SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File No. 0-23611
DSET Corporation
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-3000022
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1011 US Highway 22, Bridgewater, New Jersey 08807
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(Address of Principal Executive Offices) (Zip Code)
(908) 526-7500
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(Registrant's Telephone Number,
Including Area Code)
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:
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Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of April 30, 1999:
Class Number of Shares
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Common Stock, no par value 10,350,229
<PAGE>
DSET CORPORATION
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION............................................ 1
Item 1. Financial Statements.................................... 1
Consolidated Balance Sheets as of March 31,1999
(unaudited) and December 31, 1998 (audited)........... 2
Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998 (unaudited)...... 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 (unaudited)...... 4
Notes to Consolidated Financial Statements (unaudited).. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
Results of Operations................................... 10
Liquidity and Capital Resources......................... 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.................................................. 16
PART II. OTHER INFORMATION................................................ 17
Item 2. Changes in Securities and Use of Proceeds............... 17
Item 6. Exhibits and Reports on Form 8-K........................ 18
SIGNATURES................................................................ 19
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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<PAGE>
DSET CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
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ASSETS (unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 1,475,712 $ 1,159,070
Marketable securities.............................. 42,830,065 43,863,980
Accounts receivable, net of allowance for doubtful
accounts of $191,879 and $175,979................. 7,756,953 9,108,059
Deferred income taxes.............................. 258,144 258,144
Prepaid expenses and other current assets.......... 590,800 193,418
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Total current assets........................... 52,911,674 54,582,671
Acquired technology................................... 2,424,890 --
Capitalized software development costs, net........... 231,091 --
Fixed assets, net..................................... 1,589,931 1,592,114
Goodwill, net......................................... 320,362 129,864
Other assets.......................................... 667,816 548,963
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Total assets................................... $ 58,145,764 $ 56,853,612
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 3,160,420 $ 3,560,994
Income taxes payable............................... -- 145,673
Deferred revenues.................................. 2,002,241 1,726,906
Note payable....................................... 56,657 111,657
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Total current liabilities...................... 5,219,318 5,545,230
Deferred income taxes................................. 119,127 119,127
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Total liabilities.............................. 5,338,445 5,664,357
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Commitments
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none issued or outstanding at March 31,
1999 and December 31, 1998........................... -- --
Common stock, no par value; 40,000,000 shares
authorized, 10,341,984 and 9,817,559 shares
issued and outstanding at March 31, 1999 and
December 31,1998, respectively....................... 42,975,513 41,912,361
Deferred stock compensation........................... (430,417) (494,306)
Retained earnings..................................... 10,303,029 9,731,077
Unrealized appreciation (depreciation) on
investments.......................................... (40,806) 40,123
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Total shareholders' equity..................... 52,807,319 51,189,255
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Total liabilities and shareholders' equity..... $ 58,145,764 $ 56,853,612
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSET CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1999 1998
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<S> <C> <C>
REVENUES:
License revenues...................................... $ 4,153,146 $ 2,636,635
Service revenues...................................... 3,323,140 2,685,478
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Total revenues.................................... 7,476,286 5,322,113
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COST OF REVENUES:
License revenues...................................... 283,109 240,629
Service revenues...................................... 1,266,948 701,995
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Total cost of revenues............................ 1,550,057 942,624
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Gross profit........................................ 5,926,229 4,379,489
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OPERATING EXPENSES:
Sales and marketing................................... 2,394,654 1,982,994
Research and product development...................... 2,345,898 1,494,900
General and administrative............................ 810,313 529,701
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Total operating expenses.......................... 5,550,865 4,007,595
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Operating income.................................... 375,364 371,894
Amortization of goodwill............................... (9,502) (9,502)
Interest and other expense............................. (15,207) (36,051)
Interest income........................................ 537,642 111,556
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Income before taxes.................................... 888,297 437,897
Provision for income taxes............................. 316,345 146,695
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Net income............................................. $ 571,952 $ 291,202
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Net income per common share............................ $ 0.06 $ 0.04
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Weighted average number of common shares
outstanding........................................... 10,028,583 7,310,539
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Net income per common share assuming dilution.......... $ 0.05 $ 0.03
============== ===============
Weighted average number of common shares and
common equivalent shares outstanding.................. 11,331,694 9,846,772
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSET CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 571,952 $ 291,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Tax benefit from exercise of stock options....... 589,819 --
Depreciation..................................... 184,009 115,236
Amortization..................................... 9,502 9,502
Amortization of deferred stock compensation...... 63,889 82,067
(Profit) loss from joint venture................. (1,208) 36,270
Changes in assets and liabilities:
Accounts receivable............................ 1,351,106 3,206,156
Other assets................................... (515,027) 86,616
Accounts payable and accrued expenses.......... (400,574) (278,645)
Income taxes payable........................... (145,673) 41,484
Deferred revenues.............................. 275,335 (70,106)
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Net cash provided by operating activities.... 1,983,130 3,519,782
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net.... 952,985 (37,441,599)
Acquisition of assets:
Acquired technology.............................. (2,424,890) --
Goodwill......................................... (200,000) --
Capitalized software development costs............. (231,091) --
Acquisition of fixed assets........................ (181,826) (160,023)
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Net cash used in investing activities........ (2,084,822) (37,601,622)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment by officers and shareholders............. -- 100,000
Repayment of note payable.......................... (55,000) (55,000)
Proceeds from the issuance of common stock (net)... -- 36,082,230
Proceeds from exercise of stock options............ 473,334 98,265
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Net cash provided by financing activities.... 418,334 36,225,495
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Net increase in cash and cash equivalents.... 316,642 2,143,655
Cash and cash equivalents, beginning of period........ 1,159,070 2,081,846
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Cash and cash equivalents, end of period.............. $ 1,475,712 $ 4,225,501
=============== ================
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes....... $ 99,400 $ 74,401
Cash paid during the period for interest........... 1,396 4,145
Non-cash activities:
Conversion of Series A preferred stock to
common stock...................................... -- 11,603,996
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DSET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The consolidated information presented for March 31, 1999 and 1998, and for
the three-month periods then ended, is unaudited, but, in the opinion of DSET
Corporation's (the "Company") management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for the fair presentation of
the Company's financial position as of March 31, 1999 and the results of its
operations and its cash flows for the three-month periods ended March 31, 1999
and 1998. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
Company's 1998 audited financial statements and accompanying notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated entity includes DSET Corporation and its wholly owned
subsidiaries, DSET Acquisition Corp., a Delaware corporation, and Chengdu DSET
Science & Technology Co., Ltd. (China).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The marketable securities portfolio held by the Company consists primarily
of short-term securities of grade A2 or better with maturities of two years or
less which are considered to be available for sale securities and are reported
at cost. Unrealized depreciation on investments was $40,806 at March 31, 1999
and unrealized appreciation was $40,123 at March 31, 1998.
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CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins on establishment of
technological feasibility. Costs incurred prior to establishment of
technological feasibility are charged to research and product development
expense. The ongoing assessment of recoverability of capitalized costs requires
considerable judgment by management with respect to certain factors including
the anticipated future gross revenue, estimated economic life and changes in
technology. These factors are considered on a product-by-product basis.
Amortization of software development costs is calculated using a straight-line
method over the estimated useful life of the respective product ranging from
three to five years.
ACQUIRED TECHNOLOGY
Acquired technology represents the costs of feasible technology acquired
from external sources. At March 31, 1999, acquired technology reflects the
purchase price of certain assets of Network Programs LLC ("NPL"), as well as
related costs to acquire such assets. There was no amortization expense related
to acquired technology for the quarter ended March 31, 1999.
Amortization of acquired technology is calculated using the straight-line
method over the estimated useful life of the respective product ranging from
three to five years.
REVENUE RECOGNITION
License revenue is recorded when the software has been shipped to the
Company's licensees and all significant obligations have been satisfied. Revenue
from run-time licenses is recognized as equipment using the Company's software
is deployed by the Company's customers. Custom application development service
revenue is recognized over the period in which the service is performed based on
the percentage of direct labor costs incurred to the total costs estimated.
Service revenue from maintenance contracts is deferred and recognized over
the term of the respective contracts (typically twelve months).
INCOME TAXES
The Company utilizes an asset and liability approach to financial reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the period in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred tax assets to the amount
expected to be realized.
For certain stock options, the Company receives a tax deduction for the
difference between the fair market value of the Company's Common Stock on the
date of exercise of the stock option and the exercise price. To the extent the
amount deducted for income taxes exceeds the amount charged to operations for
financial statement purposes, the related tax benefits are credited to
shareholders' equity.
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FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts in the financial statements for cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses
approximate their market value because of the short maturity of those
instruments.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a significant effect on the Company's
results of operations or its financial position.
NOTE 3 -- NPL ACQUISITION:
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000 payable in cash to NPL.
At March 31, 1999, the costs to acquire NPL are recorded as acquired
technology and goodwill. In addition, research and development costs associated
with bringing the acquired assets to market have been recorded as capitalized
software development costs at March 31, 1999. Amortization of these costs will
commence upon shipment of the product and future development costs associated
with the product thereafter will be expensed.
NOTE 4 -- INITIAL PUBLIC OFFERING:
On March 18, 1998, the Company consummated an initial public offering of
3,500,000 shares of its Common Stock at a price to the public of $16.00 per
share, of which 2,500,000 shares were issued and sold by the Company and
1,000,000 shares were sold by certain shareholders of the Company (the "Selling
Shareholders"). The net proceeds to the Company from the offering were
approximately $36.1 million. On April 7, 1998, certain Selling Shareholders sold
an additional 525,000 shares of the Company's Common Stock at a price to the
public of $16.00 per share upon the consummation of the exercise of the
Underwriters' over-allotment option. The Company did not receive any of the
proceeds from the sale of shares by the Selling Shareholders.
