) succeeds to Landlord's interest by
foreclosure or deed in lieu, Tenant shall have no claim against Mortgagee unless
Mortgagee actually received the Security Deposit from Landlord. Tenant's
obligations under this Lease exceed the amount of the Security Deposit, Tenant
shall remain liable for the balance of its obligations.
4. TENANT FINISH AND ACCEPTANCE OF THE PREMISES.
A. Landlord's Work. Except as set forth in the Work Letter, Landlord
shall have no obligations for any remodeling or other work in the Premises, and
Tenant shall accept the Premises in their "as-is" condition on the date hereof.
B. Postponement of Lease Commencement Date. [Intentionally Omitted]
C. Acceptance of Premises. Following Tenant's completion of the
Tenant Improvements, taking possession of the Premises by Tenant shall be
conclusive evidence that the Premises and the Tenant Improvements are
Substantially Complete.
D. Partial Months: Lease Commencement Certificate. If the
Commencement Date does not begin on the first day of a month, Tenant shall pay
proportionate Rent in advance for the partial month and the partial month shall
be considered part of the first Lease Year (as defined in subparagraph 5.A). In
the event the Commencement Date is delayed, the Lease Expiration Date shall be
extended so that the Primary Lease Term will continue for the full period set
forth in the Basic Lease Term Sheet. At the request of either party, Landlord
and Tenant shall execute a Lease Commencement Certificate, the form of which is
attached hereto as Exhibit E setting forth among other things the Lease
Commencement Date and the Lease Expiration Date.
5. OPERATING EXPENSES.
A. Definitions Regarding Operating Expenses. The following terms
have the following meanings with respect to their use in this Lease:
(1) "Building Rentable Area" means 63,995, which is the total
rentable square footage of the Building. If there is a significant change in the
Building Rentable Area as a result of an addition to the Building, partial
destruction, modification to building design, or similar cause which causes a
reduction or increase thereto on a permanent basis, Landlord shall make such
adjustments in the computations as shall be necessary to provide for any such
change.
(2) "Tenant's Pro Rata Share" means the percentage specified
on the Basic Lease Term Sheet. In the event Tenant, at any time during the Lease
Term, leases additional space in the Building, Tenant's Pro Rata Share shall be
recomputed by dividing the total rentable square footage of space then being
leased by Tenant (including any additional space) by the Building Rentable Area,
and the resulting percentage figure shall become Tenant's Pro Rata Share.
4
<PAGE>
(3) "Lease Year" means each calendar year during the Lease
Term, except that the first Lease Year shall begin on the Lease Commencement
Date and end on December 31 of that year, and the last Lease Year shall begin on
January 1 of the calendar year in which this Lease expires or is terminated and
end on the date it expires or terminates. If the first or last Lease Year is
less than 12 months, Operating Expenses for these years shall be prorated.
(4) "Operating Expenses" means all operating expenses of any
kind or nature as reasonably determined by Landlord and which are incurred in
connection with the ownership, operation and maintenance of the Building
Complex. Operating Expenses shall include, but not be limited to:
(a) All real property taxes and assessments levied
against the Building Complex by any governmental or quasi-governmental
authority, including any taxes, assessments, reassessments, surcharges,
imposition, or under any covenants, declarations, easements or restrictions, or
other service, tax or other fees of a nature now in effect or which shall
hereafter be levied on the Building Complex as a result of the use, ownership or
operation of the Building Complex or for any other reason, whether in lieu of or
in addition to, any current real estate taxes and assessments; provided,
however, in no event shall the terms "taxes" or "assessments include any federal
or state income taxes levied or assessed on Landlord, nor transfer, conveyance,
franchise, estate or inheritance taxes, unless those taxes are a substitute for
real property taxes, nor interest or penalties assessed by reason of Landlord's
failure to pay taxes and assessments when due (collectively referred to as
"Taxes"). Expenses incurred by Landlord for tax consultants and in contesting
the amount or validity of any Taxes shall be included in such computations.
"Assessments" shall include general and special assessments, license tax,
business license fee, business license tax, commercial rental tax, levy, charge
penalty or tax, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, water, drainage or other improvement or special
district, against the Premises, the Building or Building Complex or any legal or
equitable interest of Landlord therein. For the purposes of this Lease, any
special assessments shall be deemed payable in such number of installments as is
permitted by law, whether or not actually so paid;
(b) To the extent applicable, costs of cleaning (such as
exterior window cleaning) and other supplies, tools, materials and equipment
used in connection with the Common Areas;
(c) To the extent applicable, costs incurred in
connection with obtaining and providing energy for the Building Complex,
including costs of propane, butane, natural gas, steam, electricity, solar
energy and fuel oils, coal or any other energy sources as well as costs for
heating, ventilation, and air conditioning services ("HVAC"), exclusive of
electrical power for individual tenant spaces and associated rooftop HVAC units,
which shall be separately metered to each tenant;
(d) Costs of water and sanitary, storm drainage and
natural gas services for the Building Complex, exclusive of water for individual
tenant spaces associated with the operation of supplemental cooling and/or
Liebert unit(s), which shall be separately metered to each tenant;
(e) Costs of security services (if any) and janitorial
services (if any) for the Common Areas;
(f) Costs of maintenance, repairs, alterations,
improvements and replacements, including materials, labor, equipment and
maintenance contracts, but not costs of replacing buildings or structures; and
(g) Costs of maintenance and replacement of landscaping;
and costs of maintenance, repair, resurfacing, striping and repairing parking
areas and Common Areas, including trash, ice and snow removal;
5
<PAGE>
(h) Insurance premiums in connection with the insurance
carried by Landlord in accordance with Paragraph 16, including fire and all-risk
coverage, together with loss of rent endorsement; the part of any claim required
to be paid under the deductible portion of any insurance policy carried by
Landlord in connection with the Building Complex; public liability insurance and
any other insurance carried by Landlord on the Building Complex;
(i) Labor costs limited to employees of the Landlord
directly associated with the building, including wages and other payments, costs
to Landlord of workmen's compensation and disability insurance, payroll taxes,
fringe benefits, pension, profit sharing and all legal fees and other costs or
expenses incurred in resolving any labor dispute;
(j) Professional building management fees and costs of
Building management space occupied by the Building Manager or its agents;
provided, that such professional building management fees shall be comparable to
management fees paid by landlords to property managers for comparable buildings
in the greater Metropolitan Denver market, from time to time;
(k) Legal, accounting, inspection, and consultation fees
(including fees charged by consultants retained by Landlord for services that
are designed to produce a reduction in Operating Expenses or to reasonably
improve the operation, maintenance or state of repair of the Building Complex)
incurred in the ordinary course of operating the Building Complex, but
specifically excluding legal fees incurred in connection with enforcement of any
lease or occupancy agreement in the Building Complex;
(l) The costs of capital improvements and structural
repairs and replacements made in or to the Building Complex or the cost of any
machinery or equipment installed in the Building Complex in order to conform to
any applicable laws, ordinances, rules, regulations or orders of any
governmental or quasi-governmental authority having jurisdiction over the
Building Complex ("Required Capital Improvement"); the costs of any capital
improvements and structural repairs and replacements designed primarily to
reduce Operating Expenses ("Cost Savings Improvements"). The expenditures for
Cost Savings Improvements shall be limited in any year to the amount of the
resulting reduction of Operating Expenses. Cost Savings Improvements and
Required Capital Improvements shall be amortized over their useful life of such
expenditure in accordance with generally accepted accounting principles;
(m) Any assessments, special assessments or other fees
or charges levied or imposed on the Building Complex by the Interlocken Owners
Association.
(5) "Operating Expenses" shall not include (i) costs of work,
including painting and decorating and tenant improvement work, which Landlord
performs for any tenant in the Building which is not for the benefit of all or
most tenants of the Building; (ii) costs of repairs or other work occasioned by
fire, windstorm or other insured casualty to the extent of insurance proceeds
received by Landlord, provided, that Landlord has obtained all insurance in the
form and amounts herein required under Paragraph 15A below; (iii) leasing
commissions, advertising expenses, legal expenses, and other costs incurred in
leasing space in the Building; (iv) costs of repairs or rebuilding necessitated
by condemnation; (v) any interest on borrowed money or debt amortization on
Landlord's mortgages on the Building, except as specifically set forth above;
(vi) depreciation on the Building; (vii) costs for janitorial services,
utilities or maintenance performed or paid for by tenants for their individual
premises; (viii) any cost incurred by the negligent acts or omissions of the
Landlord, its agents and employees; (ix) capital expenditures (except for Cost
Savings Improvements and Required Capital Improvements as permitted in 5.A
(4)(l) above); (x) payments for rented equipment, the cost of which equipment
would constitute a capital expenditure if the equipment were purchased except in
connection with Cost Savings Improvements and Required Capital Improvements;
(xi) costs incurred due to violation by the Landlord or any other tenant of the
Building Complex or any laws, rules, regulations or ordinances in effect on the
date hereof; or (xii) the cost of any work performed or service provided for
which the Landlord is otherwise reimbursed, to the extent so reimbursed.
6
<PAGE>
B. Payment of Operating Expenses. It is hereby agreed that, subject
to the provisions of Paragraph 3A above pertaining to the Abatement Rent Period,
commencing with the first Lease Year and continuing each month thereafter
through the Lease Term, Tenant shall pay to Landlord as Additional Rent at the
same time as Base Rent is paid an amount equal to 1/12 of Landlord's estimate of
Tenant's Pro Rata Share of the Operating Expenses for the particular Lease Year.
Landlord shall deliver to Tenant, as soon as practicable following the end of
any Lease Year, an estimate of the Operating Expenses for the new Lease Year
(the "Budget Sheet"). Until receipt of the Budget Sheet, Tenant shall continue
to pay its current monthly Tenant's Pro Rata Share of Operating Expenses based
upon the estimate for the preceding Lease Year. If the Budget Sheet reflects an
estimate of Tenant's Pro Rata Share of Operating Expenses for the new Lease Year
greater than the amount actually paid to the date of receipt of the Budget Sheet
for the new Lease Year, Tenant shall pay such amount to Landlord within 30 days
of receipt of the Budget Sheet. Upon receipt of the Budget Sheet, Tenant shall
thereafter pay the amount of its monthly Tenant's Pro Rata Share of the
Operating Expenses as set forth in the Budget Sheet. As soon as practicable
following the end of any Lease Year, but not later than May 1, Landlord shall
submit to Tenant a statement in reasonable detail describing the computations of
the Operating Expenses setting forth the exact amount of Tenant's Pro Rata Share
of the Operating Expenses for the Lease Year just completed, and the difference,
if any, between the actual Tenant's Pro Rata Share of the increase in Operating
Expenses for the Lease Year just completed and the estimated amount of Tenant's
Pro Rata Share of the Operating Expenses for such Lease Year (the "Statement").
Notwithstanding the foregoing, Landlord's failure to deliver the Statement to
Tenant on or before May 1 shall not be a waiver of Landlord's rights under this
Paragraph. If the actual Tenant's Pro Rata Share of the Operating Expenses for
the period covered by the Statement is higher than the estimated Tenant's Pro
Rata Share of the Operating Expenses which Tenant previously paid during the
Lease Year just completed, Tenant shall pay to Landlord the difference within 30
days following receipt of the Statement from Landlord. If the actual Tenant's
Pro Rata Share of the Operating Expenses for the period covered by the Statement
is less than the estimated Tenant's Pro Rata Share of the Operating Expenses
which Tenant previously paid during the Lease Year just completed, Landlord
shall credit the excess against any sums then owing or next becoming due from
Tenant under this Lease. In no event will Rent be less than Base Rent. In the
event the Building is not fully occupied during any particular Lease Year,
Landlord shall adjust those Operating Expenses which are affected by the
occupancy rates for the particular Lease Year, or part of it, as the case may
be, to reflect an occupancy of 95% percent of the Building Rentable Area.
C. Partial Years. If the Lease Term covers a period of less than a
full calendar year during the first or last Lease Years, Tenant's Pro Rata Share
of the Operating Expenses for the partial year shall be calculated by
proportionately reducing Operating Expenses to reflect the number of months in
that year.
D. Survival of Tenant's Obligation. Landlord's and Tenant's
responsibilities with respect to the Operating Expenses survive the expiration
or termination of this Lease and Landlord shall have the right to retain the
Security Deposit, or so much thereof as it deems necessary, to secure Tenant's
obligations attributable to the Lease Year in which this Lease terminates.
E. Tenant's Right to Question Operating Expenses. If Tenant
questions the amount of Operating Expenses as shown by the Statement, Tenant
shall notify Landlord within 45 days after receipt of the Statement. If Tenant
does not give Landlord notice within that time period, Tenant shall have waived
its right to dispute the Statement. If Tenant timely gives notice, it shall have
90 days after giving notice to hire, at Tenant's sole expense, an accredited
member of the Colorado Society of CPA's ("Tenant's Accountants"), to examine
Landlord's books and records for the purpose of verifying the accuracy of the
Statement. If Tenant's Accountants determine that an error has been made, notice
describing the error in reasonable detail must be given to Landlord during that
90-day period, or the right to question the Statement shall be waived; and if
such a notice is given, Landlord and Tenant shall endeavor to agree upon the
matter within the following 30 days. All information disclosed to Tenant or
Tenant's Accountants in connection with any such review shall be kept
confidential by Tenant and Tenant's Accountants and shall not be disclosed or
used by Tenant or Tenant's Accountants for any reason other than to verify
information set forth in the Statement. Notwithstanding the pendency of
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any dispute over any particular Statement, Tenant shall continue to pay Landlord
the amount of the adjusted monthly installments of Additional Rent based upon
the Statement until the dispute is resolved. Delay by Landlord in submitting any
Statement for any Lease Year shall not affect the provisions of this Paragraph
or constitute a waiver of Landlord's rights as set forth herein for that or any
subsequent Lease Year.
F. Operating Expense Adjustments. Notwithstanding anything in this
Lease to the contrary, if any lease entered into by Landlord with any tenant in
the Building is on a "pure net" basis, or provides for a different basis of
computation for any Operating Expenses with respect to its leased premises,
then, to the extent that Landlord determines that an adjustment should be made
in making the computations of Operating Expenses under this Lease, Landlord may
modify the computation of Building Rentable Area and Operating Expenses for any
Lease Year in order to eliminate or otherwise modify any such expenses which are
paid for in whole or in part by that tenant. Furthermore, Landlord shall also be
permitted to make such adjustments and modifications to the provisions of this
Paragraph as shall be reasonably necessary to achieve the intent of this Lease
or the intention of the parties hereto, provided that no such adjustments or
modifications which have the effect of increasing Tenant's obligations hereunder
shall be made without Tenant's prior consent.
6. TENANT'S EXPENSES. Notwithstanding anything contained in this Lease to
the contrary, Tenant shall be responsible, at Tenant's sole cost and expense, to
arrange and pay for the janitorial services for the Premises and to arrange and
pay directly to the electrical service provider for all costs of all electrical
services associated with the operation and occupancy of the Premises, such as
lighting and electrical outlets and the HVAC serving the premises. As more
specifically provided in the Work Letter attached hereto as Exhibit C, Landlord
shall be responsible for the installation of a separate utility meters for
purposes of segregating the electrical power supply to the Premises. Said
separate meters to include the segregation of power supply necessary to operate
the HVAC system for the Premises.
7. SERVICES.
A. Landlord's Services. Subject to the provisions of subparagraph
7D, Landlord in accordance with standards established by Landlord from time to
time for the Building, agrees: (1) to furnish running water for use in Common
Area lavatories and drinking fountains, if any; and (2) to provide limited
janitorial services for the Building (including window washing of the outside of
exterior windows as may, in the judgment of Landlord, be reasonably required).