The net proceeds received by the Company upon the consummation of such
offering, pending specific application, were invested in short-term,
investment-grade, interest-bearing instruments. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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<PAGE>
NOTE 5 -- CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In December 1995, the Company issued 676,361 shares of cumulative,
convertible Series A Preferred Stock. Upon consummation of the Company's initial
public offering, the shares of Series A Preferred Stock and accumulated
dividends were converted into an aggregate of 3,043,625 shares of the Company's
Common Stock.
NOTE 6 -- EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (EPS), which
specifies the computation, presentation and disclosure requirements for earnings
per share of entities with publicly held company stock or potential common
stock. The statement defines two earnings per share calculations, basic and
diluted. The objective of basic EPS is to measure the performance of an entity
over the reporting period by dividing income available to common stock by the
weighted average shares outstanding. The objective of diluted EPS is consistent
with that of basic EPS, that is to measure the performance of an entity over the
reporting period, while giving effect to all dilutive potential common shares
that were outstanding during the period. The calculation of diluted EPS is
similar to basic EPS except both the numerator and denominator are increased for
the conversion of potential common shares. The following table is a
reconciliation of the numerator and denominator under each method:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
---------------- --------------- ------------
<S> <C> <C> <C>
BASIC EPS:
Net income applicable to common shares............ $ 571,952 10,028,583 $ 0.06
ASSUMING DILUTION:
Net income applicable to common shares:
Warrants..................................... -- 155,864
Stock options................................ -- 1,147,247
---------------- ---------------
$ 571,952 11,331,694 $ 0.05
================ ===============
FOR THE THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
---------------- --------------- ------------
BASIC EPS:
Net income applicable to common shares............ $ 291,202 7,310,539 $ 0.04
ASSUMING DILUTION:
Net income applicable to common shares:
Warrants..................................... -- 156,959
Stock options................................ -- 2,379,274
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$ 291,202 9,846,772 $ 0.03
================ ===============
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
DSET designs, develops, markets and supports standards-based application
development tools, custom application development services, and Local Number
Portability Solutions ("LNP") and operational support systems ("OSS") gateway
products for the global telecommunications industry. From its founding in 1989,
the Company has focused on the creation of applications that could be
distributed among many processors in order to solve highly complex problems in
the network management arena. Additionally, the Company developed extensive
knowledge of requirements for multiple protocols and multi-vendor communications
as well as real time operating systems. In the early 1990's, the Company made a
strategic decision to focus on creating suites of tools that facilitate the
development of Telecommunications Management Network ("TMN") solutions.
Substantially all of the Company's revenues to date has been derived from
application development tools and services based on TMN standards. The Company's
recently developed pre-built carrier-to-carrier applications facilitate the flow
of business information between competing carriers and their respective OSSs.
The Company's success will depend on continued growth in the market for advanced
telecommunications products and services. For the quarters ended March 31, 1999
and 1998, the Company derived approximately 55.6% and 49.5%, respectively, of
its total revenues from license revenues and approximately 44.4% and 50.5%,
respectively, of its total revenues from service revenues.
The Company's revenues are generated from two sources: license and service
revenues from network equipment vendors; and license and service revenues from
telecommunications carriers, including competitive local exchange carriers
("CLECs"). During the first quarter of 1999, the Company derived $5.6 million of
revenues from network equipment vendors and $1.9 million of revenues from CLECs
and other carriers.
The Company had no customers which accounted for 10% of sales for the three
months ending March 31, 1999 and one customer which accounted for 24.6% of
revenue for the three months ending March 31, 1998. The Company anticipates that
its results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. As a result of
this customer concentration, the Company's revenues from quarter to quarter and
business, financial condition and results of operations may be subject to
substantial period-to-period fluctuations.
The Company derives a portion of its revenues from international sales
which constituted approximately 10.4% and 31.6% of the Company's total revenues
in the quarters ended March 31, 1999 and 1998, respectively. The Company's
international sales currently are United States dollar-denominated. As a result,
an increase in the value of the United States dollar relative to foreign
currencies could make the Company's products and services less competitive in
international markets.
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<PAGE>
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of Network Programs
LLC ("NPL"). The purchase price consisted of $2,500,000 payable in cash to NPL.
NPL provided specialized software to CLECs.
FORWARD-LOOKING STATEMENTS
Statements contained in this 10-Q that are not based on historical fact are
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "estimate," "anticipate," "continue," or similar terms,
variations of such terms or the negative of those terms. In particular, the
Company's statements relating to the Year 2000 compliance of its products and
internal systems are forward-looking statements intended to qualify for the safe
harbor provided by the Exchange Act. Such forward-looking statements involve
risks and uncertainties, including, but not limited to: (i) the Company's
dependence on the rapidly evolving telecommunications industry, (ii) the
Company's dependence on the TMN industry standard, (iii) rapid technological
change in the Company's industry, (iv) risks associated with the development and
marketing of new products, including carrier-to-carrier applications, such as
LNP or OSS gateways, (v) risks associated with acquisitions of businesses by the
Company, including risks relating to unanticipated liabilities or expenses or
lower than expected revenues of such acquired businesses, and (vi) risks and
variables, including engineering costs, associated with the remediation of
certain of the Company's products which are not Year 2000 compliant. The success
of the Company depends to a large degree upon increased utilization of its
application development tools, custom application development services and
carrier-to-carrier applications, such as LNP or OSS gateways, by
telecommunications carriers and network equipment vendors, and the buying
patterns of CLECs. As a result of such risks and others expressed from time to
time in the Company's filings with the Securities and Exchange Commission (the
"Commission"), the Company's actual results may differ materially from the
results discussed in or implied by the forward-looking statements contained
herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Total revenues increased 40.5% to $7.5 million in the first
quarter of 1999 from $5.3 million in the first quarter of 1998. License revenues
increased 57.5% to $4.2 million in the first quarter of 1999 from $2.6 million
in the first quarter of 1998. This increase was primarily attributable to
initial sales of carrier-to-carrier products. Service revenues increased 23.7%
to $3.3 million in the first quarter of 1999 from $2.7 million in the first
quarter of 1998. This increase was primarily attributable to increased custom
development projects. In the quarters ended March 31, 1999 and 1998, the Company
derived approximately 55.6% and 49.5%, respectively, of its total revenues from
license revenues and approximately 44.4% and 50.5%, respectively, of its total
revenues from service revenues.
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GROSS PROFIT. The Company's gross profit increased 35.3% to $5.9 million in
the first quarter of 1999 from $4.4 million in the first quarter of 1998. Gross
profit percentage decreased to 79.3% of total revenues in the first quarter of
1999 from 82.3% in the first quarter of 1998. Gross profit percentage for
license revenues increased to 93.2% for the first quarter of 1999 from 90.9% for
the comparable 1998 period due to less third party software as a component of
sales, and sales of more internally developed products. Gross profit percentage
for service revenue decreased to 61.9% in the first quarter of 1999 from 73.9%
in the first quarter of 1998. This decrease was attributable to increased use of
outside consultants to complete custom development products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 20.8%
to $2.4 million in the first quarter of 1999 from $2.0 million in the first
quarter of 1998, and decreased to 32.0% of total revenues in the first quarter
of 1999 from 37.3% of total revenues in the first quarter of 1998. This increase
in absolute dollars is primarily attributable to increased personnel and costs
related to the Company's sales force and marketing department. The decrease as a
percentage of revenue is due to the lower commission rates associated with
employed sales personnel as compared to agents' commissions. The Company has
been hiring sales personnel to cover parts of Europe and Asia. In addition,
sales to these regions were lower in 1999 as compared to the corresponding
quarter in 1998.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses increased 56.9% to $2.3 million in the first quarter of 1999 from $1.5
million in the first quarter of 1998, and increased to 31.4% from 28.1% of total
revenues over the respective periods. This increase in research and product
development expenses both in absolute dollars and as a percentage of revenues
was due primarily to additional personnel expenses attributable to an increase
in staffing due to expansion in the number of projects under development and in
part to the hiring of former NPL employees.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 53.0% to $810,000 in the first quarter of 1999 from $530,000 in the
first quarter of 1998, and increased to 10.8% from 10.0% of total revenues for
the respective periods. The increase of general and administrative expenses in
the first quarter of 1999 as compared to the corresponding period in 1998 is due
to additional staffing, certain costs associated with being a public company and
recruiting costs.
INTEREST AND OTHER EXPENSE. Interest and other expense decreased to $15,000
from $36,000 for the quarters ended March 31, 1999 and 1998, respectively, due
primarily to the offset of expenses resulting from a small profit in the
Company's European joint venture in the first quarter of 1999 as compared to a
loss in the first quarter of 1998.
INTEREST INCOME. Interest income increased to $538,000 from $112,000 for
the quarters ended March 31, 1999 and 1998, respectively, due primarily to
interest earned on higher cash and short term investment balances as a result of
the proceeds of the Company's initial public offering of its Common Stock in
March 1998.
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<PAGE>
INCOME TAXES. The Company's effective tax rate was 35.6% and 33.5% for each
of the quarters ended March 31, 1999 and 1998, respectively. The increase
reflects small increases in miscellaneous components coupled with a small
decrease in the expected research and development tax credit.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989, the Company has financed its operations
primarily through cash generated by operations and cash raised through its March
1998 initial public offering. At March 31, 1999, the Company's cash, cash
equivalents and marketable securities aggregated approximately $44.3 million, of
which cash and cash equivalents aggregated approximately $1.5 million. The
Company's working capital was $47.7 million at March 31, 1999.
Accounts receivable decreased to $7.8 million at March 31, 1999 from $9.1
million at December 31, 1998 primarily as a result of decreased sales activity
for the first quarter 1999 as compared to the fourth quarter of 1998. Included
in accounts receivable was approximately $2.4 million of unbilled project
revenue at March 31, 1999 as compared to $1.5 million at December 31, 1998.
The Company bills its customers, several of which are based in Korea and
Japan, in U.S. dollars at agreed-upon contractual terms. The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and devaluation trends that recently have been experienced in certain
Asian markets, although no assurance can be made that the Company will not
experience difficulty collecting accounts receivable from such customers in the
future. Accounts receivable at March 31, 1999 includes approximately $342,000
from customers in this region.
The Company's capital expenditures were approximately $182,000 and $160,000
for the three months ended March 31, 1999 and 1998, respectively. The Company
anticipates higher levels of equipment and facilities-related expenditures in
the foreseeable future, as it moves into an expanded corporate headquarters
facility in Bridgewater, New Jersey to accommodate current and future growth.
In August 1997, the Company obtained an unsecured revolving credit facility
with a bank pursuant to which the Company may borrow up to a maximum of $3.0
million. Borrowings under this line of credit bear interest at the bank's prime
rate less 0.25% on aggregate principal amounts outstanding of less than $1.0
million and at the bank's prime rate for aggregate principal amounts exceeding
$1.0 million. No borrowings under this line were outstanding as of March 31,
1999. This credit facility contains, among other provisions, covenants which (i)
mandate the amount of working capital the Company must maintain at the end of
each calendar quarter and (ii) restrict the Company's ability to pay cash
dividends.
On March 18, 1998, the Company consummated an initial public offering of
3,500,000 shares of its Common Stock at a price to the public of $16.00 per
share of which 2,500,000 shares were issued and sold by the Company and
1,000,000 shares were sold by certain Selling Shareholders. The net proceeds to
the Company from the offering were approximately $36.1 million. On April 7,
1998, certain Selling Shareholders sold an additional 525,000 shares of the
- 12 -
<PAGE>
Company's Common Stock at a price to the public of $16.00 per share upon the
consummation of the exercise of the Underwriters' over-allotment option. The
Company did not receive any of the proceeds from the sale of shares by the
Selling Shareholders.
The net proceeds received by the Company upon the consummation of such
offering, pending specific application, are invested in short-term,
investment-grade, interest-bearing instruments.
The Company believes that its existing available cash, credit facility and
the cash flow expected to be generated from operations, together with the
proceeds from its initial public offering, will be adequate to satisfy its
current and planned operations for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional financing prior
to such time to fund its operations or possible acquisitions.
On January 25, 1999, DSET Acquisition Corp., a wholly owned subsidiary of
the Company, acquired certain assets of NPL for $2.5 million. NPL was a New
Jersey-based company which specialized in software aimed at reducing the time
necessary for a CLEC to provide prospective customers with sales proposals that
clearly define the CLEC's current service offering compared to the incumbent
local exchange carrier's current service offering.
YEAR 2000 COMPLIANCE
ASSESSMENT. The Company believes that its exposure to Year 2000 problems
lies primarily in the following areas: (i) its internal operating systems; (ii)
its tool suites, custom applications and pre-built electronic bonding gateways
and network management applications; and (iii) systems of third parties with
whom the Company has material relationships. The Company has completed its
assessment with respect to its internal operating systems and tool suites. The
Company continues to evaluate its exposure with respect to certain custom
applications and its relationships with third parties.
INTERNAL OPERATING SYSTEMS. The Company believes its internal operating
computer systems and management information system are currently Year 2000
compliant, and the Company does not believe that there will be future
significant costs related to future maintenance of such compliance.
TOOL SUITES AND PRE-BUILT APPLICATIONS. The Company has conducted an
internal review and believes that its tool suites developed after May 27, 1997
have been tested and are Year 2000 compliant. These products include:
PRODUCT NAME VERSION
------------ -------
ASN.C/C++ 3.5.3
Agent Tester 2.0.1
CMIP Translator 1.0.1
Distributed Systems Generator 4.2.0
GDMO Agent Emulator 2.0.0
GDMO Agent Toolkit 2.0.0
GDMO Compiler 3.0.0
- 13 -
<PAGE>
PRODUCT NAME VERSION
------------ -------
LNP Test Extensions 2.0.0
Manager Code Generator 1.0.4
Manager Toolkit 1.0.0
Marben OSIAM Stack 2.6f/2.6g
Visual Agent Builder 1.0.0
Testing of the Company's pre-built electronic bonding gateways and network
management applications for Year 2000 compliance are ongoing. In addition, the
Company continues to review and monitor all such products for Year 2000
compliance.
CUSTOM APPLICATIONS. In November 1998, the Company determined that certain
custom applications developed and delivered to approximately ten customers were
not Year 2000 compliant. All of these customers were notified of such Year 2000
compliance status in November 1998. The Company has agreed to assist each of
these customers with any and all remediation solutions required to achieve Year
2000 compliance with the Company's products. The Company does not believe such
remediation will be significant or will materially adversely affect the
Company's financial condition and results of operations. To date, the Company
has incurred certain remediation expenses related to such compliance, pursuant
to the warranty provisions of the applicable agreements. Presently, the Company
is continuing to analyze the extent to which any of the affected custom
applications were integrated by customers into other products which may expose
the Company to claims from its customers. A failure to properly implement the
correction, or problems with the correction, could cause errors in customers'
products which may materially impact the functionality of those products.
THIRD PARTY RELATIONSHIPS. The Company is dependent on various third party
software and hardware vendors and suppliers. The Company is also dependent on
third party service providers and partners such as telephone companies, banks,
insurance carriers, auditors and marketing partners. The failure of such third
parties to deliver Year 2000 compliant products or to remediate their internal
systems could jeopardize the Company's ability to meet its obligations to its
customers. As a result, the Company is presently conducting inquiries of its
outside vendors, suppliers, service providers and marketing partners to identify
and resolve Year 2000 exposure from third parties. Upon completion of the
foregoing, the Company will be able to assess such exposure and financial
impact, if any, should such parties fail to be Year 2000 compliant.
RISKS OF YEAR 2000 ISSUES. The Company expects to identify and resolve all
Year 2000 problems that could materially adversely affect its business,
financial condition or results of operations. However, the Company believes that
it is not possible to determine with complete certainty that all Year 2000
problems affecting the Company have been identified or corrected. Further, the
Company cannot accurately predict how many failures related to the Year 2000
Problem will occur or the severity, duration or financial consequences of such
failures. The Company believes that the most reasonably likely worst case Year
2000 scenario would include a combination of some or all of the following:
- 14 -
<PAGE>
o The Company's internal operating systems may fail or provide erroneous
information. Such failure could result in: reduced utilization of
technical or other personnel; the inability to timely generate
financial reports and statements; and improper billing and record
keeping;
o A number of system failures that may require significant efforts by
the Company or its customers to prevent or alleviate material business
disruptions; and
o Failure in HVAC, lighting, telephone, security and similar systems on
which the Company relies.
Additionally, the Company cannot guarantee that its products will not be
used by other companies, or its customers, to build applications which might not
be Year 2000 compliant, or that the Company's products or applications built
with the Company's products will not be integrated by the Company or its
customers or interact with non-compliant software or other products which may
expose the Company to claims from its customers.
COSTS. Other than time spent by the Company's personnel, the costs
associated with remediating non-compliant custom applications and assessing Year
2000 compliance issues have not been significant to date. The Company believes
that the continued analysis of compliance of new releases of products and
evaluation of potential Year 2000 problems will result in aggregate expenditures
of less than $100,000.
CONTINGENCY PLANS. The Company believes its plans for addressing the Year
2000 Problem are adequate. The Company does not believe it will incur a material
financial impact from system failures, or from the costs associated with
assessing the risks of failure, arising from the Year 2000 Problem.
Consequently, the Company does not intend to create a detailed contingency plan.
In the event that the Company does not adequately identify and resolve its Year
2000 issues, the absence of a detailed contingency plan may materially adversely
affect the Company's business, financial condition and results of operations.
EUROPEAN MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union set fixed conversion rates between their existing legacy currencies and
the euro. At such time, these participating countries adopted the euro as their
common legal currency. The eleven participating countries now issue sovereign
debt exclusively in euro and will redenominate outstanding sovereign debt. The
legacy currencies will continue to be used as legal tender through January 1,
2002, at which point the legacy currencies will be canceled and euro bills and
coins will be used for cash transactions in the participating countries.
The Company does not denominate its international licensing agreements in
foreign currencies. The Company currently does not believe that the euro
conversion will have a material impact on the Company's results of operations or
financial condition.
- 15 -
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that it is not subject to a material impact to its
financial position or results of operations relating to market risk associated
with derivative securities.
- 16 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities
The following information relates to all securities of the Company sold by
the Company within the past quarter which were not registered under the
securities laws at the time of grant, issuance and/or sale:
OPTION GRANTS
1. During the first quarter of 1999, the Company granted stock options
pursuant to its 1998 Stock Plan which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). All of such
option grants were granted at the then current fair market value of
the Common Stock. The following table sets forth certain information
regarding such grants during the quarter:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- -----
180,250 $14.86
COMMON STOCK ISSUANCES
2. During the first quarter of 1999, the Company issued shares of Common
Stock pursuant to exercises of stock options granted under its 1993
Stock Option Plan which were not registered under the Securities Act.