B. Additional Services to Tenant. If Tenant requires other services
in addition to those required to be provided to all other tenants of the
Building, Tenant shall pay for those services monthly as Additional Rent. In
addition, Tenant shall pay as Additional Rent monthly with Base Rent any and all
charges for utility services supplied and materials furnished directly to the
Premises. It is also understood and agreed that Tenant shall pay the cost of
replacing light bulbs and/or tubes and ballast used in all lighting in the
Premises.
C. Interruption of Services. Landlord may discontinue, reduce, or
curtail the Landlord's Services at such times as it may be necessary by reason
of accident, repairs, alterations, improvements, strikes, lockouts, riots, acts
of God, application of Laws (as hereinafter defined) or due to any other
happening beyond the control of Landlord. In the event of any interruption,
reduction, or discontinuance of Landlord's services Landlord shall, if possible,
give advance notice to Tenant, but Landlord shall not be liable for damages to
Tenant or any other party as a result thereof nor shall the occurrence of any
such event in any way be construed as an eviction of Tenant, cause or permit an
abatement, reduction or set off of Rent, or operate to release Tenant from any
of Tenant's obligations under this Lease.
D. Notice to Landlord. Tenant shall promptly notify Landlord or the
Building Manager of any interruption in the Building services or of any defects
in the Building or Building systems of which Tenant becomes aware and of which
Landlord is not aware, including defects in pipes, electric
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wiring, and HVAC equipment. In addition, Tenant shall provide Landlord with
prompt notification of any matter or condition of which it becomes aware which
may cause injury or damage to the Building, the Building Complex, or to any
person or property.
E. Year 2000 Compliance. Landlord shall be responsible, at its sole
cost and expense, for taking all measures necessary to ensure that all Building
systems components which are owned and maintained by Landlord will accurately
process date and/or time data relating to the year 2000.
8. QUIET ENJOYMENT. Subject to the provisions of this Lease, all Laws and
any mortgage, easement, covenants, reservations or other encumbrances on the
Building Complex, Landlord agrees to warrant and defend Tenant in the quiet
enjoyment and possession of the Premises during the Lease Term against any
person claiming under Landlord, so long as Tenant complies with its obligations
to pay Rent and performs all of its other obligations under this Lease.
9. USE AND OCCUPANCY. The Premises shall be used and occupied as business
offices for the operation of Tenant's business (the "Permitted Use") and for no
other purpose, and Tenant shall use it in a careful, safe, and proper manner,
and pay on demand for any damage, including repair of damage, to the Building
Complex to the extent not covered by insurance proceeds actually received by
Landlord, caused by the use, act or neglect by Tenant, Tenant's agents or
employees, or any other person entering upon the Premises under express or
implied invitation of Tenant. Tenant shall at its sole cost, comply with all
applicable federal, state, city, quasi-governmental and utility provider laws,
statutes, ordinances, orders, codes, rules, regulations, covenants and
restrictions now or hereafter in effect, including the Americans With
Disabilities Act ("ADA") and all environmental laws (collectively referred to as
"Laws") applicable to Tenant's use, occupancy or alteration of the Premises, and
Tenant shall obtain all permits or licenses required for its business conducted
at the Premises. Tenant shall not commit waste or permit waste to be committed
or cause or permit any unpleasant odor or noise or other nuisance in or from the
Premises or on the Building Complex. Tenant shall not use the Premises for any
use that causes an increase in rates or cancellation of any insurance policy
covering the Building Complex. Tenant shall not store, keep, use, sell, dispose
of or offer for sale in, upon or from the Premises or the Building Complex any
article or substance prohibited by any insurance policy covering the Building
Complex or the Premises nor shall Tenant keep, store, produce, dispose of or
release on, in or from the Premises or the Building Complex (or allow others to
do so) any substance which may be deemed an infectious waste, hazardous waste,
hazardous or toxic material, or hazardous substance under any Laws (collectively
called "Hazardous Materials") except customary office and cleaning supplies
stored and used in accordance with Laws. Tenant represents and warrants to
Landlord that it shall not bring onto or allow other to bring any Hazardous
Materials onto the Building Complex, and that it has received no notice or
complaint from any governmental authority or third party that the business it
intends to operate in the Premises or that any property or materials it intends
to keep or allow on the Building Complex or in the Premises is a Hazardous
Material or violates any Laws. Tenant shall give prompt notice to Landlord of
any such notice or complaint it has received or does receive in the future.
Tenant shall pay when due any taxes assessed with respect to Tenant's use or
occupancy of the Premises and Tenant's Property (as defined in Paragraph 11) and
any Alterations made by Tenant.
10. MAINTENANCE AND REPAIRS.
A. Landlord's Obligations. Landlord shall, subject to reimbursement
as part of Operating Expenses, to the extent deemed reasonably necessary by
Landlord for operations of the Building Complex, repair and maintain in good
order and condition: the structural portions of the Building, plumbing, air
conditioning (including rooftop HVAC units), heating and electrical systems
installed or furnished by Landlord, the Building roof, the curtain wall,
including all glass connections at the perimeter of the Building, all exterior
doors, including any exterior plate glass within the Building, Building
telephone and electrical closets owned or operated by Landlord, Building
telephone and electrical closets, the Common Areas of the Building Complex,
landscaping, and interior portions of the
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Building above and below grade which are not within space leased to Tenant or
other tenants in the Building. Landlord shall have no obligation to make
improvements to or to repair or maintain the Premises during the Lease Term.
Further, the parties acknowledge that the Tenant has engaged a consultant to
review the current condition of the Building's floor slab and said consultant
has made certain maintenance and repair recommendations. Landlord agrees to
review said recommendations with its consultant and to make those maintenance
and repairs, if any, which are necessary, in Landlord's commercially reasonable
judgment, to maintain the Building's floor slab in good condition and repair
which is at least comparable to its condition as of the date of this Lease, and,
to the extent Tenant reasonably believes Landlord has not complied with the
obligation to maintain the floor slab, and as a result the Premises has become
untenantable, Tenant may avail itself of the remedies set forth in Section 23.
B. Tenant's Obligations. Tenant, at Tenant's sole cost and expense,
except for services furnished by Landlord pursuant to Paragraph 7 and Landlord's
obligations under Paragraph 10A, shall maintain, in good order, condition,
repair, and appearance the Premises, including the interior surfaces of the
ceilings (if damaged or discolored due in whole or in part to the act, neglect,
omission or fault of Tenant), windows, walls and floors, all doors, interior
glass partitions or glass surfaces (not exterior windows) and pipes, electrical
wiring, switches, fixtures and other special items exclusively serving the
Premises, subject to the provisions of Paragraph 15. In addition, Tenant shall
maintain, in good order, condition, repair and appearance the Fiber Optic Cable,
as defined in the attached Work Letter and all areas of the Building Complex
(including, but not limited to parking lot areas and landscape areas) affected
by the installation or use of the Fiber Optic Cable. Finally, Tenant shall
maintain, in good order, condition, repair and appearance of the UPS
Installation, as defined in Paragraph 32 below, and all areas of the Building
Complex (including, but not limited to the parking lot areas and landscape
areas) affected by the installation or use of the UPS Installation. In the event
Tenant fails to maintain the Premises as required by this Paragraph, Landlord
shall give Tenant notice to do such acts as are required by this Paragraph. If
within a reasonable time not to exceed 30 days following Landlord's notice,
Tenant fails to perform its obligations under this Paragraph, or if those
obligations cannot reasonably be completed within 30 days, fails to promptly
commence such work and diligently pursue it to completion within a reasonable
time not to exceed 90 days, then Landlord shall have the right, but shall not be
required, to do such acts and expend such funds at the expense of Tenant as are
reasonably required to perform those obligations, without curing Tenant's
default. The funds so expended plus 20% of such amounts as an overhead/
administrative charge shall be due and payable by Tenant within 10 days after
receipt of Landlord's invoice. Landlord shall have no liability to Tenant for
any damage, inconvenience or interference with the use of the Premises by Tenant
as a result of performing or not performing any such obligations.
11. ALTERATIONS AND ADDITIONS.
A. Alterations by Tenant. Except as expressly provided in the Work
Letter, Tenant shall make no alterations, additions or improvements to the
Premises or the Building Complex, (excluding items of a decorating nature such
as painting, carpeting, etc.) (the "Alterations"), including the installation of
equipment or machinery which requires modifications to existing electrical
outlets or increases Tenant's usage of electricity beyond the standard
electrical usage design for the Premises without obtaining the prior written
consent of Landlord, which shall not be unreasonably withheld or delayed. Tenant
shall submit any such request to Landlord at least 30 days prior to the
commencement of the Alterations. Landlord may impose, as a condition to its
consent, and at Tenant's sole cost such requirements as Landlord may reasonably
deem necessary in its judgment, including the manner in which the Alterations
are done, the material to be used, the architect and contractor by whom the work
is to be performed and the times during which the work is to be accomplished,
approval of all plans and specifications, and the procurement of all licenses
and permits. Landlord shall be entitled to or to require Tenant to post notices
on and about the Premises with respect to Landlord's non-liability for the
Alterations and Tenant shall not permit those notices to be defaced or removed.
Tenant further agrees not to connect any apparatus, machinery or device to the
Building systems, including electric wires, water pipes, fire, safety, heating
and mechanical systems, without the prior written consent of
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Landlord, Alterations which Tenant is permitted to make shall be performed in a
good and workmanlike manner and in compliance with this Lease.
If Landlord permits any Alterations, then prior to the commencement of
those Alterations, Tenant shall deliver to Landlord certificates (and copies of
the policies if requested by Landlord) issued by insurance companies qualified
to do business in the state where the Premises are located evidencing that
workmen's compensation, public liability insurance and property damage
insurance, builder's risk coverage (if applicable) all in amounts, with
companies and on forms satisfactory to Landlord, are in force and maintained by
all such contractors and subcontractors engaged by Tenant to perform the work.
All such policies shall name Landlord as an additional insured and shall provide
that they may not be canceled or modified without 30 days' prior notice to
Landlord.
Tenant, at its sole cost and expense, shall cause any permitted
Alterations to be performed in compliance with all applicable requirements of
insurance policies, Laws, and governmental bodies having jurisdiction, in such
manner as not to interfere with other tenants or interfere with, delay, or
impose any additional expense upon Landlord in the construction, maintenance or
operation of the Building Complex, and so as to maintain harmonious labor
relations in the Building and to not disturb other tenants' use of their
premises or interfere with Landlord's operation of the Building Complex. In
addition, Tenant, at its sole cost and expense, shall be responsible for the
acquisition of auxiliary aids, required under the ADA, including all Alterations
required: (i) as a result of Tenant, or any subtenant, assignee or
concessionaire, being a Public Accommodation (as defined in the ADA); (ii) as a
result of the Premises being a Commercial Facility (as defined in the ADA);
(iii) as a result of any leasehold improvements made to the Premises by or on
behalf of Tenant, or any subtenant, assignee or concessionaire (whether or not
Landlord's consent to such leasehold improvements was obtained); or (iv) as a
result of the employment by Tenant, or any subtenant, assignee or
concessionaire, of any individual with a disability.
B. Ownership and Removal of Alterations. All Alterations, whether
made by Landlord or Tenant, including all counters, screens, grilles, cabinetry
work, partitions, paneling, carpeting, drapes or other window coverings and
light fixtures (but not including Tenant's Property, as defined below), shall be
deemed a part of the real estate and the property of Landlord and shall remain
upon and be surrendered with the Premises without disturbance or injury, at the
end of the Lease Term, unless Landlord, by notice given to Tenant no later than
15 days after the end of the Lease Term or Tenant's possession, shall elect to
have Tenant remove all or any of the Alterations, and in that event, Tenant
shall promptly remove those Alterations. Any such removal, whether required or
permitted by Landlord, shall be at Tenant's sole cost and expense, and Tenant
shall restore and repair any damage caused by the removal. All movable
partitions, machines and equipment which are installed in the Premises by or for
Tenant, without expense to Landlord, which can be removed without damage to or
defacement of the Building or the Premises, and all unattached furniture,
furnishings and other articles of personal property owned by Tenant and located
in the Premises (all of which are herein called "Tenant's Property") shall be
and remain the property of Tenant and may be removed by it at any time during
the Lease Term, subject to the provisions of this Lease. However, if any of
Tenant's Property is removed, Tenant shall repair or pay the cost of repairing
any damage to the Building Complex or the Premises resulting from the removal.
Notwithstanding the foregoing, Landlord will make its election regarding removal
of Alterations at the time Landlord approves such Alterations if such election
by Landlord is expressly requested by Tenant at that time; provided, however,
that as to cabling, including any fiber optic or other cabling installed by
Tenant on the Property, the provisions of the first two sentences of this
Paragraph shall be applicable in all cases.
C. Landlord's ADA Alterations. Landlord shall, subject to
reimbursement as part of Operating Expenses, be responsible for any alterations,
modifications or improvements to any Common Areas of the Building Complex which
are required by the ADA.
12. ENTRY BY LANDLORD. Landlord, the Building Manager and their employees,
contractors and agents shall have the right to enter the Premises at all
reasonable times after twelve (12) hours advance notice to Tenant (except in the
case of an emergency) for the purpose of inspecting
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it, to supply any services to be provided by Landlord, to show it to prospective
purchasers, investors or Mortgagees, to make such alterations, repairs,
maintenance, improvements or additions to the Premises or to the Building as
Landlord may deem necessary or desirable, and during the last 270 days of the
Lease Term or after an Event of Default to show it to prospective tenants.
Landlord may for these purposes, if Tenant is not present, enter the Premises by
means of a master key. Any such entry shall not entitle Tenant to an abatement
of Rent or any other claim against Landlord, except for Landlord's gross
negligence or willful misconduct.
13. MECHANICS LIENS. Tenant has no right or authority to impose or permit
any lien or claim against the Premises, the Building, the Building Complex or
its interest in or under this Lease. Tenant shall pay all costs for work done by
or for Tenant in the Premises (including work performed by Landlord or its
contractor at Tenant's request following the commencement of the Primary Lease
Term) and Tenant will keep the Premises and the Building Complex free and clear
of all mechanics' and other liens on account of work done by or for Tenant or
persons claiming under it, excluding any Tenant Finish Work performed by
Landlord pursuant to the Work Letter. Tenant agrees to indemnify, defend, and
save Landlord harmless of and from all liability, loss, damage, costs, or
expenses, including attorneys' fees, on account of any claims of any nature
whatsoever for work performed or for materials or supplies furnished to Tenant
or persons claiming under Tenant. Should any such claims be made or liens be
recorded against the Premises, the Building or the Building Complex or should
any action affecting the title thereto be commenced as a result of any such
work, Tenant shall cause the claim to be satisfied before being recorded, or if
the claim or lien is recorded to be removed of record within ten days after
recording. If Tenant desires to contest any claim or lien, Tenant shall give
notice to Landlord of Tenant's intent to contest it and, within ten days after
the recording of any such liens, Tenant shall either furnish to Landlord
adequate security satisfactory to Landlord of at least 150% of the amount of the
claim, plus estimated costs and interest or bond over any lien under CRS
38-22-131 and as soon as possible thereby have the lien against the Premises,
Building and Building Complex discharged and released in full. If a final
judgment establishing the validity or existence of any lien for any amount is
entered, Tenant shall immediately pay and satisfy it. If Tenant fails to pay any
amount in the time periods provided herein, Landlord may (but without being
required to do so) pay such lien or claim and any costs, and the amount so paid,
plus 20% of such amounts as an overhead/administration charge, together with
reasonable attorneys' fees incurred in connection therewith, shall be
immediately due from Tenant to Landlord.