The following table sets forth certain information regarding such
issuances during the quarter:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- -----
524,425 $ 0.88
The Company did not employ an underwriter in connection with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing securities was exempt from registration under either (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities having been acquired for investment and not with a view to
distribution, or (ii) Rule 701 under the Securities Act as transactions made
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation. All recipients had adequate access to
information about the Company.
- 17 -
<PAGE>
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING
On March 12, 1998, the Commission declared effective the Company's
Registration Statement (Registration Statement No. 333-43827) as filed with the
Commission in connection with the Company's initial public offering of Common
Stock, which was managed by BT Alex. Brown Incorporated, BancAmerica Robertson
Stephens and SoundView Financial Group, Inc. Pursuant to such Registration
Statement, the Company registered and sold an aggregate of 2,500,000 shares of
its Common Stock, for a gross aggregate offering price of $40.0 million. The
Company incurred underwriting discounts and commissions of approximately $2.8
million. In connection with such offering, the Company incurred total expenses
of approximately $1.1 million. As of March 31, 1999, all of the $36.1 million in
net proceeds received by the Company upon consummation of such offering, pending
specific application, were invested in short-term, investment-grade,
interest-bearing instruments.
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000 payable in cash to NPL. NPL provided specialized
software to CLECs.
For working capital restrictions and limitations on the payment of
dividends, see "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 - Lease Agreement dated December 31, 1998 between the Company
and Advance/GLB I L.L.C.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report on Form 10-Q is filed.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSET Corporation
DATE: May 17, 1999 By:/s/ William P. McHale, Jr.
----------------------------
William P. McHale, Jr.
President and Chief Executive
Officer
(Principal Executive Officer)
DATE: May 17, 1999 By:/s/ Susan M. Boykas
-----------------------------
Susan M. Boykas
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 19 -
- --------------------------------------------------------------------------------
LEASE AGREEMENT BETWEEN
ADVANCE/GLB I L.L.C.
AS LANDLORD, AND
DSET CORPORATION,
AS TENANT
DATED: DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
LEASE SUMMARY
-------------
Tenant: DSET CORPORATION, a New Jersey corporation
Landlord: ADVANCE/GLB I L.L.C., a Delaware limited liability
company
Date of this Lease: December 31, 1998
Premises: Tenant's Rentable Square Feet in the office building
commonly known as Advance at Bridgewater II, and
whose street address is 1160 Route 22 East,
Bridgewater, New Jersey. The Premises are outlined on
the plan attached to the Lease as Exhibit A. The
----------
Building is part of an office park located on the
Land. The "Premises" includes the right to use the
common areas of the Building and the Park.
Building: The office building commonly known as Advance at
Bridgewater II, and whose street address is 1160
Route 22 East, Bridgewater, New Jersey, including the
parking areas servicing the Building, and designated
as Unit II in Executive Quarters at Bridgewater, a
Condominium, located on Lot 1 in Block 5303.01 on the
Tax Map of the Township of Bridgewater.
Land: The land on which the Park is located and described
as Lot 1 in Block 5303.01 on the Tax Map of the
Township of Bridgewater, New Jersey, as described on
Exhibit B.
---------
Park: An office park consisting of the Building, together
with the existing building known as Advance at
Bridgewater I, and Phases III and IV to be
constructed, as described on Exhibit B.
---------
Tenant
Parking Spaces: 190 undesignated spaces
Tenant Visitor
Reserved Spaces: 6 designated spaces
Anticipated
Commencement
Date: May 28, 1999
Commencement
Date: The date the Premises are completed and all of the
conditions set forth in Section 3(b) have been met,
and Tenant has been so notified, less the number of
Tenant Delay Days, if any, subject to confirmation
and possible amendment pursuant to Section 3(b) and
in accordance with Exhibit E.
---------
i
<PAGE>
Expiration
Date: 5:00 p.m. on the last day of the 123rd full calendar
month following the Commencement Date, subject to
adjustment and earlier termination as provided in the
Lease subject to confirmation and possible amendment
pursuant to Section 3(b) and in accordance with
Exhibit E.
---------
Term: Approximately ten (10) years and three (3) months,
commencing the Commencement Date and ending on the
Expiration Date, subject to adjustment and earlier
termination as provided in the Lease.
Renewal Term: One seven-year term in accordance with Exhibit C.
---------
Permitted Use: General office and administrative use and any other
lawful purpose in accordance with local code and the
character and class of the Building and for no other
purposes.
Basic Rent: Basic Rent (net of the Expense Estimate) shall be the
following amounts for the following periods of time:
LEASE YEAR BASIC RENT
---------- ---------------------------
Years 1-3 $769,691.15 per annum
$64,140.92 per Lease Month
($16.85 per rentable
square foot)
Years 4-6 $851,456.56 per annum
$70,954.71 per Lease Month
($18.64 per rentable
square foot)
Years 7-10 $939,160.24 per annum
$78,263.35 per Lease Month
($20.56 per rentable
square foot)
Free Rent: $246,380.70 of the Basic Rent payable during the
first twelve Lease Months, which Free Rent shall be
equally apportioned over the first twelve Lease
Months, in accordance with Exhibit M.
---------
Construction
Allowance: $22.00 per Tenant's Rentable Square Feet paid as set
forth in Exhibit D.
---------
Security Deposit: None.
Tenant's Rentable
Square Feet: 45,679 rentable square feet, consisting of 14,622
rentable square feet on the second floor of the
Building and 31,057 rentable square feet on the third
floor of the Building.
ii
<PAGE>
Rentable Square Feet
in Building: 84,190 rentable square feet.
Tenant's
Proportionate Share: 54.25%, which is the percentage obtained by dividing
(a) Tenant's Rentable Square Feet by (b) the Rentable
Square Feet in Building (45,679/84,190).
Expense Estimate: The estimate of Tenant's Proportionate Share of
Operating Costs, which is initially $7.00 per
Tenant's Rentable Square Feet for the first twelve
(12) Lease Months of the Term in accordance with
Exhibit P.
---------
Interest Rate: Fifteen percent (15%) per annum.
Tenant's SIC
Number: 8980, as designated in the Standard Industrial
Classification manual prepared by the office of the
Management and Budget in the Executive Office of the
President of the United States.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Tenant's Address: Prior to Commencement Date: Following Commencement Date:
-------------------------- ---------------------------
DSET Corporation DSET Corporation
1011 U.S. Highway Route 22 1160 U.S. Highway Route 22
Suite 100 Bridgewater, NJ 08807
Bridgewater, NJ 08807
Attention: Neil Fox Attention: Neil Fox
Telephone: 908/526-7500 Telephone: 908/526-7500
Telecopy: 908/704-0801 Telecopy: 908/704-0801
With a copy to: With a copy to:
-------------- --------------
Wolff & Samson Wolff & Samson
280 Corporate Center 280 Corporate Center
5 Becker Farm Road 5 Becker Farm Road
Roseland, NJ 07068-1776 Roseland, NJ 07068-1776
Attention: Dennis Brodkin, Esq. Attention: Dennis Brodkin, Esq.
Landlord's Address: For all Notices: With a copy to:
--------------- --------------
Advance/GLB I L.L.C. Windels, Marx, Davies & Ives
c/o The Advance Group, Inc. 120 Albany Street Plaza
1545 State Highway 206 New Brunswick, NJ 08901
Suite 100 Attention: Anthony R. Coscia, Esq.
Bedminster, NJ 07921 Telephone: 732/846-7600
Attention: Peter J. Cocoziello Telecopy: 732/846-8877
Telephone: 908/719-3000
Telecopy: 908/719-9444
</TABLE>
Landlord's
iii
<PAGE>
Mortgagee: Wells Fargo Bank, or any subsequent mortgagee under
any deed of trust, mortgage, or other security
instrument, or any ground lease, master lease, or
primary lease, that now or hereafter covers all or
any part of the Premises.
Broker: Jacobson, Goldfarb & Tanzman Company, L.L.C.
Utilities in Tenant's
Name: Tenant Electric is directly metered to the utility
company.
The foregoing Lease Summary is incorporated into and made a part of the Lease
identified above. If any conflict exists between the Lease Summary and the
Lease, then the Lease shall control.