14. SUBLETTING AND ASSIGNMENT.
A. Tenant's Right. Tenant cannot assign this Lease or sublet all or
any part of the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld. If Tenant wants to assign this Lease
or sublet all or a portion of the Premises, Tenant shall first notify Landlord
in writing of the name of the proposed assignee or sub-tenant and the proposed
use of the Premises, and provide such financial and other information as
Landlord may reasonably require about the proposed assignee or subtenant. It
shall not be unreasonable for Landlord to withhold its consent to a proposed
assignment or sublease, including, if (i) the reputation, financial
responsibility, or business of the proposed assignee or subtenant is
unacceptable to Landlord; (ii) the intended use of the Premises by the proposed
assignee or subtenant either (a) is not similar to the use of the Premises
authorized by the provisions of this Lease or (b) violates any Laws or requires
modifications to the Premises or the Building Complex to comply with Laws unless
such modification is paid for by Tenant or Sub-Tenant and is installed pursuant
to and in compliance with Paragraph 11 above; (iii) if the proposed assignee or
subtenant is a present or former tenant of the Building, or (iv) the rent to be
paid by the proposed assignee or sublessee is no less than 85% of the Rent paid
by Tenant for that space or is less than 85% of the rental rate then being
offered by Landlord for similar space in the Building. Tenant shall have no
right to assign this Lease or sublet any part of the Premises if a notice of
default has been delivered by Landlord to Tenant, which default has not been
cured, or if an Event of Default exists under this Lease, either at the time of
Tenant's request for Landlord's consent to an assignment or sublease or at the
time the assignment or sublease is scheduled to commence.
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B. Other Restrictions; What Constitutes an Assignment. Any
assignment or subletting consented to by Landlord shall be in writing in a form
acceptable to Landlord. This Lease cannot be assigned or sublet by operation of
law. Any transfer of this Lease by a sale of all or substantially all of
Tenant's assets, merger, consolidation, liquidation, or change in ownership of
or power to vote the majority of outstanding stock of Tenant or, if Tenant is a
partnership, any withdrawal, replacement, or substitution of any partner or
partners, either general or limited, whether as the result of a single or series
of transactions, shall constitute an assignment for purposes of this Paragraph.
Any assignment or subletting shall not affect the liability of the Tenant under
this Lease or release Tenant from its obligations. Consent by Landlord to any
assignment or sublease shall not relieve the Tenant from the requirement of
obtaining the prior written consent of Landlord to any subsequent assignment or
subletting and Landlord's consent to one assignment or subletting shall not
waive Landlord's right to refuse to consent to a subsequent request. If Landlord
consents to Tenant's request to assign this Lease or sublet all or a portion of
the Premises, Tenant shall pay Landlord, at the time consent is given, in
consideration for Landlord's written consent to the assignment or sublease, an
amount equal to $500 as a subletting/assignment fee. In addition, Tenant or
Tenant's assignee or sublessee shall be solely responsible for all costs
incurred in altering the Premises to conform to Laws due to any change in the
intended use of the Premises. If Tenant collects any rent or other amounts from
an assignee or subtenant in excess of the Rent for any monthly period, Tenant
shall pay Landlord 50% of the excess monthly (after first deducting Tenant's
cumulative reasonable and direct costs related to the Transfer, including
commissions, or other reasonable costs, and tenant finish costs), as and when
received; and after a default by Tenant under this Lease, Landlord shall have
the right to collect any Rent directly from any subtenant (or from any assignee
from which is it not already collecting directly).
C. Certain Subleases. Notwithstanding the above, if Tenant requests
Landlord's consent to sublet 25% or more of the Premises, Landlord may refuse to
grant consent in its sole discretion and may terminate this Lease as to that
portion of the Premises; provided, however, if Landlord does not consent and
elects to terminate the Lease as to that portion, Tenant may within 15 days
after notice from Landlord to this effect withdraw Tenant's request for consent.
If Landlord elects to terminate under this Paragraph, it shall be effective on
the date designated in a notice from Landlord, which shall be no later than the
proposed date of the sublease.
D. Related Corporation Assignment. Notwithstanding anything to the
contrary set forth in this Section, and subject to all of the provisions of this
Lease, Tenant may assign this Lease to or permit any corporation or other
business entities which control, are controlled by, or are under common control
with Tenant (each, a "Related Corporation") to sublet the Premises for any of
the purposes permitted to Tenant under this Lease (subject, however, to
compliance with Tenant's obligations under this Lease) provided that (a) Tenant
shall not then be in default (after any applicable grace and/or cure periods in
the performance of any of its obligations under this Lease), (b) prior to such
assignment or subletting, Tenant furnishes Landlord with the name of any such
Related Corporation, together with the written certification of Tenant that such
entity is a Related Corporation of Tenant, and (c) in the reasonable judgment of
Landlord, the proposed assignee or subtenant is in keeping with the reasonable
standards of Landlord for the Building. Any such subletting shall not be deemed
to vest in any such Related Corporation any right or interest in this Lease or
the Premises nor shall any such subletting or assignment relieve, release,
impair or discharge any of Tenant's obligations hereunder. For the purposes
hereof, "control" shall be deemed to mean ownership of not less than 51% of all
of the legal and equitable interest in any other business entities. Further,
notwithstanding anything contained herein to the contrary, the provisions of
this Paragraph 13 shall not apply to transactions with a corporation into or
with which Tenant is merged or consolidated or to which substantially all of
Tenant's assets are transferred, provided that in any of such events the
successor to Tenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to $10,000,000.00 and proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction.
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15. DAMAGE TO PROPERTY; CLAIMS.
A. Landlord Not Liable. Neither Landlord nor the Building Manager or
their employees or agents shall have any liability for, and Tenant shall neither
hold nor attempt to hold Landlord the Building Manager and their employees and
agents liable for any injury or damage, either proximate or remote, occurring
through or caused by fire, water, steam, or any repairs, alterations, injury,
accident, or any other cause to or within the Premises, to Tenant's Property or
other personal property of Tenant or others kept in the Premises or stored in
other parts of the Building and/or Common Areas, or for property of Tenant or
others entrusted to employees of the Building, or for loss of property by theft
or otherwise (including loss or damage in the parking areas) by reason of the
negligence or default of other occupants or any other person or otherwise, and
the keeping or storing of all property of Tenant in the Building, Common Areas
and/or Premises shall be at the sole risk of Tenant, unless caused by the
negligence or willful misconduct of Landlord.
B. Tenant's Indemnity. Subject to provisions of Paragraph 16C,
Tenant hereby agrees to indemnify, defend, and save Landlord and Building
Manager harmless of and from all actions, suits, fines, penalties, liability,
loss, damages, costs, or expenses, including reasonable attorneys' fees,
resulting from Tenant's use or occupancy of the Premises, or on account of
injuries to the person or property of Tenant or any third party, including any
other tenant in the Building Complex or to any other person rightfully in the
Building Complex for any purpose whatsoever, where the injuries are caused by
the negligence, acts or misconduct of the Tenant, Tenant's agents, servants or
employees, or of any other person entering upon the Premises under express or
implied invitation of Tenant, or resulting from any breach of this Lease by
Tenant.
16. INSURANCE.
A. Landlord's Insurance. Landlord agrees to carry and maintain
commercial general liability insurance against personal injury, including death
and property damage, in or about the Building Complex (excluding Tenant's
Property), in such amounts as Landlord deems appropriate. Landlord shall
maintain casualty insurance for the Building Complex, the shell and core of the
Building and the Premises (other than the insurance Tenant is required to carry
on the Premises) in an amount equal to the full replacement cost of the Building
Complex, with endorsements for increased cost of construction and for demolition
costs, from such companies, and on such terms and conditions, including
insurance for loss of Rent, as Landlord deems appropriate from time to time.
B. Tenant's Insurance. Tenant shall, at its own cost, at all times
during the Lease Term, procure and maintain workmen's compensation insurance in
the maximum statutory amount and Employers Liability insurance in the amount of
$500,000, each covering all persons employed by Tenant, insurance coverage at
least as broad as ISO Special Form Coverage against risks of direct physical
loss or damage (commonly known as "all risk") for the full replacement cost of
Tenant's Property and the contents of the Premises including damage due to water
leakage, in an amount equal to their full replacement cost, and commercial
general liability insurance, including coverage for bodily injury, property
damage, personal injury (employee and contractual liability exclusions deleted),
products and completed operations, contractual liability, owner's protective
liability, and broad form property damage with the following limits of
liability: $2,000,000.00 each occurrence combined single limit for bodily
injury, property damage and personal injury; $2,000,000.00 aggregate for bodily
injury and property damage for products and completed operations. All such
insurance shall be procured from a responsible insurance company or companies
authorized to do business in the State where the Premises are located, with
general policyholder's ratings of not less than AA + and a financial rating of
not less than "XI" in the most current available Best's Insurance Reports, and
shall be otherwise satisfactory to Landlord. All such policies (except workmen's
compensation) shall name Landlord and Building Manager as additional insureds,
and shall provide they cannot be canceled or altered except upon 30 days prior
written notice to Landlord. All insurance maintained by Tenant shall be primary
to any insurance carried by Landlord. If Tenant obtains any general liability
insurance policy on a claims-made basis, Tenant shall provide continuous
liability coverage for claims arising during the entire Lease Term, regardless
of when the claims are made, either by obtaining an endorsement providing for an
unlimited
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extended reporting period in the event any such policy is canceled or not
renewed for any reason whatsoever or by obtaining new coverage with a
retroactive date the same as or earlier than the expiration date of the canceled
or expired policy. Tenant shall provide certificate(s), and if requested copies
of the policies, of such insurance to Landlord upon commencement of the Lease
Term and at least 30 days prior to their renewal date and such certificate(s)
and policies shall name Landlord and Building Manager as additional insureds, in
addition to the other requirements herein. The limits of Tenant's insurance
shall not, under any circumstances, limit the liability of Tenant under this
Lease.
C. Waiver of Claims and Subrogation. Each party hereby waives and
releases the other party and its respective officers, directors, partners,
members, agents, representatives and employees, from any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damage or destruction to its real and personal property (including the
Building, Building Complex, Premises and Tenant's Property) or for loss of
business arising out of or related to the use and occupancy of the Premises
occurring during the Lease Term which is insured or capable of being insured
against under insurance required under this Paragraph. Tenant also waives all
such rights of recovery against the Building Manager. Each party shall notify
its insurance carrier of this waiver provision and obtain an appropriate waiver
of subrogation provision in its policies
17. DAMAGE OR DESTRUCTION TO BUILDING.
A. Repair of Damage. In the event that the Premises or the Building
is damaged by fire or other insured casualty and insurance proceeds have been
made available to Landlord to repair the damage by the insurer and any
Mortgagees, the damage shall be repaired by and at the expense of Landlord to
the extent of the insurance proceeds, provided that the Premises can be made fit
for occupancy, in Landlord's reasonable opinion, within 180 days after the
occurrence of the damage without the payment of overtime or other premiums.
Until the repairs and restoration are completed, Rent shall be abated in
proportion to the part of the Premises which is unusable by Tenant in the
conduct of its business as the result of the casualty, as may be reasonably
determined by Landlord (but there shall be no abatement of Rent by reason of any
portion of the Premises being unusable for a period of five days or less or as
set forth below). Landlord agrees to notify Tenant within 60 days after the
casualty if it estimates that it will be unable to repair and restore the
Premises within 180 days, which will state the approximate length of time
Landlord estimates will be required to complete the repairs and restoration, in
which event Landlord in its notice or Tenant in a notice given to Landlord
within 15 days thereafter may terminate this Lease effective 30 days from the
date of such notice (the "Termination Date"). However, Tenant may not terminate
this Lease or receive an abatement of Rent, as above stated, if the damage to
the Premises or the Building is in whole or in part the result of the willful
act, omission, fault or negligence of Tenant, its agents or employees. In the
event this Lease is terminated, Tenant shall pay prorated Rent for the usable
portion of the Premises until the Termination Date and shall forthwith surrender
the Premises in accordance with Paragraph 22A. If Tenant fails so to surrender
the Premises, Landlord may reenter and take possession of the Premises and
remove Tenant and the property and Alterations Tenant is required to remove
under Paragraph 11, at Tenant's expense. Except as provided in this Paragraph,
there shall be no abatement of rent and no liability of Landlord by reason of
any damage to or interference with Tenant's business or property arising from
the casualty or the making of any such repairs, alterations or improvements in
or to the Building Complex or Premises. Tenant understands that Landlord will
not carry insurance of any kind on Tenant's Property, or any Alterations
installed in the Premises by or on behalf of Tenant, and that Landlord shall not
be obligated to repair any damage or replace any of Tenant's Property or any
such Alterations, which shall be Tenant's responsibility. In addition to
Tenant's right to terminate this Lease as provided above, Tenant shall have the
further right to terminate this Lease if the Premises shall not be fully
restored within 240 days after such damage, or if such damage shall occur within
the last 180 days of the Lease Term.
B. Termination of Lease. In addition to the reason stated in
subparagraph A above, if the Building or Building Complex is substantially
damaged, to the extent that Landlord, in its reasonable judgment, determines
that it would be uneconomical to reconstruct or repair the damage (although the
Premises may not be affected, or if affected, can be repaired within 180 days)
and
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Landlord, within 60 days after the damage, decides not to reconstruct or repair
the damage, then provided that Landlord contemporaneously terminates all leases
and other occupancies at the Building Complex, notwithstanding anything
contained herein to the contrary, upon notice to that effect given to Tenant
within that 60-day period, Tenant shall pay Rent, properly apportioned up to
date of such termination, and subject to abatement as provided herein, this
Lease shall terminate on the date provided in Landlord's notice of termination,
such termination date to be the earlier of (a) 30 days after such notice is
given or (b) 90 days after the date of casualty and both parties shall be
released and discharged from all further obligations hereunder (except those
obligations which expressly survive termination of the Lease Term). A total
destruction of the Building or the Building Complex shall automatically
terminate this Lease as of the date of the destruction.
18. CONDEMNATION. If the entire Premises or substantially all of the
Premises or any portion of the Building Complex which shall render the Premises
untenantable shall be taken by eminent domain or by condemnation or shall be
conveyed in lieu of any such taking, then this Lease, at the option of either
Landlord or Tenant exercised by either party giving notice to the other of such
termination within 30 days after such taking or conveyance, shall as of the date
Tenant is dispossessed of the Premises terminate and the Rent shall be
apportioned as of that date; and Tenant shall surrender the Premises as required
in this Lease to Landlord and Landlord may reenter and take possession of the
Premises on that date. In the event less than all of the Premises shall be taken
by that proceeding, Landlord shall promptly repair the Premises as nearly as
possible to its condition immediately prior to the taking, unless Landlord
elects not to reconstruct or rebuild for the same reasons provided in Paragraph
17B. In the event of any such taking or conveyance, Landlord shall receive the
entire award or consideration for the portion of the Building or Building
Complex so taken. However, Tenant shall have the right to pursue its own reward,
so long as Tenant's reward does not in any way diminish Landlord's reward and
Tenant shall obtain Landlord's prior written concurrence that Landlord's award
will not be diminished before it may commence any such action.
19. ESTOPPEL CERTIFICATE.
A. Duty to Provide Tenant agrees at any time and from time to time
on or before seven days after written request by Landlord, to execute,
acknowledge and deliver to Landlord an estoppel certificate certifying (i) that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that it is in full force and effect as modified, and stating the
modifications), (ii) that there have been no defaults by Landlord (to the best
of Tenant's knowledge) or by Tenant (or, if there have been defaults, describing
the default), (iii) the date to which Rent and other charges have been paid in
advance, if any, (iv) that Tenant claims no present charge, lien, claim or
offset against Rent if such is the case, (v) that Rent is not prepaid for more
than one month in advance, and (vi) such other matters as may be reasonably
required by Landlord, any Mortgagee or prospective Mortgagee, or any potential
purchaser of the Building. It is intended that any such statement delivered
pursuant to this Paragraph may be relied upon by any prospective purchaser of
all or any portion of Landlord's interest, or by any Mortgagee or prospective
Mortgagee.
B. Tenant's Failure to Deliver. Tenant acknowledges that it may be
difficult, if not impossible, for Landlord to sell or finance the Building
without such an estoppel certificate from Tenant, and that Landlord would not
enter into this Lease without Tenant's agreement to provide such an estoppel
certificate. If Tenant shall fail to execute, acknowledge and deliver to
Landlord any estoppel on or before the expiration of the 7-day period provided
under Paragraph 19A above, Landlord shall again provide written request to
Tenant delivered in accordance with the provisions of Paragraph 24 below and if
Tenant fails to execute, acknowledge and deliver to Landlord such estoppel on or
before 7 days after said second request therefor, it shall be deemed both (1) as
Tenant's affirmation of the provisions of the estoppel, including that (a) this
Lease is in full force and effect, (b) there are no breaches or defaults on the
part of Landlord, and (c) no more than one month's rent has been paid in
advance; and (2) that Tenant has appointed Landlord as Tenant's attorney-in-fact
to execute said estoppel certificate in Tenant's stead and place.
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20. DEFAULT BY TENANT.
A. Event of Default. Each one of the following events is referred to
as an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date unless
the failure is cured within 5 business days after notice by Landlord; however,
Tenant is not entitled to more than two notices of delinquent payments of Rent
during any calendar year and, if thereafter during that calendar year any Rent
is not paid when due, an Event of Default shall automatically occur;
(2) If Tenant's interest in this Lease or in the Premises, or
if all or a substantial part of Tenant's Property, is seized or taken by process
of law or otherwise and is not released within 15 days;
(3) Commencement by or against Tenant of a proceeding under
any provision of federal or state law relating to insolvency, bankruptcy, or
reorganization ("Bankruptcy Proceeding"), unless dismissed within 60 days after
commencement; the insolvency of Tenant or execution by Tenant of an assignment
for the general benefit of creditors; the convening by Tenant of a meeting of
its creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature;
(4) If a guarantor of this Lease, if any, or a general partner
or member of Tenant (if Tenant is a partnership, venture or company), becomes a
debtor under any Bankruptcy Proceeding, or becomes subject to receivership or
trusteeship proceedings, whether voluntary or involuntary; unless a substitute
guarantor, acceptable to Landlord in light of the responsibilities of Tenant
under this Lease, is provided to Landlord within 15 days;
(5) If Tenant abandons the Premises for 10 consecutive days
with nonpayment of rent, other than as a result of a casualty or condemnation;
(6) If Tenant fails to take possession of the Premises and pay
rent within 30 days after it is Substantially Complete;
(7) If Tenant fails to perform or breaches any of the other
agreements, terms, covenants or conditions hereof on Tenant's part to be
performed (other than the obligation to pay Rent or any other charges payable
hereunder), and that default continues for a period of 30 days after notice by
Landlord to Tenant; provided, however, that if Tenant cannot reasonably cure the
default within 30 days, Tenant shall not be in default if it commences to cure
the default within that 30 days and diligently pursues it to completion within a
reasonable period of time, not to exceed 60 days.
B. Remedies of Landlord. If any one or more Event of Default occurs
Landlord shall have the right at Landlord's election, then or at any time
thereafter, in addition to its other rights and remedies under this Lease or any
Laws, to do any one or more of the following:
(1) (a) Without demand or notice except as required by Laws,
to enter and retake possession of the Premises or any part of it and expel
Tenant and those claiming through or under Tenant and remove the effects of both
or either, without being guilty of trespass and without prejudice to any
remedies for unpaid of Rent or other breach of this Lease. If Landlord elects to
enter and retake possession pursuant to legal proceedings or pursuant to any
notice provided for by Laws, Landlord may, from time to time, without
terminating this Lease, relet the Premises or any part of it, in Landlord's or
Tenant's name but for the account of Tenant, for such periods (which may be
greater or less than the period which would otherwise have constituted the
balance of the Lease Term) and on such conditions and upon such other terms
(which may include, among other terms, leasing and brokerage fees, concessions
of free rent and alteration and repair of the Premises) as Landlord, in its sole
discretion, may determine, and Landlord shall be entitled to collect all the
rents from the reletting.
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Landlord shall in no way be responsible or liable for any failure to relet the
Premises or any part of it, or for any failure to collect any rent due upon
reletting. No such entry or repossession or notice by Landlord shall be
construed as an election on Landlord's part to terminate this Lease, unless
written notice of termination is given to Tenant. Landlord reserves the right
following any such entry and/or reletting to exercise its right to terminate
this Lease by giving Tenant notice, in which event the Lease will terminate as
specified in that notice.
(b) If Landlord takes possession of the Premises without
terminating this Lease, Tenant shall pay to Landlord (i) the Rent and other sums
payable under this Lease, less (ii) the net proceeds, if any, of any reletting
of the Premises after deducting all of Landlord's expenses incurred in
connection with the reletting, including all repossession costs, leasing and
brokerage fees, concessions, attorneys' fees, expenses of employees, alteration
and repair costs ("Reletting Expenses"). If, in connection with any reletting,
the new lease term extends beyond the Lease Term or the premises covered thereby
include other premises not part of the Premises, a fair apportionment of the
Rent received from the reletting and the Reletting Expenses will be made in
determining the net proceeds received from the reletting. In determining the net
proceeds, any rent concessions will be apportioned over the term of the new
lease. Tenant shall pay the amount due under this Paragraph to Landlord monthly
on the days on which Rent is due under this Lease.
(2) To give Tenant notice of termination of this Lease on the
date specified in that notice, and on that date Tenant's right to possession of
the Premises shall cease and this Lease shall terminate except as to Tenant's
liability as provided below. In the event this Lease is terminated pursuant to
the provisions of this subparagraph), Tenant shall remain liable to Landlord for
damages in an amount equal to the Rent and other amounts which would have been
owing by Tenant for the balance of the Lease Term had this Lease not terminated,
less the net proceeds, if any, from reletting of the Premises by Landlord
subsequent to termination, after deducting the Reletting Expenses. Landlord
shall be entitled to collect such damages from Tenant monthly on the days on
which Rent would have been payable if this Lease had not been terminated.
Alternatively, if this Lease is terminated, Landlord at its option may recover
immediately from Tenant as damages for loss of the bargain and not as a penalty
an amount equal to the worth at the time of termination of the excess, if any,
of the Rent payable under this Lease for the balance of the Lease Term over the
then Reasonable Rental Value of the Premises for the same period, reduced to
present value at a discount rate of 6%. "Reasonable Rental Value" shall be the
amount of rent Landlord can obtain for the remaining balance of the Lease Term,
taking into account a reasonable period for reletting, after deducting all
estimated Reletting Expenses.
(3) Advance such monies, and take such other action, for
Tenant's account as reasonably may be required to perform Tenant's obligation or
to mitigate any default or Event of Default, but no such advance or action shall
cure the default or Event of Default. Tenant agrees to reimburse Landlord for
any such advances, as Additional Rent, upon demand from Landlord. Any such
advance, and any cost or expense so incurred, shall bear interest at the rate of
1-1/2% per month, compounded monthly, until paid by Tenant.
(4) Suits for the recovery of Rent and damages may be brought
by Landlord, from time to time, at Landlord's election, and nothing herein shall
be deemed to require Landlord to wait until each installment is due or until the
expiration of the Lease Term. Each right and remedy provided for in this Lease
shall be cumulative and in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or equity or otherwise,
including, but not limited to, suits for injunctive relief and specific
performance. The exercise or beginning of the exercise by Landlord of any one or
more rights or remedies shall not preclude the simultaneous or later exercise by
Landlord of other rights or remedies. All costs incurred by Landlord in
connection with collecting Rent or other amounts and damages owing by Tenant or
to enforce any provision of this Lease, shall also be recoverable by Landlord
from Tenant.
(5) No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition hereof or to exercise
any right or remedy, and no acceptance
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of full or partial Rent during the continuance of any such breach shall
constitute a waiver of any such breach or agreement, term, covenant, or
condition, except by written instrument executed by Landlord or relieve Tenant
from the obligation to make the full payment as and when due. No waiver shall
affect or alter this Lease, and each and every agreement, term, covenant, and
condition hereof shall continue in full force and effect with respect to any
other then existing or subsequent breach.
(6) Nothing contained in this Lease shall limit or prejudice
the right of Landlord to obtain as liquidated damages in any bankruptcy or
similar proceeding the maximum amount allowed by Law at the time such damages
are proven, whether or not the amount is greater, equal to, or less than the
amounts recoverable, either as damages or Rent, referred to in any of the
preceding provisions of this Paragraph.
C. Late Charges and Interest.
(1) Rent or other amounts owed by Tenant which are not
received by Landlord by the 5th day after the date they are due shall be subject
to a late charge of 5% of the amount due. Additionally, if Rent is not received
by Landlord within 15 days after it is due (or after notice of default, if
notice is required), the amount due shall be subject to an additional 5% late
charge. Rent and all other monetary obligations under this Lease not received by
Landlord when due shall also bear interest at the rate of 1.5% per month,
compounded monthly, from the date due until fully received by Landlord. Tenant
acknowledges that late payments will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be impossible or
extremely difficult to ascertain. Those costs include processing and accounting
charges, interest and late charges imposed by Mortgagees, and other general and
administrative expenses. Tenant agrees that the late charges and interest
contemplated by this Paragraph represent a fair and reasonable estimate of the
costs which Landlord will incur as a result of any such late payments by Tenant.
Acceptance of late charges and interest by Landlord shall not constitute a
waiver of Tenant's default with respect to any overdue amount, or prevent
Landlord from exercising any other rights or remedies under this Lease.
D. Mitigation. Notwithstanding anything to the contrary contained
elsewhere in this Lease, if Landlord terminates Tenant's right of possession
without terminating this Lease, Landlord shall use reasonable efforts to relet
the Premises so as to mitigate its damages pursuant to this Paragraph, provided,
however, that so long as Landlord uses such reasonable efforts Landlord shall in
no way be responsible or liable for any failure to relet the Premises, or any
part of it, or for any failure to collect any Rent due upon any such reletting;
and Landlord shall not be required to spend its own funds, to give priority (or
even equal opportunity) to the Premises over other rental space owned by
Landlord or its affiliates or to compromise in any way the terms, uses or credit
worthiness of a tenant upon or to which it would customarily lease space such as
the Premises; and Landlord shall be entitled, in its sole discretion, to seek a
single tenant for the entire Premises, even though it may take a substantially
longer period to obtain such a tenant and its efforts may be unsuccessful; and
this requirement shall not affect in any way Tenant's obligation to obtain
Landlord's consent as under Paragraph 14.
E. No Waiver. No payments of Rent or money by Tenant to Landlord
after notice of termination or after termination of this Lease, in any manner,
shall reinstate, continue, or extend the term of this Lease or affect any notice
given to Tenant prior to the payment, it being agreed that after the service of
notice of termination or the commencement of a suit or other final judgment
granting Landlord possession of the Premises, Landlord may receive and collect
any sums of Rent due or an other sums of money, whether as Rent or otherwise,
and exercise Landlord's rights and remedies hereunder, and shall not waive any
default or notice or in any manner affect any pending suit or judgment.
F. Landlord's Lien. [Intentionally Omitted]
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21. SUBORDINATION AND ATTORNMENT.
A. General. This Lease, and all rights of Tenant under it, at
Landlord's option shall be subordinate to any ground leases, deeds of trust,
mortgages and security agreements, including leasehold mortgages and building
loan agreements, now or hereafter placed upon the Building or the Building
Complex (including all advances made thereunder), and to all amendments,
renewals, replacements and extensions thereof (collectively, "Mortgage"), but
only if and when any Lessor or Mortgagee (as defined below) executes and
delivers to Tenant a non-disturbance and attornment agreement reasonably
acceptable to Landlord, Tenant and the Lessor or Mortgagee, under which, among
other provisions which may be included (1) Tenant agrees to recognize and attorn
to the Lessor or Mortgagee if it becomes the Landlord under this Lease, and (2)
the Lessor or Mortgagee (on behalf of itself and its successors and assigns in
interest) agrees to recognize Tenant's rights under this Lease as long as Tenant
is not in default under this Lease beyond applicable grace and cure periods,
notwithstanding defaults under any such ground lease or Mortgage or foreclosure,
receivership or sale thereunder. If any holder of a Mortgage ("Mortgagee") or
the lessor of any ground lease ("Lessor") elects to have this Lease made
superior to the lien of its Mortgage and gives notice to Tenant, this Lease will
be deemed prior to that Mortgage, whether this Lease is dated prior or
subsequent to the date of that Mortgage. In confirmation of this non-disturbance
and attornment, subordination or superior position, as the case may be, Tenant
shall promptly execute and deliver to Landlord (or such other party so
designated by Landlord) at Tenant's own cost and expense, within 10 days after
request from Landlord any instruments as may be reasonably required for this
purpose by Mortgagee or Lessor, in recordable form if requested. If Tenant fails
to do so within that 10-day period, Tenant shall be in default under this Lease,
and Tenant hereby irrevocably grants to Landlord a power of attorney coupled
with an interest to act as Tenant's attorney-in-fact for the purposes of
executing whatever documents are necessary to evidence such subordination or
superior position. Tenant agrees to attorns to all successor owners of the
Building, whether such ownership is acquired by sale, foreclosure of a Mortgage,
or otherwise.
B. Lease Modifications. If, in connection with the procurement,
continuation or renewal of any financing for the Building or the Building
Complex, the Mortgagee requests reasonable modifications of this Lease, Tenant
will not unreasonably withhold its consent, provided the modifications does not
adversely affect any rights of Tenant, or increase the economic costs or
obligations of Tenant under this Lease or decrease the obligations of Landlord
under this Lease.
22. SURRENDER AND HOLDING OVER.
A. Surrender. Upon the expiration or termination of this Lease or
termination of Tenant's right of possession, Tenant shall promptly surrender the
Premises to Landlord broom clean, in good order and condition, ordinary wear and
tear and loss by fire or other insured casualty excepted (except as otherwise
provided in Paragraphs 16 and 17), and Tenant shall remove Tenant's Property and
other property as required under Paragraph 11 and the Alterations and other
property as required under Paragraph 11. If Tenant fails to vacate the Premises
on a timely basis as required, Tenant shall be liable to Landlord for all costs
reasonably incurred or which could not have been reasonably avoided by Landlord
provided, however, Tenant's liability shall not exceed in the aggregate
$400,000, incurred by Landlord as a result of that failure, including, but not
limited to, any amounts required to be paid to third parties who were to have
occupied the Premises.
B. Property Not Removed. All Tenant's Property not removed from the
Premises upon the termination of this Lease or of Tenant's right of possession
for any cause whatsoever shall conclusively be deemed to have been abandoned and
may be appropriated, sold, stored, destroyed, or otherwise disposed of by
Landlord without notice to Tenant or any other person and without obligation to
account therefor, Tenant shall pay Landlord all expenses incurred in so doing.