iv
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS...........................................................1
-----------
2. LEASE GRANT...........................................................1
-----------
3. TERM; DELIVERY OF POSSESSION..........................................1
----------------------------
4. RENT..................................................................2
----
(a) PAYMENT..........................................................2
-------
(b) OPERATING COSTS; TAXES...........................................3
5. USE...................................................................5
---
6. LANDLORD'S OBLIGATIONS................................................6
----------------------
(a) SERVICES.........................................................6
--------
(b) ELECTRIC.........................................................6
--------
(c) RESTORATION OF SERVICES; ABATEMENT...............................7
----------------------------------
7. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.......................7
-----------------------------------------------
(a) IMPROVEMENTS; ALTERATIONS........................................7
-------------------------
(b) REPAIRS; MAINTENANCE.............................................7
--------------------
(c) PERFORMANCE OF WORK..............................................8
-------------------
(d) CONSTRUCTION LIENS...............................................8
------------------
8. ASSIGNMENT AND SUBLETTING.............................................9
-------------------------
(a) TRANSFERS........................................................9
---------
(b) CONSENT STANDARDS................................................9
-----------------
(c) REQUEST FOR CONSENT..............................................9
-------------------
(d) CONDITIONS TO CONSENT...........................................10
---------------------
(e) CANCELLATION....................................................10
------------
(f) ADDITIONAL COMPENSATION.........................................10
-----------------------
9. INSURANCE; WAIVERS OF SUBROGATION; INDEMNITY.........................11
--------------------------------------------
(a) INSURANCE.......................................................11
---------
(b) WAIVER OF SUBROGATION...........................................12
---------------------
(c) INDEMNITY.......................................................12
---------
(d) ................................................................13
10. SUBORDINATION AND NON-DISTURBANCE; ATTORNMENT; NOTICE TO LANDLORD'S
-------------------------------------------------------------------
MORTGATEE............................................................13
---------
(a) SUBORDINATION AND NON-DISTURBANCE...............................13
---------------------------------
(b) ATTORNMENT......................................................13
----------
(c) NOTICE TO LANDLORD'S MORTGAGEE..................................13
------------------------------
(d) LANDLORD'S MORTGAGEE'S PROTECTION PROVISIONS....................13
--------------------------------------------
v
<PAGE>
11. RULES AND REGULATIONS................................................14
---------------------
12. CONDEMNATION.........................................................14
------------
(a) TOTAL TAKING....................................................14
------------
(b) PARTIAL TAKING - TENANT'S RIGHTS................................14
--------------------------------
(c) PARTIAL TAKING - LANDLORD'S RIGHTS..............................14
----------------------------------
(d) AWARD...........................................................15
-----
(e) TRANSFER OF TITLE...............................................15
-----------------
13. FIRE OR OTHER CASUALTY...............................................15
----------------------
(a) REPAIR ESTIMATE.................................................15
---------------
(b) TENANT'S RIGHTS.................................................15
---------------
(c) LANDLORD'S RIGHTS...............................................15
-----------------
(d) REPAIR OBLIGATION...............................................15
-----------------
14. ENVIRONMENTAL COMPLIANCE.............................................16
------------------------
15. PERSONAL PROPERTY TAXES..............................................18
-----------------------
16. DEFAULT..............................................................19
-------
17. PAYMENT BY TENANT; NON-WAIVER........................................20
-----------------------------
(a) PAYMENT BY TENANT...............................................20
-----------------
(b) NO WAIVER.......................................................21
---------
18. SURRENDER OF PREMISES................................................21
---------------------
19. HOLDING OVER.........................................................22
------------
20. CERTAIN RIGHTS RESERVED BY LANDLORD..................................22
-----------------------------------
21. INTENTIONALLY OMITTED................................................23
---------------------
22. PARKING..............................................................23
-------
23. INTENTIONALLY OMITTED................................................23
---------------------
24. MISCELLANEOUS........................................................23
-------------
(a) LANDLORD TRANSFER...............................................23
-----------------
(b) LANDLORD'S LIABILITY............................................23
--------------------
(c) FORCE MAJEURE...................................................23
-------------
(d) BROKERAGE.......................................................23
---------
(e) ESTOPPEL CERTIFICATES...........................................24
---------------------
(f) NOTICES.........................................................24
-------
(g) SEPARABILITY....................................................24
------------
(h) AMENDMENTS AND BINDING EFFECT...................................24
-----------------------------
vi
<PAGE>
(i) QUIET ENJOYMENT.................................................24
---------------
(j) NO MERGER.......................................................24
---------
(k) NO OFFER........................................................25
--------
(l) ENTIRE AGREEMENT................................................25
----------------
(m) WAIVER OF JURY TRIAL............................................25
--------------------
(n) GOVERNING LAW...................................................25
-------------
(o) JOINT AND SEVERAL LIABILITY.....................................25
---------------------------
(p) FINANCIAL REPORTS...............................................25
-----------------
(q) INTENTIONALLY OMITTED...........................................25
---------------------
(r) TELECOMMUNICATIONS..............................................25
------------------
(s) INTENTIONALLY OMITTED...........................................25
---------------------
(t) EXHIBITS........................................................25
--------
(u) DEFINITIONS.....................................................26
-----------
25. OTHER PROVISIONS.....................................................26
----------------
LIST OF EXHIBITS
----------------
Exhibit A - Plan of Premises
Exhibit B - Site Plan (including designation of Tenant
Visitor Reserved Spaces)
Exhibit C - Renewal Option
Exhibit D - Tenant Work Letter
Exhibit D-1 - Standard Tenant Improvements
Exhibit E - Amendment No. 1 - Commencement Date Agreement
Exhibit G - Cleaning Specifications
Exhibit H - Rules and Regulations
Exhibit I - Form of Tenant Estoppel Certificate
Exhibit K - Right of First Offer
Exhibit M - Rent Abatement Provision
Exhibit O - Signage
Exhibit P - Operating Cost Estimate
Exhibit Q- Operating Cost Exclusions
Exhibit R- Landlord's Insurance
vii
<PAGE>
LEASE
THIS LEASE AGREEMENT (this "LEASE") is entered into as of the Date of this
-----
Lease, ADVANCE/GLB I L.L.C., a Delaware limited liability company ("LANDLORD"),
--------
and DSET CORPORATION, a New Jersey corporation ("TENANT").
------
1. DEFINITIONS. The Lease Summary is incorporated herein by reference
-----------
for all purposes. All other terms shall have the meanings set forth herein.
2. LEASE GRANT. Subject to the terms of this Lease, Landlord leases to
-----------
Tenant, and Tenant leases from Landlord, the Premises for the Term, and hereby
grants to Tenant the non-exclusive right to use the common areas designated on
the plan attached as Exhibit B hereto.
---------
3. TERM; DELIVERY OF POSSESSION.
----------------------------
(a) The Term of this Lease shall commence on the Commencement Date and
end on the Expiration Date unless the Term shall sooner or later cease and
terminate as provided for under the specific terms of this Lease.
(b) Landlord agrees to provide the Work (as such term is defined
in Exhibit D annexed hereto and made a part hereof) in accordance with the
---------
terms, conditions and provisions of Exhibit D. Tenant shall occupy the Premises
---------
as soon as the Premises shall be deemed completed for Tenant's occupancy and the
Anticipated Commencement Date shall have occurred (but not prior to such date
without the express written consent of Landlord). The Premises shall be deemed
completed on the date that: (1) a certificate of occupancy (temporary or final)
for the Premises for the Permitted Use has been issued to the Landlord by the
appropriate governmental authority; (2) the Building exterior main lobby and all
public areas are installed, furnished and in operating condition; and (3) the
Work shall have been completed, other than (A) minor or insubstantial details of
construction, mechanical adjustment or decoration, the non-completion of which
do not materially interfere with Tenant's intended use of the Premises (the
"PUNCH LIST ITEMS"), as certified by Landlord's architect, and (B) any part of
----------------
the Work which is not completed due to a delay in performance of the Work
described in Paragraph 4 of Exhibit D. If a temporary certificate of occupancy
---------
is obtained, Landlord covenants to obtain a final certificate of occupancy, at
its sole cost and expense, within the required time period set forth in any
temporary certificate of occupancy. In the event, however, a certificate of
occupancy cannot be furnished until any fixture work to be performed by Tenant
("TENANT'S WORK") is complete, then, in such event, this condition shall not
--------------
accrue until any such Tenant's Work is complete; provided, however, if a
certificate of occupancy is not subsequently issued because of any defects in
the Work or resulting from conditions unrelated to Tenant's Work, Landlord shall
be responsible for making any and all repairs necessary for the issuance of the
certificate of occupancy. If the Premises are not deemed completed by the
Anticipated Commencement Date, Landlord shall not be in default hereunder or be
liable for damages therefor; provided, however, that if the Premises are not
deemed completed on or before July 16, 1999, as such date may be extended by any
Tenant Delay Days and any delays caused by force majeure (the "DELAY DATE"),
-----------
Tenant shall receive a sum equal to one (1) day's Basic Rent for each day
commencing on the Delay Date and continuing until the Premises are deemed
completed pursuant to the terms of this Lease. Such sum shall be paid by
Landlord within twenty (20) days
1
<PAGE>
after the date the Premises are deemed completed. Notwithstanding the foregoing,
if the Premises are not deemed completed on or before October 1, 1999, as such
date may be extended by any Tenant Delay Days and any delays caused by force
majeure, Tenant may terminate this Lease on not less than ten (10) days' written
notice to Landlord, without liability. Landlord and Tenant shall execute within
fifteen (15) days after the date the Premises are deemed completed for Tenant's
occupancy, an amendment substantially in the form of Exhibit E hereto.
----------
Notwithstanding the foregoing, Tenant, together with its agents, contractors,
workmen, mechanics and suppliers, may enter the Premises, upon Landlord's prior
written consent, during the four (4) week period prior to the Commencement Date
to perform any of Tenant's Work and to perform such other activities as it deems
reasonably necessary to prepare same for the conduct of its business at the
Premises, provided that such entrance onto the Premises shall not interfere with
or delay Landlord's completion of the Work and shall otherwise be completed in
compliance with the terms of this Lease. Tenant shall give Landlord at least
twenty-four (24) hours notice prior notice of its intention to enter the
Premises. Such early access shall be coordinated with Landlord so as to
facilitate the completion of the Premises on a timely basis.
(c) Within thirty (30) days after the Commencement Date, Tenant shall
give Landlord notice specifying in reasonable detail the respects in which the
Premises are not in satisfactory condition in its reasonable determination,
including any Punch List Items and Landlord shall correct said conditions and
Punch List Items within thirty (30) days thereafter or such reasonable time as
required.
(d) Landlord shall assign and deliver to Tenant any and all
warranties for any item of the Work received by Landlord from any of its
contractors or suppliers, including a one-year warranty provided by Landlord's
construction manager.