C. Holding Over, If, after the termination of this Lease or of
Tenant's right of possession, Tenant remains in possession of the Premises and
continues to pay Rent, and Landlord consents to the possession and accepts the
Rent, without any written agreement, the holding over shall
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be deemed a tenancy from month-to-month, under all the provisions of this Lease,
but at a monthly Rent equivalent to 150% of the monthly installments of Rent
paid by Tenant immediately prior to the termination or the current market rental
rate for the Premises, whichever is greater. If, after the termination of this
Lease or of Tenant's right of possession, Tenant remains in possession without
Landlord's consent, Landlord will suffer damages, the amount of which will be
difficult to determine; therefore, Tenant shall pay to Landlord as liquidated
damages an amount equal to 200% of the Rent calculated on a per diem basis,
applicable under the Lease in the month immediately prior to the termination.
All such Rent shall be payable in advance on the same day of each month. The
month-to-month tenancy may be terminated by either party upon 10 days' notice
prior to the end of any such monthly period. Nothing contained herein shall be
construed as obligating Landlord to accept any Rent tendered by Tenant after any
such termination or as obligating Landlord to consent to any holding over, or as
relieving Tenant of its liability under this Lease.
23. LANDLORD DEFAULT. In the event of any noncompliance with the terms and
conditions of this Lease by Landlord, Tenant shall, before exercising any right
or remedy available to it at law, in equity or hereunder, give Landlord written
notice of such noncompliance. If prior to its giving such notice, Tenant has
been notified in writing (by way of notice of Assignment of Rents and Leases by
execution of a subordination agreement, or by notice delivered in accordance
with the provisions of Paragraph 24 hereof) of the address of a Mortgagee which
has furnished any of the financing referred to in Paragraph 21 hereof,
concurrently with giving the aforesaid notice to Landlord, Tenant shall, by
registered mail, transmit a copy thereof to such Mortgagee. For the 30 days
following the giving of the notice(s) required by the foregoing portion of this
Section 22 (or such longer period of time as may be reasonably required to cure
a matter which, due to its nature, cannot be reasonably rectified within 30
days), Landlord shall have the right to cure the noncompliance involved. If
Landlord has failed to effect such cure within such period, any such Mortgagee
shall have 30 days within which to cure the same, or, if such default cannot be
cured within that period, such additional time as may be reasonably necessary to
cure such default, if within such period, said Mortgagee has commenced and
diligently pursues the actions or remedies to completion; provided, however,
that any such cure must be completed within 160 days following Landlord's cure
period. Notwithstanding the foregoing, in case of a bona fide emergency and
which results in a substantial portion of the Premises being untenantable not
arising as a result of the Non-Abatement Conditions, as hereinafter defined, and
as a result, Tenant has not occupied such portion of the Premises for at least 7
consecutive days, (i) Tenant shall not be required to give written notice, but
may, instead, give oral telephone notice to Landlord (so long as such oral
notice is promptly followed by written notice, which may be by means of
facsimile transmission), and (ii) neither Landlord nor such Mortgagee shall be
entitled to such 30-day period to cure any such noncompliance and, instead,
Landlord and such Mortgagee shall have such shorter time as is reasonably
necessary to cure such noncompliance in light of the nature of the emergency and
all surrounding circumstances. Upon Landlord's (and Mortgagee's, if applicable)
failure to cure any failure of its performance of any of its covenants or
obligations as set forth in this Lease beyond the cure period set forth herein,
Tenant, at its option, but without obligation, may perform such acts and pay
such amounts as are reasonably necessary to cure such default by Landlord, and
Landlord shall reimburse Tenant for the out-of-pocket costs reasonably incurred
in connection therewith within 30 days following receipt of Tenant's written
request with accompanying paid invoices evidencing such costs. If such amounts
are not paid by Landlord within said 30 days, Tenant shall have the right to
offset such amounts against the Base Rent due under this Lease. "Non-Abatement
Conditions" shall mean if the emergency condition arises as a result of, (1) the
failure of Tenant to comply with the requirements of this Lease for occupancy
and use, (2) as to HVAC, the Premises is not being utilized in accordance with
the Premises' HVAC and electrical systems and (3) Tenant's installation or use
of the Fiber Optic Cable and/or UPS Installation, as hereinafter defined.
Further, notwithstanding the foregoing to the contrary, if the reason any such
emergency arises is due to force majeure events, including, but not limited to,
a (a) failure to furnish or delay in furnishing any such utilities or services
when such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, Tenant's negligence or wilful misconduct, or
other conditions the remedy for which is beyond the control of Landlord, and/or
(b) the limitation, curtailment, rationing or restriction on use of water or
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or the Buildings Complex by utility providers or
as a result of acts of governmental authorities
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including under Applicable Laws, the foregoing offset right shall not be
available to the Tenant. Finally, provided the Tenant has complied with the
notice to Landlord and Mortgagee (and afforded the cure opportunities) pursuant
to the terms of the first four sentences of this Paragraph, and has not elected
to avail itself of the offset provisions of this Paragraph as Tenant's remedy,
the Tenant shall be entitled to equitable relief and actual damages, but not
consequential or punitive damages, for Landlord's breach of Landlord's
obligations hereunder.
24. NOTICE. All notices, demands or statements required or permitted to be
given to Landlord shall be in writing and shall be deemed duly served when
deposited in the United States mail, postage prepaid, certified or registered,
return receipt requested, addressed to Landlord at Landlord's address shown on
the Basic Lease Term Sheet or at the most recent address of which Landlord has
notified Tenant in writing. All notices, demands or statements required or
permitted to be given to Tenant shall be in writing and shall be deemed duly
served when delivered, or when deposited in the United States mail, postage
prepaid, certified or registered, return receipt requested, addressed to Tenant
at the address for notices shown on the Basic Lease term Sheet with a copy to
Foley, Hoag & Elliot LLP, One Post Office Square, Boston, MA 02019, Attn: John
D. Patterson, Jr. Esq. Either party shall have the right to designate in
writing, served as above provided, a different address to which notice is to be
delivered. This Paragraph shall not prohibit notice from being given as provided
in Rule 4 of Colorado Rules of Civil Procedure, as amended from time to time.
25. RULES AND REGULATIONS. The rules and regulations attached as Exhibit D
are deemed a part of this Lease, and Tenant agrees that Tenant and its
employees, agents or any others permitted by Tenant to occupy or enter the
Premises shall at all times abide by those rules and regulations. Tenant agrees
that Landlord may reasonably change the rules and regulations for the Premises
and the Building Complex from time to time (including the addition of rules and
regulations regarding parking), and Tenant agrees to abide by them upon receipt
of notice of the change.
26. PARKING. Tenant shall have the right to use only the number of parking
spaces indicated on the Basic Lease Term Sheet and any use of additional parking
spaces by Tenant may be deemed by Landlord as a default under this Lease. All
vehicles parked in the parking spaces are at the sole risk of Tenant, Tenant's
agents and invitees and Landlord shall have no liability for loss or damage.
27. RIGHT TO RELOCATE TENANT. [INTENTIONALLY OMITTED]
28. MISCELLANEOUS.
A. Limitation of Landlord's Liability. The term "Landlord" as used
in this Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall mean and include only the owner or owners of the Building at
the time in question and, in the event of any transfer or transfers of the title
thereto, Landlord herein named (and in the case of any subsequent transfers or
conveyances, the then grantor) shall be automatically released, from and after
the date of the transfer or conveyance, of all liability as respects the
performance of any covenants or obligations on the part of Landlord thereafter
to be performed, provided that the Security Deposit then held by Landlord or the
then grantor at the time of the transfer shall be delivered to or credited to
the purchase price paid by the grantee and the grantee assumes all of Landlord's
(or the then grantor's) obligations under this Lease. Notwithstanding anything
to the contrary contained herein, Landlord's liability under this Lease shall be
limited to Landlord's interest in the Building Complex, and Tenant shall not and
cannot seek any recovery or deficiency against any other assets or against any
partners, lenders, officers, directors, or employees of Landlord or against the
Building Manager.
B. No Merger. The termination of this Lease shall not be a merger,
and such termination shall, at the option of Landlord, either terminate all
subleases and subtenancies or operate as an assignment to Landlord of any or all
such subleases or subtenancies.
C. Landlord's Use of Common Areas. Tenant agrees that Landlord has
the right to use the Common Areas for the general benefit of the Building
Complex, including for the purposes
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of completing or making repairs or alterations in any portion of the Building.
Landlord may use the Building Complex, the Common Areas and one or more of the
street entrances to the Building Complex as may be necessary in Landlord's
judgment to complete any such work or for other purposes in connection with
Landlord's management or operation of the Building Complex..
D. Covenants are Independent. This Lease shall be construed as
though the covenants between Landlord and Tenant are independent and not
dependent, and subject to Paragraph 23, Tenant shall not be entitled to any set
off of the Rent or other amounts owing hereunder against Landlord if Landlord
fails to perform its obligations
E. Severability. If any provision of this Lease is held by a court
of competent jurisdiction to be illegal, invalid, or unenforceable under any
Laws, it is the intention of the parties that the remainder of this Lease shall
not be affected and that the illegal, invalid, or unenforceable provision be
replaced by a provision (or construed to be) as similar in terms as possible and
be legal, valid, and enforceable.
F. Captions and Terms. The caption of each Paragraph is added as a
matter of convenience only and shall have no effect on the construction of any
provision or provisions of this Lease. The words "include" and "including" when
used in this Lease are intended in their illustrative sense, not as a
limitation, and the terms that follow such words are illustrative and not
exclusive. References to "provisions" of this Lease refers to all of the
provisions, terms, conditions, covenants and agreements in this Lease. The words
"shall" and "will" have the same meaning.
G. Binding Effect; Governing Law. Subject to Paragraphs 14 and 29A,
this Lease shall inure to the benefit of, and be binding upon, Landlord and
Tenant and their respective heirs, administrators, successors and assigns. This
Lease is subject to and shall be construed in accordance with Colorado law.
H. Tenant's Authority. Tenant and the party executing this Lease on
behalf of Tenant represent to Landlord that they are authorized to do so by
requisite action of Tenant and that this Lease is binding on Tenant, and agree,
upon request, to deliver to Landlord a resolution or similar document to that
effect.
I. Joint and Several. If there are more than one entity or person
which are the Tenant under this Lease, the obligations imposed upon Tenant under
this Lease shall be joint and several.
J. Acts Binding Landlord. No act or thing done by Landlord or
Landlord's agents during the term, including any agreement to accept the
surrender of the Premises or to amend or modify this Lease, shall be binding on
Landlord, unless in writing and signed by a person authorized to bind Landlord.
The delivery of keys to Landlord, or Landlord's agents, employees, or officers
shall not operate as a termination of this Lease or a surrender of the Premises.
No payment by Tenant or receipt by Landlord of a lesser amount than the full
monthly Rent and all other amounts owing, as herein stipulated, shall be deemed
to be other than on account of the earliest due Rent or other amounts, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as Rent be deemed an accord and satisfaction. Landlord may accept any
such check or payment without prejudice to Landlord's right to recover the
balance owed or to pursue any other remedy available to Landlord.
K. Change in Light or View. Tenant agrees that no diminution of
light, air, or view by any structure that may hereafter be erected (whether or
not by Landlord) shall entitle Tenant to any reduction of Rent or other charges
under this Lease, result in any liability of Landlord to Tenant, or in any way
affect this Lease or Tenant's obligations under it.
L. No Other Agreements; Amendments. Tenant acknowledges and agrees
that it has not relied upon any statements, representations, agreements, or
warranties by Landlord, its agents
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or employees, except those expressed in this Lease and that no amendment or
modification of this Lease shall be valid or binding unless in writing and
executed by the parties hereto in the same manner as the execution of this
Lease, and that this Lease incorporates all prior discussions and agreements.
M. Brokers. Tenant represents and warrants to Landlord that no
broker or agent negotiated or was instrumental in the negotiation or
consummation of this Lease, except Landlord s Broker and any Tenant's Broker
specified in the Basic Lease Term Sheet. Landlord shall be responsible for
payment of any commission to Landlord's Broker and/or Tenant's Broker. Tenant
agrees to indemnify and hold Landlord harmless from and against any loss,
expense, cost or liability incurred by Landlord as a result of a claim by any
other broker or finder, whether or not meritorious, claiming through Tenant.
Tenant acknowledges Landlord is not liable for any representations by Landlord's
Broker or Tenant's Broker regarding the Premises, the Building, the Building
Complex or this Lease.
N. Recordation. Tenant shall not record or permit to be recorded
this Lease or any memorandum of it; and any such recording shall be an Event of
Default.
O. Execution Required. Submission of this Lease or any letter
regarding it for examination or signature by Tenant shall not grant to Tenant an
option or right to lease the Premises; and this Lease shall not be effective as
a lease or otherwise binding on either party until execution and delivery by
both Landlord and Tenant.
P. Attorney's Fees. If either party brings an action to enforce any
provision of this Lease, the prevailing party shall be entitled to recover its
reasonable attorney's fees, as determined by the court.
Q. Time of Essence: Effective Dates. Time is of the essence herein.
This Lease shall become effective only upon execution by Landlord and delivery
of a fully-executed copy of this Lease to Tenant.
29. OPTION TO EXTEND. As additional consideration for the covenants of
Tenant hereunder, Landlord hereby grants Tenant an option (the "Option") to
extend the term of the Lease for one (1) term of five (5) years (the "Option
Term"). The Option shall apply to all space contained in the Premises at the
time and shall be on the following terms and conditions:
A. Exercise of Option. Written notice of Tenant's exercising an Option
("Notice") shall be given to Landlord no earlier than 12 months and no less than
9 months prior to the expiration of the Primary Lease Term and, upon the giving
of such Notice, this Lease and the Lease Term shall be extended with the same
force and effect as if the Option Term had originally been included in the Lease
Term and the Expiration Date shall thereupon be deemed to be the last day of the
Option Term. Tenant's right to exercise the Option shall be conditioned on there
being no uncured Event of Default under the Lease at the time of exercise of the
Option or at the time of the commencement of the Option Term.
B. Rent Determination. The Option granted hereunder shall be upon the
terms and conditions contained in the Lease except (i) rights of first offer or
abilities to request expansion space shall not be applicable, (ii) no Landlord's
contributions, tenant allowances or similar concessions shall be applicable,
(iii) no leasing commissions shall be payable by Landlord, (iv) the Rent to be
paid by Tenant to Landlord during the Option shall be the then Market Rate, as
hereinafter defined. Subject to said caveat, Rent for the Option Term shall be
determined as follows:
1. Within 14 days of Landlord's receipt of the Option Notice,
Landlord shall notify Tenant in writing ("Landlord's Notice") of the proposed
Market Rate, and the resulting Rent, applicable to the Option ("Landlord's Rent
Rate"). Tenant shall, within 14 days following receipt of Landlord's Notice,
notify Landlord in writing of the acceptance or rejection of the Landlord's Rent
Rate set forth therein. If Tenant fails to respond to Landlord's Notice within
such 14-day period, Tenant shall be deemed to have accepted Landlord's Rent
Rate. If Tenant rejects Landlord's Rent Rate, Tenant's
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rejection notice shall state Tenant's estimate of the Market Rate, and the
resulting Rent, applicable to the Option ("Tenant's Rent Rate"). Landlord shall,
within 14 days following receipt of notice of Tenant's Rent Rate, notify Tenant
of its acceptance of the Tenant's Rent Rate. If Landlord fails to respond within
such 14-day period, Landlord shall be deemed to have rejected Tenant's Rent
Rate. Landlord and Tenant shall act in good faith in estimating and proposing
their respective determinations of the Market Rate.
2. If Landlord rejects Tenant's Rent Rate, the parties shall
thereafter attempt to negotiate the Rent in good faith. If, however, the parties
have not agreed on the Rent within 40 days after the date of the Option Notice,
the Rent for the renewal term in question shall be determined as set forth
below:
a. Within 60 days after delivery by Tenant of the Option
Notice, Landlord and Tenant shall each appoint an Appraiser, as hereinafter
defined. The two Appraisers shall meet promptly and attempt to determine the
Market Rate for the renewal term in question. The determination made by the two
Appraisers, if they agree, shall be the Market Rate. If the amounts determined
by the two Appraisers vary by less than 5%, then the average of the two values
shall be the Market Rate.
b. If the Market Rate is not established pursuant to
sub-paragraph (a) within 10 days following their appointment, the two Appraisers
shall immediately select a third Appraiser. If they are unable to agree on a
third Appraiser within 5 days, then they shall each select the names of two
willing persons qualified to be Appraisers hereunder and from the four persons
so named, one name shall be drawn by lot by a representative of Tenant in the
presence of a representative of Landlord, and the person whose name is so drawn
shall be the third Appraiser. If either of the first two Appraisers fails to
select the names of two willing, qualified Appraisers so that a third Appraiser
can be selected by lot, as aforesaid, the third Appraiser shall be selected by
lot from the two Appraisers which were selected by the other Appraiser for the
drawing. The three Appraisers so selected shall confer and immediately proceed
to determine the Market Rate for the renewal term in question. If the three
Appraisers fail to agree on such Market Rate within 10 days after the selection
of the third Appraiser, the average of the two determinations of Market Rate
which are closest to each other shall be the Market Rate for the renewal term in
question.
c. The Appraisers selected hereunder shall deliver a signed
written report of their appraisal, or the average of the two closer appraisals,
as the case may be, to Tenant and Landlord. The fee of the Appraiser initially
selected by Tenant shall be paid by Tenant, the fee of the Appraiser initially
selected by Landlord shall be paid by Landlord, and the fee of any third
Appraiser and any expenses reasonably incident to the appraisal (except
attorneys' fees, which shall be borne by the party incurring the same) shall be
shared equally by Tenant and Landlord. Any vacancy in the office of the
Appraiser appointed by Tenant shall be filled by Tenant, any vacancy in the
office of the Appraiser appointed by Landlord shall be filled by Landlord, and
any vacancy in the office of the third Appraiser shall be filled by the first
two Appraisers in the manner specified above for the selection of a third
Appraiser.
d. If appraisal proceedings are initiated as provided above in
order to determine the Market Rate which is applicable to the term of the
Option, the decision and award of the Appraisers as to such Market Rate shall be
final, conclusive, and binding on the parties, absent settlement by agreement of
the parties prior to the rendering by the Appraisers of any such decision and
award and, further, as provided above, the Rent will be the Market Rate for the
applicable renewal term.
e. If Rent is not finally determined prior to the commencement
of the term of the Option, Tenant shall pay Rent in the amount of the Rent
theretofore in effect under this Lease until the final determination of the Rent
for the renewal term in question occurs as provided above. If the final
determination of such Rent is different from the amount paid by Tenant, Tenant
shall promptly pay to Landlord any deficiency in Rent or Landlord shall promptly
pay to Tenant any overpayment of Rent from the commencement of the term of the
Option until such final determination. If appraisal
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proceedings are initiated, as provided above, neither Landlord nor Tenant shall
disclose its initial proposal for Market Rate to any of the Appraisers.
C. Appraiser Defined. "Appraiser," used herein, shall mean a person (A)
who is impartial, (B) who has at least ten years' experience as a real estate
broker in the office building leasing market for the Northwest/Interlocken
Denver, Colorado area, (C) who is a senior employee of a nationally or
regionally recognized brokerage firm who has not acted as the primary
representative on such broker's firm's account for either Landlord or Tenant in
the previous three years, and (D) who is a Colorado licensed real estate broker
in good standing and is a member of the Society of Industrial and Office
Realtors, or a successor or similar organization of recognized national
standing.
D. Market Rate Defined. "Market Rate" shall mean the annual rental rates
then being charged in the Building and in the Northwest/Interlocken Denver,
Colorado area for space comparable to the space for which the Market Rate is
being determined, taking into consideration (i) use, location and floor level
within the applicable building, (ii) the location, quality and age of the
building, (iii) the definition of rentable area or net rentable area, as the
case may be, with respect to which such rental rates are computed, (iv)
leasehold improvements allowances provided, but assume the space has been
previously built out and the leasing of the space is on an "as is" basis, (v)
rental concessions offered with respect to such other space (such as abatements,
lease assumptions or takeovers and moving expenses), (vi) the date the
particular rate under consideration became effective, (vii) the term of the
lease under consideration, (viii) the fact that no brokers' commissions will be
payable by Landlord in connection with the Option, (ix) the extent of services
provided thereunder, (x) applicable distinctions between "gross" leases and
"net" leases, (xi) the credit rating or worthiness of the Tenant under this
Lease, (xii) any other adjustments (including by way of indexes) to rental,
(xiii) availability, nature and quality of parking, and (xiv) any other relevant
term or condition in making such evaluation.
E. Expiration of Option. After failure to exercise the Option above
described, there shall be no further rights on the part of Tenant to extend the
term of the Lease.
30. RIGHT OF FIRST OFFER. Subject to the renewal options, expansion
options, and rights of first refusal or offer granted in written leases entered
into with the initial tenants first occupying space in the Building, and whether
such initial tenant leases are entered into before or after the date of this
Lease, if during the Primary Lease Term hereunder, Landlord shall receive a
written bona fide offer ("Offer"), satisfactory to Landlord in its sole
discretion, to lease approximately 17,218 rentable square feet adjacent to the
Premises in the Building as depicted on Exhibit A-1 attached hereto (the "Offer
Space"), Landlord agrees to offer to Tenant, by notice ("Offer Notice"), the
one-time right to lease the Offer Space upon the same terms and conditions set
forth in the Offer and, at Tenant's election, Tenant may elect to lease such
same on the same terms and conditions set forth in the Offer, as adjusted to
reflect the number of months remaining in the initial Term. It is expressly
understood and agreed that if the Offer is for more than the 17,218 rentable
square feet depicted on Exhibit A-1 the term Offer Space shall include such
additional square footage and Tenant's rights hereunder shall only be available
to Tenant for the entire Offer Space as set forth in the Offer.
A. Exercise. Provided this Lease shall then be in full force and effect
and Tenant shall not be in default hereunder beyond any applicable notice and
grace period, Tenant may exercise its right to lease the Offer Space by written
notice to Landlord within 5 days after the date of the Offer Notice, the time of
the giving of such notice to be of the essence of this Paragraph, in which event
Landlord and Tenant shall enter into a amendment of this Lease, reasonably
acceptable to Landlord and Tenant, to incorporate the terms and conditions set
forth in the Offer. In the event that Tenant fails to accept the offer contained
in the Offer Notice within such 5 day period or fails to execute an Amendment
modifying this Lease to incorporate the terms and conditions contained in the
Offer within 5 days after such Amendment has been delivered to Tenant, Tenant
shall be deemed to have waived its rights under this Paragraph to lease the
Offer Space, Landlord shall have the absolute right to lease the Offer Space to
any other person or entity on any same terms and conditions, in which case
Tenant shall have no further rights with respect to the Offer Space. If Landlord
shall wish to lease the Offer Space on terms and conditions different from those
contained in the Offer, Landlord shall give Tenant a new Offer
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Notice, and Tenant shall have the further right to accept the new Offer pursuant
to the terms of this section. Notwithstanding Tenant's acceptance of the Offer
pursuant to the terms of this Paragraph, Landlord shall not be obligated to
deliver possession of the Offer Space to Tenant if, prior to delivery of
possession of the Offer Space, Tenant shall be in Default hereunder beyond any
applicable notice and grace period, in which event the rights of Tenant
hereunder shall terminate and be of no further force or effect.
B. NO DEFAULT. The option herein granted shall continue only so long as
there have been no uncured Defaults hereunder by Tenant and only so long as
there are at least 36 months remaining on the Primary Lease Term as of the
Offer Space Commencement Date. In the event of an assignment of the Lease or
a subletting (other than an assignment to or subletting of the entire
Premises by a Related Corporation as defined in Paragraph 14.D) or vacation
of more than 25% of the Premises measured at the time of Tenant's exercise of
the Option (other than an assignment to or subletting of the entire Premises
by a Related Corporation), Tenant's rights under this Section shall be of no
force or effect. Further, this right granted in this Section is personal to
Tenant, is not assignable (other than to a Related Corporation assignee) and
may not be exercised by any sublessee or assignee of Tenant (other than to a
Related Corporation assignee or sublessee of the entire Premises), regardless
of whether the sublessee or assignee has been approved by Landlord.
31. SIGNAGE. Landlord shall provide Tenant, at Landlord's sole cost and
expense, Tenant's prorata share of the existing monument signage located in
the front of the Building for placement of Tenant's name. In addition,
Tenant, at Tenant's sole cost and expense, shall be permitted to install
signage on the glass at the entry to the Premises. All signage is subject to
Landlord's prior consent and approval, not to be unreasonably withheld, and
further must comply with Interlocken's sign code and any other governing
jurisdiction's requirements.
32. FUEL TANK/UNINTERRUPTED POWER SOURCE. Tenant has previously
installed on Tenant's facility located at 320 Interlocken ("Adjacent
Premises") a supplemental electrical power generator and/or uninterrupted
power source (the "Generator") with an above ground fuel tank integrated into
the Generator ("Tank") to provide emergency additional electrical capacity to
the Adjacent Premises. Hereinafter the Generator and Tank are referred to as
the UPS. Tenant may connect the Premises subject to compliance with the
following provisions:
A. The UPS will remain installed on the Adjacent Premises. The
Tenant will install all lines, meters, electrical boxes and other equipment
reasonably necessary to connect the Premises to the UPS (collectively, "UPS
Installation") at a location on the Property specified by Landlord; Landlord
shall specify the final location following Landlord's final approval of the UPS
Installation plans and specifications and proof of Tenant's compliance with all
necessary governmental and regulatory approval in accordance with the Work
Letter attached as Exhibit C. Notwithstanding the foregoing, Tenant's right to
install the UPS Installation shall be subject to Landlord's reasonable approval
of the manner in which the UPS Installation is installed, the manner in which
any cables are run to and from the UPS to the Premises and the measures that
will be taken to eliminate any vibrations or sound disturbances from the
operation of the UPS Installation. Tenant shall be solely responsible for
obtaining all necessary governmental and regulatory approvals and all
architectural approvals under the declaration of protective covenants applicable
to the Property as they relate to the UPS and/or UPS Installation. Tenant shall
also be responsible for the cost of installing, operating, maintaining and
removing the UPS Installation. Tenant shall also be responsible for the cost of
all utilities consumed in the operation of the UPS.
B. Further, Tenant shall be responsible for assuring that the
installation, maintenance, operation and removal of the UPS Installation will in
no way damage the Building or Property. Tenant agrees to be responsible for any
damage caused to the Building or Property in connection with the installation,
maintenance, operation or removal of the UPS Installation and, in accordance
with the terms of Paragraph 14 of the Lease, to indemnify, defend and hold
Landlord harmless from all liabilities, obligations, damages, penalties, claims,
costs, charges and expenses, including, without limitation, reasonable
architects' and attorneys' fees (if and to the extent permitted
27
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by law), which may be imposed upon, incurred by, or asserted against Landlord,
the Building Manager, or Mortgagee in connection with the installation,
maintenance, operation or removal of the UPS, and/or the UPS Installation,
including, without limitation, any environmental and hazardous materials claims.
C. Tenant shall be responsible for the installation, operation,
cleanliness, maintenance and removal of the UPS Installation and appurtenances,
all of which shall remain the personal property of Tenant, and shall be removed
by Tenant at its own expense at the termination of the Lease; provided, however,
that Tenant shall have the right to leave such equipment on the Property if
approved by Landlord prior to expiration or earlier termination of the Lease.
Tenant shall repair any damage caused by such removal, including the patching of
any holes to match, as closely as possible, the color or material surrounding
the area where the UPS Installation and appurtenances were removed. Such
maintenance and operation shall be performed in a manner to avoid any
unreasonable interference with any other tenants or Landlord. Tenant agrees to
maintain the UPS Installation in good condition and repair.
D. Subject to the reasonable rules and regulations adopted by
Landlord, Tenant shall have access to the UPS Installation and its surrounding
area for the purpose of installing, repairing, maintaining and removing said UPS
Installation.
E. Tenant shall only test the UPS before or after normal business
hours and upon prior notice to Landlord. Tenant represents and warrants to
Landlord that it has obtained all necessary governmental, regulatory and
architectural approval for the installation of the UPS on the Adjacent Premises,
including required approvals of the Landlord for the Adjacent Premises for the
UPS and extension of lines therefrom through the adjacent property to the
Building Complex.
"Landlord"
NEW ALLIANCE PROPERTIES, INC.,
a Delaware corporation
By: /s/ Douglas McCormick
---------------------------------------
As its: Chief Financial Officer
------------------------------
"Tenant"
LIGHTBRIDGE, INC., a Delaware corporation
By: /s/ Joseph S. Tibbetts, Jr.
----------------------------------
As its: SR VP & CFO
------------------------------
Attest:
By:
----------------------------------
Title:
-------------------------------
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EXHIBIT B
LEGAL DESCRIPTION
PARCEL 1:
LOT 2,
BLOCK 1,
REPLAT OF INTERLOCKEN FILING NO. 1,
COUNTY OF BOULDER,
STATE OF COLORADO,
PARCEL 2:
NON-EXCLUSIVE EASEMENTS CREATED BY MASTER DECLARATION OF COVENANTS, CONDITIONS
AND RESTRICTIONS FOR INTERLOCKEN FILED AT RECEPTION NO. 599882 ON JANUARY 20,
1984 AND AMENDED AND RESTATED MASTER DECLARATION OF COVENANTS, CONDITIONS AND
RESTRICTIONS FOR INTERLOCKEN FILED AT RECEPTION NO. 1025034, ON JANUARY 24,
1990, AS AMENDED, COUNTY OF BOULDER, STATE OF COLORADO.
<PAGE>
EXHIBIT C
WORK LETTER
This is the Work Letter referred to in and specifically made a part of the
Lease to which this Work Letter is annexed, covering the Premises, as more
particularly described in the Lease.
Landlord and Tenant agree as follows:
1. DEFINED TERMS. The following capitalized terms shall have the meaning set
forth below and, unless provided to the contrary herein, the remaining
capitalized terms set forth herein shall have the meaning set forth in the
Lease:
Landlord's Representative: John Chambers
Tenant's Representative: Michele Ponicsan @ burkettdesign
Tenant's Architect: burkettdesign
Landlord's Contribution: $80,170.00, plus all costs of installation of
the Meters, as hereinafter defined plus
$4,950.00 towards Premises fire safety system.
2. TENANT IMPROVEMENTS. The "Tenant Improvements" shall mean the interior walls,
partitions, doors, door hardware, wall coverings, wall base, counters, lighting
fixtures, retrofit of existing Premises lighting, electrical and telephone
wiring, removal of all telecommunications cabling throughout the Premises,
cabling for computers, telecommunications and fiber optics cabling, equipment
and conduit necessary to connect the Premises with Tenant's facility located at
320 Interlocken (collectively, "Fiber Optic Cable"), the Water Meter, the UPS
Installation, metering and outlets, ceilings, floor and window coverings, fire
safety system (including electrical fire system panel, additional smoke
detectors, pull stations and horns and lights), Tenant signage, security system,
and other items of general applicability that Tenant desires to be installed in
the interior of the Premises or on the exterior of the Premises or Buildings.
Landlord shall be responsible for installing separate meters to measure the
amount of Tenant's electrical consumption within the Premises (the "Meters")
such that the Premises shall be separately metered and Tenant shall pay directly
to the applicable utility company all utility costs for the Premises and the
HVAC serving the Premises. All costs and expenses associated with such Meters
(such as, but not limited to, installation and preparation of plans and
specifications), shall be paid initially by Landlord. Finally, Tenant
acknowledges that Landlord shall remove from the Premises the Liebert unit
concurrently serving the Premises.