4. RENT.
----
(a) PAYMENT. Subject to the Free Rent applied in accordance with
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Exhibit M, commencing on the Commencement Date, Tenant shall timely pay to
- ---------
Landlord all Basic Rent and Additional Rent (collectively, "RENT"), without
----
deduction or set-off, except as otherwise specifically provided herein, at
Landlord's Address or as otherwise specified by Landlord. Basic Rent, adjusted
as herein provided, and Tenant's Proportionate Share of Operating Expenses (in
accordance with Section 4(b)), shall be payable monthly in advance. The first
monthly installment of Basic Rent and Tenant's Proportionate Share of Operating
Costs shall be payable contemporaneously with the execution of this Lease;
thereafter, Basic Rent and Tenant's Proportionate Share of Operating Costs shall
be payable on the first day of each month beginning on the first day of the
second full calendar month of the Term. The monthly Basic Rent for any partial
month at the beginning of the Term shall be prorated based on a 365 day year.
Tenant shall pay all other sums that Tenant may owe to Landlord or otherwise be
required to pay under this Lease other than Basic Rent ("ADDITIONAL RENT")
----------------
within twenty (20) days following Tenant's receipt of an invoice setting forth
the sums that are due; provided, however, that the parties acknowledge that
Tenant shall pay Tenant's Electric and Tenant's Proportionate Share of Operating
Costs in accordance with Section 4(b) hereof. If Landlord, at any time or times,
shall accept Rent after the same shall become due and payable, such acceptance
shall not excuse delay upon subsequent occasions, or constitute, or be construed
as, a waiver of any of Landlord's rights hereunder.
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(b) OPERATING COSTS; TAXES.
----------------------
(1) Tenant shall pay an amount equal to Tenant's Proportionate
Share of Operating Costs. Landlord shall make a good faith estimate of
Tenant's Proportionate Share of Operating Costs for any calendar year or
part thereof during the Term, and Tenant shall pay to Landlord, on the
Commencement Date and on the first day of each calendar month thereafter,
in advance, an amount equal to Tenant's Proportionate Share of Operating
Costs for such calendar year or part thereof divided by the number of
months therein. Initially, Tenant shall pay Landlord $7.00 per Tenant's
Rentable Square Feet per annum as the Expense Estimate. From time to time
(but not more than one time each year), Landlord may re-calculate the
Expense Estimate and deliver a copy of the re-calculation to Tenant.
Thereafter, the monthly installments of Tenant's Proportionate Share of
Operating Costs shall be appropriately adjusted in accordance with the
Expense Estimate so that, by the end of the calendar year in question,
Tenant shall have paid all of Tenant's Proportionate Share of Operating
Costs as calculated by Landlord. Any amounts paid based on the Expense
Estimate shall be subject to adjustment as herein provided when actual
Operating Costs are available for each calendar year.
"OPERATING COSTS" shall include all reasonable and customary
----------------
expenses and disbursements (subject to the limitations set forth below)
that Landlord incurs in connection with the ownership, operation, and
maintenance of the Building, determined in accordance with sound accounting
principles consistently applied, including the following costs: (1) wages
and salaries (including management fees) of all employees engaged in the
operation, maintenance, and security of the Building, including taxes,
insurance and benefits relating thereto, provided that any increase in
management fees, during any calendar year, shall not be greater than the
increase in the Price Index during such calendar year; (2) all supplies and
materials used in the operation, maintenance, repair, replacement, and
security of the Building; (3) costs for improvements made to the Building
which, although capital in nature, are expected to reduce the normal
operating costs (including all utility costs) of the Building, as well as
capital improvements made in order to comply with any law hereafter
promulgated by any governmental authority, as amortized over the useful
economic life of such improvements as determined by Landlord in accordance
with GAAP (hereinafter defined); (4) cost of all utilities, except the cost
of utilities separately billed or metered to any tenants in the Building;
(5) insurance expenses; (6) repairs, replacements, and general maintenance
of the Building, including roof repairs; (7) service or maintenance
contracts with contractors for the operation, maintenance, repair,
replacement, or security of the Building (including alarm service, window
cleaning, elevator maintenance, landscaping, snow removal, parking lot
maintenance and refuse collection); (8) 32% of all expenses and
disbursements that Landlord incurs in connection with the ownership,
operation and maintenance of the Park; (9) Taxes; and (10) any other
expenses noted on Exhibit P.
---------
Operating Costs shall not include costs for (i) capital
improvements made to the Building or the Park, including building
structure, foundations, roof deck, and any expansion of the Building, its
systems or parking lot, or any other expenses normally capitalized by GAAP
(hereinafter defined) but not including capital improvements described in
the previous paragraph of the Lease and items which are generally
considered maintenance and repair items, such as painting of common areas,
replacement of carpet in elevator
3
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lobbies, and the like; (ii) repair, replacements and general maintenance
paid by proceeds of insurance or condemnation or by Tenant or other third
parties; (iii) interest, amortization, principal payments or other payments
on loans or underlying leases made to Landlord; (iv) depreciation; (v)
leasing commissions (or fee in lieu of a commission) or other costs
incurred in procuring tenants; (vi) legal expenses for services, other than
those that benefit the Building tenants generally (e.g., tax disputes);
(vii) renovating or otherwise improving space for occupants of the Building
or vacant space in the Building; (viii) federal income taxes imposed on or
measured by the income of Landlord from the operation of the Building; and
(ix) those items noted on Exhibit Q. Further, Operating Costs shall not
---------
include and/or shall be reduced by the amounts of any reimbursement, refund
or credit received or receivable by Landlord with respect to any item of
Operating Costs. If any such reimbursement, refund or credit is received or
receivable in a later year, it shall be applied against the Operating Costs
for such later year; provided, however, that, if the Term has expired,
Tenant's share of such reimbursement shall be promptly refunded by Landlord
to Tenant upon Landlord's receipt of same.
"TAXES" shall mean taxes, assessments, and governmental charges
-----
whether federal, state, county or municipal, and whether they be by taxing
districts or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments attributable to
the Building (or its operation), excluding, however, penalties and interest
thereon, federal and state taxes on income and tax on rents or rentals,
excess profits or revenue tax, excise tax or inheritance tax, gift tax,
gains tax, franchise tax, corporation tax, capital levy transfer, estate,
succession or other similar tax or charge that may be payable by or
chargeable to Landlord under any present or future laws (provided, however,
that if the present method of taxation changes so that in lieu of the whole
or any part of any Taxes, there is levied on Landlord a capital tax
directly on the rents received therefrom or a franchise tax, assessment, or
charge based, in whole or in part, upon such rents for the Building, then
all such taxes, assessments, or charges, or the part thereof so based,
shall be deemed to be included within the term "Taxes" for purposes
hereof). Taxes shall include the actual, out-of-pocket costs of consultants
retained in an effort to lower taxes and all actual, reasonable
out-of-pocket costs incurred in disputing any taxes or in seeking to lower
the tax valuation of the Building. For property tax purposes, Tenant waives
all rights to protest or appeal the appraised value of the Premises, as
well as the Building, and all rights to receive notices of reappraisement.
Notwithstanding the foregoing, Tenant may request, at any time during the
Term (but not more than one time during each twelve (12) Lease Month
period) that Landlord appeal the appraised value of the Building. In the
event Landlord prosecutes such tax appeal based upon Tenant's request, and
the tax appeal is unsuccessful, Tenant shall pay Landlord its reasonable
out-of-pocket costs associated with the tax appeal (including reasonable
attorneys' fees) as Additional Rent and such costs shall not be included as
an Operating Cost; if the tax appeal is successful, the costs thereof shall
be included as an Operating Cost as indicated above. In no event shall
Tenant's right to request the filing of a tax appeal grant Tenant any other
rights relating to such appeal. If Landlord shall receive a reduction or
refund in connection with such tax appeal which relates to any year for
which Tenant has paid Tenant's Proportionate Share of Operating Costs, the
amount of such reduction or refund shall be subtracted from Taxes payable
or paid by Landlord for such year and proper reimbursement shall be made by
Landlord to Tenant promptly after Landlord receives or is credited with
such refund or reduction. Landlord may deduct from the total
4
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refund to Tenant any reasonable attorneys' fees and other reasonable
expenses incurred by Landlord in connection therewith.
(2) By April 1 of each calendar year, or as soon thereafter
as practicable, Landlord shall furnish to Tenant a statement of Operating
Costs for the previous year (the "OPERATING COSTS STATEMENT"). If the
---------------------------
Operating Costs Statement reveals that Tenant paid more than Tenant's
Proportionate Share of Operating Costs for the year for which such
statement was prepared, then Landlord shall promptly credit or reimburse
Tenant for such excess; likewise, if Tenant paid less than Tenant's
Proportionate Share of Operating Costs actually due, then Tenant shall
promptly pay Landlord such deficiency.
(3) Tenant shall have the right to audit the books and records
of Landlord with respect to Operating Costs (but not more than one time
each year) upon ten (10) days advance, written notice by Tenant to
Landlord; provided such audit shall take place during normal business hours
at Landlord's office. If the results of the audit show an overcharge to
Tenant of more than seven percent (7%) of the actual amount owed by Tenant,
then Landlord shall pay the reasonable out-of-pocket costs of such audit;
in any event Landlord shall credit or refund to Tenant any overcharge of
items discovered by the audit within thirty (30) days of completion of such
audit. In the event such audit discloses an undercharge of such items as
billed to Tenant, Tenant shall pay Landlord the amount of such undercharge
within thirty (30) days of completion of such audit.