3. DRAWINGS. Subject to the provisions of this Work Letter pertaining to
Landlord's payment of the Landlord's Contribution, Tenant shall engage and pay
for the services of an Architect, which Architect shall be subject to Landlord's
reasonable approval, to prepare a space layout, working drawings and
specifications for all Tenant Improvements, including the location of any Tenant
Improvements located outside of the Premises, including the Fiber Optic Cable,
and UPS Installation. Tenant shall devote such time in consultation with the
Tenant's Architect as shall be necessary to enable the Tenant's Architect to
develop complete and detailed architectural, mechanical and engineering drawings
and specifications for the construction of the Tenant Improvements, showing
thereon all Tenant Improvements, including all materials and specifications
("Drawings"). Tenant hereby acknowledges and agrees that it will endeavor,
through the exercise of its Architect's and other consultants best professional
judgment and skills, to have the Drawings comply with all applicable laws,
including the Americans with Disabilities Act (as currently interpreted), and
other ordinances, orders, rules, regulations and requirements of all
governmental authorities having jurisdiction thereof.
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<PAGE>
4. LANDLORD'S APPROVAL. On or before the applicable Time Limit set forth below,
Tenant shall submit to Landlord complete and final Drawings for the Tenant
Improvements in the form of two sets of Drawings and a computer disk thereof.
The Drawings shall be subject to the approval of Landlord, which approval shall
not be unreasonably withheld. If Landlord should disapprove such Drawings,
Landlord shall specify to Tenant the reasons for its disapproval and Tenant
shall cause the same to be revised to meet the Landlord and Tenant's mutual
reasonable satisfaction and shall resubmit the same to Landlord, as so revised,
on or before the applicable Time Limit set forth in Section 8 below.
5. CONSTRUCTION OF TENANT IMPROVEMENTS. It is understood and agreed by the
parties that, as hereinafter set forth, the Tenant has elected to retain the
General Contractor and arrange for the construction and installation of the
Tenant Improvements itself in a good and workmanlike manner ("Tenant's Work").
All Tenant's Work shall be of a quality and standard equivalent to the standards
for construction set for the Buildings. On or before the Time Limit applicable
set forth below, Tenant shall submit to Landlord the names of the General
Contractor and the electrical, ventilation, plumbing and heating subcontractors
(hereinafter "Major Subcontractors") for Landlord's approval, which approval
shall not be unreasonably withheld. If Landlord shall reject the General
Contractor, any Major Subcontractor Landlord shall advise Tenant of the
reason(s) in writing and, Tenant shall submit another selection to Landlord.
Along with Tenant's notice, Tenant shall notify Landlord of its estimate of the
total costs for the Tenant' Work.
5.1 Landlord shall be entitled to receive a construction management fee
equal to 3% of all costs, including hard and soft costs, for the Improvements
("Management Fee").
6. TENANT'S CONSTRUCTION OF THE TENANT IMPROVEMENTS. Subject to the provisions
of this Work Letter pertaining to Landlord's payment of Landlord's Contribution
and Landlord's Additional Contribution, Tenant shall promptly pay any and all
costs and expenses in connection with or arising out of the performance of the
Tenant's Work within seven (7) business days of Tenant's receipt of its draw
pursuant to its Draw Request, as hereinafter provided in Section 8 below and
shall furnish to Landlord evidence of such payment upon request. Landlord shall
post and serve notices of non-liability in accordance with C.R.S.
ss.38-22-105(2). In the event any lien is filed against the Buildings, Building
Complex or any portion thereof or against Tenant's leasehold interest therein,
the provisions of the Lease regarding Tenant's removal of mechanic's liens shall
apply.
6.1 Tenant shall indemnify, defend (with counsel reasonably satisfactory
to Landlord and Tenant) and hold Landlord harmless from and against any and all
suits, claims, actions, loss, cost or expense (including claims for workers'
compensation, attorneys' fees and costs) based on personal injury or property
damage caused in, or contract claims (including, but not limited to claims for
breach of warranty) arising from the construction of the Tenant's Work. Tenant
shall repair or replace (or, at Landlord's election, reimburse Landlord for the
cost of repairing or replacing) any portion of the Buildings or item of
Landlord's equipment or any of Landlord's real or personal property damaged,
lost or destroyed in the construction of the Tenant's Work.
6.2 The General Contractor employed by Tenant and any subcontractors
thereof shall be (i) duly licensed in the state in which the Premises are
located, and (ii) except as otherwise approved herein or pursuant to Section 6
above, subject to Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed. On or before fifteen (15) days, prior to the
commencement of any construction activity in the Premises, Tenant and Tenant's
contractors shall obtain and provide Landlord with certificates evidencing
Workers' Compensation, public liability and property damage insurance in amounts
and forms compiling with the insurance requirements of the Lease and with
companies satisfactory to Landlord. If Landlord should disapprove such
insurance, Landlord shall specify to Tenant the reasons for its disapproval
within five (5) business days after delivery of such certificates. Tenant's
agreement with its contractors shall require such contractors to provide daily
clean up of the construction areas to the extent such clean up is necessitated
by the construction of the Tenant Work, and to take reasonable steps to minimize
interference with other tenant's use and occupancy of the Buildings. Nothing
contained herein shall make or constitute Tenant as the agent of
F-2
<PAGE>
Landlord. Tenant and Tenant's contractors shall comply with any other Building
rules, regulations or reasonable requirements that Landlord may impose.
6.3 Landlord will permit entry of such contractors into the Premises for
the purpose of performing such work or after the date Landlord has approved the
Drawings. Landlord agrees to supply temporary power, material staging area, dock
space, space for Tenant's dumpsters, and access in and out of the Building
during the entire construction period at no cost to Tenant and subject to
reasonable rules established by Landlord. After hours construction activities by
Tenant shall require reimbursement to Landlord for its costs for after hours
supervision. Further, all construction activities shall be conducted so as to
use reasonable efforts to minimize interference with the use and occupancy of
the Building by the tenants thereof. Such entry shall be deemed to be under all
the terms, covenants, provisions and conditions of the Lease, except for the
payment of Rent.
6.4 All materials, work, installations, equipment and decorations of any
nature whatsoever brought on or installed in the Premises pursuant to the
provisions of this Work Letter before the commencement of the Term or throughout
the Term shall be at Tenant's risk, and neither Landlord nor any party acting on
Landlord's behalf shall be responsible for any damage thereto or loss or
destruction thereof due to any reason or cause whatsoever, excluding by reason
of Landlord or such other party's gross negligence or willful or criminal
misconduct.
7. LANDLORD'S CONTRIBUTIONS. Landlord shall contribute to the costs and expenses
of all consultant costs for the planning and design of Tenant's Work, including
all permits, licenses and construction fees and constructing the Tenant Work in
an amount not to exceed Landlord's Contribution ("Tenant's Costs"). In addition,
if the costs exceed the Landlord's Contribution, Landlord agrees to provide an
additional allowance of up to $5.00 per usable square feet of the Premises (i.e.
$80,170.00) to be amortized over the initial Lease Term with interest thereon at
12% per annum and paid monthly as additional Base Rent in the same manner and
place as monthly Base Rent ("Landlord's Additional Contribution").
Notwithstanding the foregoing, the costs for the design and installation of the
Fiber Optic Cable and UPS Installation shall be Tenant's sole and exclusive
responsibility. If applicable, Tenant agrees to execute an amendment to this
lease reflecting such increase in the Base Rent payable hereunder. Hereinafter
the term "Landlord's Contribution" shall mean the Landlord's Contribution and,
if applicable, the Landlord's Additional Contribution. Provided this Lease is in
full force and effect and Tenant is not in default hereunder beyond any
applicable notice and grace period, Landlord shall pay Landlord's Contribution
to Tenant as follows:
(1) No more frequently than once every thirty (30) days following
the Commencement Date, Tenant may request in writing a draw, payable to
joint check to Tenant and/or Tenant's Contractor and/or any applicable
subcontractor ("Joint Check") against the Landlord's Contribution which
request shall include (a) receipted invoices (or such other proof of
payment as Landlord shall reasonably require) showing payment thereof, (b)
a written statement from Tenant's Architect or General Contractor that the
Tenant's Work described on any such invoices has been completed in
accordance with the Drawings, and (c) all required AIA forms, supporting
final lien waivers and releases executed by the General Contractor and all
subcontractors employed in connection with such portion of the Tenant's
Work (collectively the "Draw Request"). Within ten (10) business days
following Landlord's receipt and approval of the Draw Request, Landlord
shall pay the amount of such draw, less ten percent (10%) thereof and less
the Management Fee applicable to such Draw Amount; and
(2) After the Tenant's Work is Substantially Complete (as defined in
Section 10 hereof), Tenant may submit to Landlord a request in writing for
the balance of Landlord's Contribution which request shall include: (a)
record "as-built" drawings showing all of Tenant's Work as actually
constructed, (b) a detailed breakdown of Tenant's final and total
construction costs, together with receipted invoices showing payment
thereof in accordance with previous Draw Requests, (c) a certified,
written statement from Tenant's Architect that all of the Tenant's Work
has been completed in accordance with the Drawings, (d) all required AIA
forms, supporting final lien waivers, and releases executed by the
Architect, General Contractor and
F-3
<PAGE>
all subcontractors and suppliers in connection with Tenant's Work, and (e)
a copy of a certificate of occupancy or amended certificate of occupancy
required with respect to the Premises, together with all licenses,
certificates, permits and other government authorizations necessary in
connection with Tenant's Work and the operation of Tenant's business from
the Premises ("Final Draw Request"). Upon Landlord's receipt and approval
of the Final Draw Request, Landlord shall pay the balance of Landlord's
Contribution less the Review Costs, not to exceed $1,000.00, and less the
Management Fee applicable to such amount, by Joint Check, if requested by
Tenant. Payment by Landlord shall be made within five (5) business days,
unless Landlord notifies Tenant, in writing, of its rejection (and the
reasons therefor) of any or all of the Final Draw Request and, if so, upon
reasonable satisfaction of such objections, Landlord shall pay any
remaining sums within five (5) business days. Further, to the extent
Landlord does not so reject any portion of said Final Draw Request,
Landlord shall timely pay such acceptable portion of the Final Draw
Request.
8. TIME LIMITS. The following maximum time limits and periods shall be allowed
for the indicated matters:
Action Time Limit
o Tenant notifies Landlord of its On or before 5 days after the date of
selection of an Architect. this Lease.
o Tenant submits Drawings to On or before 30 days after the date of
Landlord for review and this Lease.
approval.
o Landlord notifies Tenant and. On or before 7 days after the date of
Tenant's Architect of its Landlord's receipt of the Drawings.
approval of the Drawings with
any required changes in detail.
o Tenant notifies Landlord of its On or before 5 days after the date of
selection of its General this Lease.
Contractor and Major
Subcontractors.
o Landlord approves/disapproves On or before 7 days after the date of
Tenant's General Contractor Landlord's receipt of Tenant's
and/or Major Subcontractors. notification.
o If applicable, Landlord and On or before 3 days after the date of
Tenant mutually approve the Landlord's receipt of Tenant's revised
General Contractor and all Major list.
Subcontractors.
o If applicable, Landlord and On or before 3 days after the date of
Tenant mutually approve the Landlord's receipt of revised
final revised Drawings. Drawings.
o Tenant submits Drawings for On or after the date Tenant and
building permit. Landlord mutually approve the final,
revised Drawings.
o Tenant commences construction of After providing copies of the building
the Tenant's Work. permit to Landlord.
8.1 Except as may be otherwise specifically provided for herein, in all
instances where either Tenant's or Landlord's approval is required, if no
written notice of disapproval is given within the applicable Time Limit, at the
end of such period the applicable party shall be deemed to have given its
approval and the next succeeding time period shall commence. Any delay in any of
the foregoing dates (including any "re-do," continuation or abatement of any
item due to Tenant's or Landlord's disapproval thereof) shall automatically
delay all subsequent deadlines by a like amount of time.
F-4
<PAGE>
9. SUBSTANTIAL COMPLETION. Tenant's Work shall be deemed "Substantially
Complete" when the General Contractor has finished all work called for by the
Drawings and contract documents in a good, workmanlike manner and the Premises
is ready to be used and occupied by Tenant, even though minor items (i.e. punch
list) may remain to be installed, finished or corrected, provided the same do
not materially interfere with Tenant's use and occupancy of the Premises for the
conduct of its business. The date the Tenant's Work is Substantially Complete
shall be deemed the "Substantial Completion Date." Tenant shall cause the
General Contractor to diligently complete any items of work not completed when
the Premises are Substantially Complete. In the event of any dispute as to
Substantial Completion of the Tenant's Work, the Statement of the Tenant's
Architect shall be conclusive. Substantial Completion shall have occurred
notwithstanding punch list items.
10. CHANGES. Tenant may request reasonable changes in the Drawings; provided,
however, that (a) no change shall be made to the Drawings without Landlord's
Representative's prior written approval, which approval shall not be
unreasonably withheld or delayed; (b) no such request shall effect any
structural change in the Buildings or otherwise render the Premises or Buildings
in violation of applicable laws; (c) Tenant shall pay any additional costs
required to implement such change, including, without limitation, architecture
and other consultant fees, increases in construction costs and other charges
payable caused (to the extent they are not covered by the Landlord's
Contribution); and (d) such requests shall constitute an agreement by Tenant to
any delay in completion caused by Landlord's reviewing, processing and
implementing such change. If Tenant requests or causes any change, addition or
deletion to the Premises to be necessary after approval of the Drawing, a
request for the change shall be submitted to Landlord's Representative,
accompanied by revised plans prepared by the Tenant's Architect, all at Tenant's
sole expense (to the extent not covered by Landlord's Contribution). Tenant
acknowledges that neither the Tenant's Architect nor any contractor engaged by
Tenant is Landlord's agent and neither entity has authority to enter into
agreements on Landlord's behalf or otherwise bind Landlord.
11. TENANT'S REPRESENTATIVE. Tenant has designated the Tenant's Representative
as its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Work Letter. Tenant shall not change the Tenant's
Representative without notice to Landlord.
12. LANDLORD'S REPRESENTATIVE. Landlord has designated Landlord's Representative
as its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf of
Landlord as required in this Work Letter. Landlord shall not change Landlord's
Representative without notice to Tenant.
13. NO REPRESENTATIONS OR WARRANTIES. Notwithstanding anything to the contrary
contained in the Lease or herein, Landlord's participation in the preparation of
the Drawings, the cost estimates for the Tenant's Work and the construction of
the Tenant's Work shall not constitute any representation or warranty, express
or implied, that (i) the Drawings are in conformity with applicable governmental
codes, regulations or rules or (ii) that the Tenant's Work, if built in
accordance with the Drawings, will be suitable for Tenant's intended purpose.
Tenant acknowledges and agrees that the Tenant's Work are intended for use by
Tenant and the specification and design requirements for such improvements are
not within the special knowledge or experience of Landlord. Landlord's
obligations shall be to review the Drawings; and any additional cost or expense
required for the modification thereof to more adequately meet Tenant's use,
whether during or after construction thereof, shall be borne entirely by Tenant.
F-5
<PAGE>
14. INCORPORATION. This Work Letter and all schedules attached hereto are
incorporated in the Lease; and all of the terms and provisions of the Lease are
incorporated herein by this reference.