(c) All past due payments of Rent shall bear interest from the date
due until paid at the Interest Rate; provided however that Landlord shall
provide Tenant with two (2) late notices in any twelve (12) Lease Month period
in which event Tenant shall not be obligated to pay such additional charges
unless Tenant fails to pay such sums within ten (10) days of Landlord's notice.
In no event, however, shall the charges permitted under this Lease, to the
extent they are considered to be interest under applicable federal, state, and
local laws, rules and regulations, all court orders, governmental directives,
and governmental orders, and all restrictive covenants affecting the Premises
("LAWS"), exceed the maximum lawful rate of interest.
----
5. USE.
---
(a) Tenant shall occupy and use the Premises only for the Permitted
Use and shall comply, at its sole cost, with all Laws relating to the specific
manner of its use, condition and occupancy of the Premises. Tenant may use the
Premises twenty-four hours per day, seven days per week. Notwithstanding the
foregoing, it is understood and agreed that Landlord shall be responsible for
the cost of compliance with any building code requirements which are applicable
generally to the Building and not the result of Tenant's specific use of the
Premises and such costs shall not be included as Operating Costs. Tenant shall
not be responsible to comply with any legal requirements relating to the
structure of the Building or relating to conditions or repair which are the
responsibility of the Landlord under this Lease. Landlord hereby represents and
warrants that on the Commencement Date, the Premises and the common areas of the
Building, the Land and the Park are in full compliance with all applicable laws,
ordinances and regulations of all federal, county and municipal authorities,
including the Americans With Disabilities Act, any regulations promulgated
thereunder and any similar Laws.
5
<PAGE>
(b) If, because of Tenant's or a Tenant Party's acts, the rate of
insurance on the Building or its contents increases, Tenant shall pay to
Landlord the amount of such increase, as Additional Rent, and acceptance of such
payment shall not waive any of Landlord's other rights. Tenant shall conduct its
business and control any assignees or subtenants claiming by, through, or under
Tenant or any of their respective agents, contractors, employees and invitees
(each a "TENANT PARTY") so as not to create any nuisance or unreasonably
-------------
interfere with other tenants or Landlord in its management of the Building.
6. LANDLORD'S OBLIGATIONS.
----------------------
(a) SERVICES. Landlord shall furnish to Tenant (1) water at those
--------
points of supply to the Premises and as provided for general use of tenants of
the Building; as appropriate, at such reasonable temperatures and in such
reasonable amounts as are standard for comparable first class office buildings
in the vicinity of the Building; (2) heating, ventilation and refrigerated air
conditioning system ("HVAC"), as appropriate, at such temperatures and in such
----
amounts as are standard for a comparable first class office building to keep
same reasonably comfortable; (3) janitorial service, in accordance with the
Cleaning Specifications attached as Exhibit G; (4) elevators for ingress and
---------
egress to the floor on which the Premises are located, in common with other
tenants, provided that Landlord may reasonably limit the number of operating
elevators during non-Business Hours and holidays; (5) snow and ice removal for
the parking area, sidewalks and driveways of the Building; and (6) electrical
current during Business Hours for equipment that does not require more than 220
volts and light and floor power pursuant to Exhibit H. Landlord shall maintain
---------
the common areas of the Building and the Park in reasonably good order and
condition, except for damage caused by Tenant or a Tenant Party. Landlord shall
make any such repairs, installations and/or alterations of common facilities
with due diligence and due care in a good and workmanlike manner and in
compliance with all Laws and in making such repairs shall not unreasonably
interfere with Tenant's enjoyment and use of the Premises and the Building.
Landlord shall promptly restore any damage to any portion of the Premises
resulting therefrom, including, but not limited to those caused by any act or
omission of Landlord, its agents, servants, employees or contractors (each a
"LANDLORD PARTY").
--------------
(b) ELECTRIC. Landlord shall arrange to obtain electric energy to
--------
service the fixtures located within the Premises, at Tenant's sole cost,
directly from the public utility company furnishing electric service to the
Building; provided, however, that Landlord shall pay certain costs associated
therewith in accordance with Exhibit D and Tenant shall pay all charges as
---------
measured thereby. Such electric energy shall be furnished to Tenant by means of
the existing Building panel boards, feeders, risers, wiring and other conductors
and equipment. Tenant shall not install any electrical equipment requiring
special wiring or requiring voltage in excess of 220 volts or otherwise
exceeding Building capacity without the prior written consent of Landlord. The
use of electricity in the Premises shall not exceed the capacity of existing
feeders and risers to or wiring in the Premises. Any risers or wiring required
to meet Tenant's excess electrical requirements shall, upon Tenant's written
request, be installed by Landlord, at Tenant's reasonable cost, if, in
Landlord's reasonable judgment, the same are necessary and shall not cause
permanent damage to the Building or the Premises, cause or create a dangerous or
hazardous condition, entail excessive or unreasonable alterations, repairs, or
expenses, or interfere with or disturb other tenants of the Building. If Tenant
uses machines or equipment in the Premises which affect the temperature
otherwise maintained by the air conditioning system or otherwise overload any
utility, Landlord, following notice to Tenant
6
<PAGE>
and Tenant's failure to remove such machines or equipment within five (5)
business days of such notice, may install supplemental air conditioning units or
other supplemental equipment in the Premises, and the reasonable cost thereof,
including the cost of installation, operation, use, and maintenance, shall be
paid by Tenant to Landlord as Additional Rent.
(c) RESTORATION OF SERVICES; ABATEMENT. Landlord shall use
---------------------------------------
reasonable efforts to restore any service required of it that becomes
unavailable; however, such unavailability shall not render Landlord liable for
any damages (including consequential damages) caused thereby, be a constructive
eviction of Tenant, constitute a breach of any implied warranty, or entitle
Tenant to any abatement of Tenant's obligations hereunder except as hereinafter
provided. In the event that the services required to be provided by Landlord
pursuant to Section 6(a) hereof (the "SERVICES") are interrupted or suspended,
--------
and the interruption or suspension (1) has not resulted from the act or omission
of Tenant or a Tenant Party and (2) prevents Tenant from conducting its normal
business operations at the Premises, Tenant shall be entitled to an abatement of
Basic Rent commencing on the tenth (10th) consecutive business day of the
interruption or suspension. The abatement shall end on the date the Services are
restored.
7. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
-----------------------------------------------
(a) IMPROVEMENTS; ALTERATIONS. Improvements or alterations to the
--------------------------
Premises shall be installed and/or made at Tenant's expense only in accordance
with plans and specifications which have been previously submitted to and
reasonably approved in writing by Landlord. Improvements or alterations in or to
the Premises which shall cost less than $50,000.00 in the aggregate and which do
not affect the Building's structure or its HVAC, plumbing, electrical, or
mechanical systems, may be made without Landlord's prior written consent. All
other improvements or alterations may only be made with Landlord's consent,
which shall not be unreasonably withheld or delayed, however, Landlord may
withhold its consent, in its sole discretion, to any alteration or addition that
would adversely affect the Building's structure or its HVAC, plumbing,
electrical, or mechanical systems. Except as otherwise provided herein, all
alterations, additions, and improvements shall be constructed, maintained, and
used by Tenant, at its risk and expense, in accordance with all Laws; Landlord's
approval of the plans and specifications therefor shall not be a representation
by Landlord that such alterations, additions, or improvements comply with any
Law.
(b) REPAIRS; MAINTENANCE.
--------------------
(1) Tenant shall, at its sole cost, maintain the Premises in a
clean, safe, and operable condition, and shall not permit or allow to
remain any waste or damage to any portion of the Premises, including damage
to any painted walls, carpeting, and ceiling tiles. In addition, Tenant
shall repair or replace, subject to Landlord's direction and supervision,
any damage to the Building and/or the Park caused by Tenant or a Tenant
Party. If Tenant fails to make such repairs or replacements within fifteen
(15) days after the occurrence of such damage, then Landlord may make the
same at Tenant's cost. If any such damage occurs outside of the Premises,
then Landlord may elect to repair such damage at Tenant's expense, rather
than having Tenant repair such damage. The cost of all repair or
replacement work performed by Landlord under this Section 7(b)(1) shall be
paid by Tenant to Landlord as Additional Rent.
7
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(2) Landlord shall make, at Landlord's sole expense, all
structural repairs and replacements except as specified herein and shall
maintain in good order, condition and repair the Building, the Park and all
other portions of the Premises not the obligation of Tenant or of any other
tenant in the Building, including but not limited to the foundations, slab,
outer walls, the roof deck, exterior walls, and all structural components
of the Building.
Landlord shall maintain the common areas of the Building in good
condition and repair in a manner consistent with comparable first class office
buildings in Somerset County, New Jersey.
(c) PERFORMANCE OF WORK. Except as specifically set forth herein to
-------------------
the contrary, all work described in this Section 7 shall be performed only by
Landlord, a Landlord Party or by contractors and subcontractors reasonably
approved in writing by Landlord. Tenant shall cause all contractors and
subcontractors to procure and maintain insurance coverage naming Landlord as an
additional insured against such reasonable and customary risks, in such
reasonable and customary amounts, on such terms as Landlord may reasonably
require. All such work shall be performed in accordance with all Laws, all
reasonable requirements established by Landlord, and in a good and workmanlike
manner so as not to damage the Building (including the Premises, the structural
elements, and the plumbing, electrical lines, or other utility transmission
facility). All such work which may affect the Building's HVAC, electrical,
plumbing, other mechanical systems, or structural elements must be reasonably
approved in writing by Landlord and, if required by Landlord, by the Building's
engineer of record, at Tenant's expense and, at Landlord's election, such work
must be performed by Landlord's usual contractor for work of such type.