"Landlord"
NEW ALLIANCE PROPERTIES, INC.,
a Delaware corporation
By: /s/ Douglas McCormick
----------------------------------
As its: Chief Financial Officer
------------------------------
Tenant
LIGHTBRIDGE, INC., a Delaware corporation
By: /s/ Joseph S. Tibbetts Jr.
---------------------------------------
As its: SRVP & CFO
------------------------------
F-6
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
It is further agreed that the following rules and regulations shall be and
are hereby made a part of this Lease and Tenant agrees that Tenant's employees
and agents or any others permitted by Tenant to occupy or enter the Premises
will at all times abide by these rules and regulations as they may be amended or
supplemented from time to time. Capitalized terms have the same meaning as used
in the Lease, unless otherwise indicated.
(1) The sidewalks, entries, passages, corridors, and stairways of the Building
Complex shall not be obstructed or locked or used for smoking, storage or
loitering by Tenant or Tenant's agents or employees or used for any
purpose other than ingress and egress to and from the Premises.
(2) Furniture, equipment, or supplies will be moved in or out of the Building
only through access ways designated by Landlord and then only during such
hours and in such manner as may be prescribed by Landlord. The Landlord
shall have the right to reasonably approve or disapprove the movers or
moving company employed by Tenant and Tenant shall cause the movers to use
only the loading facilities and access ways designated by Landlord. In the
event Tenant's movers damage any part of the Building, Tenant shall
forthwith pay to Landlord the amount required to repair that damage to the
extent not covered by insurance maintained on the Building.
(3) No safe or article, the weight of which may, in the opinion of Landlord,
constitute a hazard or damage to the Building or the Building's equipment,
shall be moved into the Premises. Safes and other equipment, the weight of
which is not excessive, shall be moved into, from, or about the Building
only during such hours and in such manner as shall be prescribed by
Landlord and landlord shall have the right to designate the location of
such articles in the Premises.
(4) Except for the signs permitted under the terms of the Lease, no sign,
advertisement or notice shall be inscribed, painted, or affixed on any
part of the inside or outside of the Building (including windows) unless
of such color, size, and style and in such place upon or in the Building
as shall be first designated by Landlord in writing but there shall be no
obligation or duty on Landlord to allow any sign, advertisement or notice
to be inscribed, painted, or affixed on any part of the inside or outside
of the building other than the Building standard approved Tenant signs. No
furniture shall be placed in front of the Building or in any lobby or
corridor of the building (whether included wholly within the Premises, or
otherwise), without the prior written consent of Landlord. Landlord shall
have the right to remove all non-permitted signs and furniture, without
notice to Tenant, at the expense of Tenant.
(5) Tenant shall not do or permit anything to be done in the Premises or bring
or keep anything therein which would in any way increase the rate of fire
insurance on the Building, constitute a nuisance or waste, obstruct or
interfere with the rights of other tenants or in any way injure or annoy
them, or conflict with the laws relating to fire or with any regulations
of the fire department, fire insurance underwriters, or with any insurance
policy upon the Building or any part thereof, or conflict with any of the
rules or ordinances of the Department of Health of the City and County
where the Building is located.
(6) The janitor of the building may at all times keep a passkey and subject to
the prior notice requirements of the Lease, other agents of Landlord shall
at all times be allowed admittance to the Premises.
(7) Water closets and other water fixtures shall not be used for any purpose
other than that for which they were intended and any damage resulting to
them from misuse on the part of Tenant or Tenant's agents or employees
shall be paid for by Tenant. No person shall waste water by tying back or
wedging the faucets or in any other manner.
(8) Except for handicapped assistance dogs, no animals shall be allowed in the
offices, halls, and corridors in the Building. No person shall disturb the
occupants of the Building or adjoining buildings or premises by the use of
any radio, sound equipment, or musical instrument or by the making of loud
or improper noises.
(9) Bicycles shall be permitted in the Building so long as they are stored in
designated areas such as a storage room.
<PAGE>
(10) Tenant shall not allow anything to be placed on the outside of the
building, nor shall anything be thrown by Tenant or Tenant's agents or
employees out of the windows or doors or down the corridors, or
ventilating ducts of the Building. Tenant, except in case of fire or other
emergency, shall not open any outside window. Tenant must at its own
expense dispose of crates, boxes, or similar large items of refuse which
will not fit into office waste paper baskets. In no event shall Tenant set
any such items in the corridors or other areas of the Building.
(11) No additional lock or locks shall be placed by Tenant on any door in the
Building, unless written consent of Landlord shall first have been
obtained. Two keys to the Premises and the toilet rooms, if locked by
Landlord, will be furnished by Landlord and neither Tenant nor Tenant's
agents or employees shall have any duplicate keys made. Landlord shall
supply Tenant with such additional keys as Tenant may require at Tenant's
sole cost and expense. At the termination of this tenancy, Tenant shall
promptly return to Landlord all keys to offices, toilet rooms, or vaults.
(12) No window shades, blinds, screens, draperies, or other window coverings
will be attached or detached by Tenant without Landlord's prior written
consent. Tenant agrees to abide by Landlord's rules with respect to
maintaining uniform curtains, draperies and linings, or blinds at all
windows and hallways.
(13) If any Tenant desires telegraphic, telephonic, or other electric
connections, Landlord or Landlord's agents will direct the electricians as
to where and how the wires may be introduced. Without such directions, no
boring or cutting for wires will be permitted. Any such installation and
connection shall be made at Tenant's expense.
(14) Tenant shall not install or operate any steam or gas engine or boiler or
carry on any mechanical business in the Premises. The use of oil, gas, or
inflammable liquids for heating, lighting, or any other purpose is
expressly prohibited. Explosives or other articles deemed extra hazardous
shall not be brought into the Building.
(15) Any painting or decorating, as may be agreed to be done by and at the
expense of Landlord, shall be done during regular weekday working hours.
Should Tenant desire such work on Saturdays, Sundays, Legal Holidays, or
outside of regular working hours, Tenant shall pay for the extra cost
thereof.
(16) Except as permitted by Landlord and except for pictures, artwork and other
decorating items, Tenant shall not mark upon, paint signs upon, cut drill
into, drive nails or screws into, or in any way deface the walls,
ceilings, partitions, or floors of the Premises or of the Building and any
defacement, damage, or injury caused by Tenant or Tenant's agents or
employees shall be paid for by Tenant.
(17) Smoking is prohibited in the Building, including all tenants' premises,
inside lobbies, bathrooms, and other Common Areas and public areas of the
Building Complex and is restricted in all outside plaza areas of the
Building Complex to specific locations designated by Landlord as smoking
areas, if any.
(18) Tenant shall be entitled to two sets of keys to the Premises. In the event
Tenant needs any additional keys, such keys must be requested from
Landlord. Tenant shall pay to Landlord the actual cost of making such
additional keys. In case of fire, invasion, riot, public excitement or
other commotion, Landlord also reserves the right to prevent access to the
Building while it continues. Landlord shall in no case be liable for
damages for the admission or exclusion of any person to or from the
Building.
(19) No canvassing, soliciting, distribution of hand bills or other written
material, or peddling shall be permitted in the Building on the Building
Complex, and Tenant shall cooperate with Landlord in prevention and
elimination of same.
D-2
<PAGE>
EXHIBIT E
LEASE COMMENCEMENT CERTIFICATE
LANDLORD: NEW ALLIANCE PROPERTIES, INC., a Delaware corporation
TENANT: LIGHTBRIDGE, INC., a Delaware corporation
This Lease Commencement Certificate is made by Landlord and Tenant
pursuant to that certain Office Lease (the "Lease") entered into as of
_____________________,____, for the Leased Premises known as Suite _______, in
the Building known as 275 Interlocken Boulevard (the "Premises"). This
constitutes a supplementary addendum to the Lease as contemplated by Article 4
of the Lease.
1. Lease Commencement Date. Landlord and Tenant acknowledge and agree that
the Lease Commencement Date, as contemplated by Article 4 of the Lease, is
___________________, __ and the Lease Expiration Date is ___________________,
__. Rent as contemplated by the Lease begins accruing to Landlord's benefit as
of ___________________, __. All covenants in the Lease contemplated to begin on
the Lease Commencement Date shall commence as of the Lease Commencement Date.
2. Incorporation in Lease. This Certificate is incorporated into the
Lease, and forms a supplementary and integral part thereof. This Certificate
shall be construed and interpreted in accordance with all other terms and
provisions of the Lease for all purposes.
Landlord
NEW ALLIANCE PROPERTIES, INC.,
a Delaware corporation
By:______________________________________
As its:__________________________________
Tenant
LIGHTBRIDGE, INC., a Delaware corporation
By:______________________________________
As its:__________________________________
Attest:
By:________________________
Title:_____________________
<PAGE>
Exhibit 10.20
AMENDMENT TO LEASE
DATED September 20th, 1999
Between
275 Wyman Street Trust
and
Lightbridge, Inc.
Amendment to Lease made this 20th day of September, 1999, by and between
the trustees of 275 Wyman Street Trust ("Landlord") and Lightbridge, Inc., a
Delaware corporation, previously known as Credit Technologies, Inc. ("Tenant").
Background
Reference is made to a lease dated September 30, 1994 (the "Lease") from
Middlesex Mutual Building Trust, Landlord's predecessor in interest, to Tenant
for certain premises containing 27,108 rentable square feet (the "Original
Premises") in the building known as 235 Wyman Street, Waltham, Massachusetts
(the "Building"). Capitalized terms used and not otherwise defined in this
Amendment shall have the meanings ascribed to them in the Lease.
In lieu of exercising its four (4) year extension option contained in the
Lease, Tenant desires to reduce the Premises and extend the Term of the Lease
for a four (4) year extension term to be effective October 1, 1999.
Landlord and Tenant desire to amend the Lease to reflect (i) the extension
of the Term of the Lease and (ii) the reduction in the Premises, on the terms
and conditions more particularly set forth in this Amendment.
Agreement
FOR VALUE RECEIVED, Landlord and Tenant hereby agree as follows:
1. Extension. The Term of the Lease is hereby extended for a period of
four (4) years commencing as of October 1, 1999 and expiring on September 30,
2003 (the "Extension Term"), subject to the terms set forth below. Except as set
forth in this Amendment, Tenant's lease of the Premises shall be on all of the
terms and conditions of the Lease in effect immediately before the commencement
of this Amendment. Tenant shall have the option to extend the Term of the Lease
for one additional three (3) year extension term, commencing upon the expiration
of the current Extension Term. Tenant may exercise the extension option by
giving written notice to Landlord on or before December 31, 2002. The extension
option shall be deemed waived if not timely exercised, time being of the
essence. The terms and conditions for
<PAGE>
determining the rent during said additional extension term shall be governed by
Section 2.4.1 of the Lease. Tenant shall have no other right to extend the term
except as set forth herein.
(a) Annual Fixed Rent for the Extension Term. On and after the first
day of the Extension Term through December 31, 1999, Tenant shall pay Annual
Fixed Rent for the Premises in the amount of Three Hundred Sixty-Eight Thousand.
Seven Hundred Thirty-Eight and 80/100 Dollars ($368,738.80) in equal monthly
installments of Thirty Thousand, Seven Hundred Twenty-Eight and 23/100 Dollars
($30,728.23) on the first day of each calendar month. On January 1, 2000 and on
the first day of each calendar month during the balance of the Extension Term.
Tenant shall pay Annual Fixed Rent in the amount of Three Hundred Ninety-Seven
Thousand, Nine Hundred Seventy-Eight and 00/100 Dollars ($397,978.00) in equal
monthly installments of Thirty-Three Thousand, One Hundred Sixty-Four and 83/100
Dollars ($33,164.83).
(b) Additional Charges. During the Extension Term, Tenant shall pay
additional charges for (i) Landlord's Operating Expenses and Taxes under Section
2.6 of the Lease based on the Base Operating Expenses and Taxes for the calendar
year 1999 and (ii) electricity under Section 2.7 of the Lease. Except as set
forth in this Amendment, payments of rent and additional charges for Landlord's
Operating Expenses and Taxes and electricity shall be determined and paid at the
times and in the manner set forth in Sections 2.5 2.6 and 2.7 of the Lease.
2. Reduction in Premises. As of the first day of the Extension Term, the
Premises shall be reduced to be the space shown on Exhibit A attached hereto,
and the Rentable Floor Area of the Premises shall be 16,244 Rentable Square
Feet. On or before the commencement of the Extension Term, Tenant shall
surrender the space being eliminated from the Premises subject to Sections 5.11
and 8.1 of the Lease.
3. Right of Refusal for Space in Building Deleted. Section 2.1.1 of the
Lease is hereby deleted in its entirety.
4. Tenant Improvements. The Premises are being leased in their "as-is"
condition without representation or warranty by Landlord, and Landlord shall not
be required to perform any work in connection with Tenant's occupancy of the
Premises during the Extension Term except that Landlord shall construct new
demising walls where the Premises are being reduced, which shall be done in a
good and workman-like manner and in a manner so as to minimize interference with
Tenant's use. Notwithstanding the foregoing, Landlord shall provide the sum of
Nine and 50/100 Dollars ($9.50) per Rentable Square Foot ("TI Allowance") for
tenant improvements, which improvements shall be made by Tenant in accordance
with Section 5.10 of the Lease. The TI Allowance shall be paid by Landlord to
Tenant from time to time for work completed in the Premises upon presentation of
paid invoices, lien waivers, and other appropriate backup.
5. Brokerage. Tenant represents and warrants that it has had no dealings
with any broker or agent in connection with this Amendment, other than R.M.
Bradley and Meredith & Grew, to whom Landlord shall be responsible for the
payment of a brokerage commission. Tenant
-2-
<PAGE>
covenants to pay, hold harmless and indemnify Landlord from and against any and
all costs, expense or liability for any compensation, commissions, and charges
claimed by any broker or agent, other than R.M. Bradley and Meredith & Grew,
with respect to this Amendment or the negotiation thereof arising from a breach
of the foregoing warranty.
6. Ratification. Except as set forth herein, the terms of the Lease are
hereby ratified and confirmed, which are expressly incorporated herein.
EXECUTED as a sealed Massachusetts instrument as of the date first written
above.
LANDLORD:
275 WYMAN STREET TRUST
By: /s/ Michael D. Bank
---------------------------
Name:
Title:
TENANT:
LIGHTBRIDGE, INC.
By: /s/ Joseph S. Tibbetts, Jr.
---------------------------
Name: Joseph S. Tibbetts, Jr.
Title: Sr. Vice President and CFO
-3-
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-21585, 333-23937, 333-39817 and 333-67881 of Lightbridge, Inc. on Form
S-8 of our report dated January 25, 2000 appearing in this Annual Report on
Form 10-K of Lightbridge, Inc. for the year ended December 31, 1999.
Deloitte & Touche LLP
Boston, Massachusetts
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,477,909
<SECURITIES> 0
<RECEIVABLES> 17,985,873
<ALLOWANCES> 1,200,000
<INVENTORY> 0
<CURRENT-ASSETS> 54,234,175
<PP&E> 33,145,193
<DEPRECIATION> 15,778,020
<TOTAL-ASSETS> 75,856,730
<CURRENT-LIABILITIES> 17,463,364
<BONDS> 691,109
0
0
<COMMON> 175,105
<OTHER-SE> 57,116,689
<TOTAL-LIABILITY-AND-EQUITY> 75,856,730
<SALES> 89,716,147
<TOTAL-REVENUES> 89,716,147
<CGS> 42,876,380
<TOTAL-COSTS> 42,876,380
<OTHER-EXPENSES> 32,359,884
<LOSS-PROVISION> 980,542
<INTEREST-EXPENSE> 129,588
<INCOME-PRETAX> 15,713,349
<INCOME-TAX> 5,568,000
<INCOME-CONTINUING> 10,145,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,145,349
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.56
</TABLE>