(d) CONSTRUCTION LIENS. Unless otherwise provided by Law, any
-------------------
contract(s) executed by Tenant for alterations, additions or improvements to the
Premises which Landlord permits Tenant to do pursuant to this Section 7, whether
in the nature of erection, construction, alteration or repair, shall not be
deemed to have been authorized by Landlord merely by reason of any consent given
by Landlord to Tenant to improve the Premises unless Landlord specifically
reviews such contract(s) and consents in writing to such contract(s). Landlord,
in granting its consent to Tenant for any such alterations, additions or
improvements to the Premises, shall have no obligation to authorize in writing
any contract(s) executed by Tenant for such work, it being the intention of the
parties that to the extent permitted by the New Jersey Construction Lien Law,
N.J.S.A. 2A:44A-1 et seq. (the "CONSTRUCTION LIEN LAW") any liens by any
------ -----------------------
contractor, subcontractor or supplier who provides work, services, material or
equipment to Tenant pursuant to such contract(s) shall attach only to the
leasehold interest of Tenant. Tenant shall pay promptly all persons furnishing
work, equipment, services or materials with respect to any work performed by
Tenant or its contractor on or about the Premises. In the event any construction
or other liens or any other notices of claim, including, without limitation any
Notice of Unpaid Balance and Right to File Lien ("LIEN"), shall at any time be
----
filed against the Premises, the Building and/or the Park pursuant to the
Construction Lien Law by reason of work, services, equipment or materials
performed or furnished to Tenant or to anyone holding the Premises through or
under Tenant, Tenant shall, after being notified thereof, promptly notify
Landlord of the same and shall cause the same to be discharged by paying the
claimant and obtaining a discharge or by filing a surety bond or making a
deposit of funds with the Clerk of the Superior Court of New Jersey as provided
in N.J.S.A. 2A:44A-31. If Tenant shall fail to cause such lien to be so
discharged in compliance with all the provisions of the Construction Lien Law
within ten (10) business days after being notified of the
8
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filing thereof, then, in addition to any other right or remedy of Landlord,
Landlord may discharge the same by paying the amount claimed to be due and the
amount so paid by Landlord together with interest thereon at the Interest Rate
and all costs and expenses, including reasonable attorneys' fees incurred by
Landlord in procuring the discharge of such lien, shall be due and payable by
Tenant to the Landlord as Additional Rent on the first day of the next following
month, or may, at the Landlord's election, be subtracted from any sums owing to
Tenant. All materialmen, contractors, artisans, mechanics, laborers, and any
other persons now or hereafter contracting with Tenant or any contractor or
subcontractor of Tenant for the furnishing of any labor services, materials,
supplies, or equipment with respect to any portion of the Premises, at any time
from the date hereof until the end of the Term, are hereby charged with notice
that they look exclusively to Tenant to obtain payment for same. Nothing
contained herein shall be deemed as the consent by Landlord to any liens being
placed upon the Premises, the Building or the Park due to any work performed by
or for Tenant.
8. ASSIGNMENT AND SUBLETTING.
-------------------------
(a) TRANSFERS. Tenant shall not, without the prior written consent
---------
of Landlord: (1) assign, transfer, or encumber this Lease or any estate or
interest herein, whether directly or by operation of law, (2) permit any other
entity to become Tenant hereunder by merger, consolidation, or other
reorganization, (3) if Tenant is an entity other than a corporation whose stock
is publicly traded, permit the transfer of an ownership interest in Tenant so as
to result in a change in the current control of Tenant, (4) sublet any portion
of the Premises, (5) grant any license, concession, or other right of occupancy
of any portion of the Premises, or (6) permit the use of the Premises by any
parties other than Tenant (each, a "TRANSFER").
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(b) CONSENT STANDARDS. Landlord shall not unreasonably withhold
-----------------
its consent to any assignment or subletting of the Premises, provided that the
proposed transferee (1) is sufficiently creditworthy to meet its obligation
pursuant to this Lease, (2) will use the Premises for the Permitted Use and will
not use the Premises in any manner that conflicts with any exclusive use
agreement or other similar agreement entered into by Landlord with any other
tenant of the Building, (3) is not a governmental entity, or subdivision or
agency thereof, and (4) is not a person or entity with whom Landlord is
negotiating to lease space; otherwise, Landlord may withhold its consent in its
sole discretion.
(c) REQUEST FOR CONSENT. If Tenant requests Landlord's consent to a
-------------------
Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information; general references sufficient to enable Landlord to determine the
proposed transferee's creditworthiness; and such other documentation and
information Landlord reasonably requests. Concurrently with Tenant's notice of
any request for consent to a Transfer, Tenant shall pay to Landlord a fee to
defray Landlord's actual, out-of-pocket, reasonable expenses in reviewing such
request, and Tenant shall also reimburse Landlord immediately upon request for
its actual, out-of-pocket reasonable attorneys' fees incurred in connection with
considering any request for consent to a Transfer.
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(d) CONDITIONS TO CONSENT. If Landlord consents to a proposed
---------------------
Transfer which involves as assignment of this Lease, then the proposed assignee
shall deliver to Landlord a written agreement whereby it expressly assumes
Tenant's obligations hereunder as of the effective date of the assignment.
Except as provided below, no Transfer shall release Tenant from its obligations
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default occurs
while the Premises or any part thereof are subject to a Transfer, then Landlord,
in addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Rent. Tenant
authorizes its transferees to make payments of rent directly to Landlord upon
receipt of notice from Landlord to do so.
(e) CANCELLATION. Landlord may, within thirty (30) days after
------------
submission of Tenant's written request for Landlord's consent to an assignment
or subletting, or cancel this Lease as to the portion of the Premises proposed
to be sublet or assigned as of the date the proposed Transfer is to be
effective. If Landlord cancels this Lease as to any portion of the Premises,
then this Lease shall cease for such portion of the Premises and Tenant shall
pay to Landlord all Rent accrued through the cancellation date relating to the
portion of the Premises covered by the proposed Transfer. Thereafter, Landlord
may lease such portion of the Premises to the prospective transferee (or to any
other person) without liability to Tenant. Notwithstanding the foregoing, in the
event that at the time of such proposed sublet or assignment the Premises
consist of at least 42,095 rentable square feet, the provisions of this Section
8(e) shall not be effective.
(f) ADDITIONAL COMPENSATION. Tenant shall pay to Landlord,
-------------------------
immediately upon receipt thereof, fifty percent (50%) of the excess of (1) all
compensation received by Tenant for a Transfer less the costs reasonably
incurred by Tenant with unaffiliated third parties in connection with such
Transfer (i.e., tenant improvements, reasonable legal fees and brokerage
commissions) over (2) the Rent allocable to the portion of the Premises covered
thereby.
(g) In addition, Tenant shall have the right, without Landlord's
prior consent, to assign this Lease or sublet the Premises: (1) To any business
entity which, at the time of such assignment or sublease, which owns a majority
interest of Tenant, in which Tenant owns a majority interest, or which is
controlled by an entity that owns a majority interest in Tenant; (2) To any
business entity which succeeds Tenant as a result of a merger, consolidation or
reorganization of Tenant; (3) To any entity which purchases substantially all of
the assets of Tenant at the Premises; or (4) To an entity which either (A)
subleases a portion of the Premises for a term of eighteen (18) months or less
in any one instance with no right of renewal or (B) subleases any portion of the
Premises not exceeding a total of 8,000 rentable square feet for a term of any
duration (not to exceed any remaining amount of time in the Term) (all of the
foregoing under (1), (2) or (3) shall hereinafter be referred to as "RELATED
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PARTY ASSIGNMENTS"; Related Party Assignments, together with (4) shall
- ------------------
hereinafter be referred to as "BUSINESS ASSIGNMENTS"). In connection with any
---------------------
Business Assignment, Landlord shall not have the right of cancellation pursuant
to Section 8(e), nor shall Landlord receive any compensation pursuant to Section
8(f) on account of for any Related Party Assignment.
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9. INSURANCE; WAIVERS OF SUBROGATION; INDEMNITY.
--------------------------------------------
(a) INSURANCE. Tenant shall maintain throughout the Term the
---------
following insurance policies (the "POLICIES"):
--------
(1) Commercial general liability insurance on an occurrence
form, including blanket contractual liability sufficient to cover Tenant's
indemnity obligations hereunder, insuring against any and all liability of
Tenant or claims of liability of Tenant arising out of, occasioned by or
resulting from any accident or otherwise resulting in or about the Premises
in such amounts as are usually carried by entities leasing properties
similar to the Premises, but in any event with a combined single limit of
not less than $2,000,000.00 for bodily injury and property damage with
respect to any one occurrence, which amount shall be increased from time to
time to reflect what a reasonably prudent person or entity leasing property
similar to the Premises would carry, together with excess/umbrella
liability insurance on a "follow form" basis with minimum limits of
$3,000,000.00. The commercial general liability policy must include the
standard coverages of premises/operations and products/completed
operations;
(2) Loss or damage by perils customarily included under standard
"all risk" policies, covering all perils and contingencies as may be
required by the Landlord, including a replacement cost endorsement insuring
eighty percent (80%) of the replacement cost of the Tenant's property,
fixtures and improvements, and other property (including property of
others) in the Premises;
(3) For any period during which construction is being performed
on the Premises by Tenant, "builder's all risk" coverage policy of fire and
hazard insurance (completed value non-reporting form) with respect to the
Premises, including vandalism and malicious mischief, in an amount not less
than the full replacement cost of the improvements which are the subject of
construction, which insurance policy shall contain a replacement cost
endorsement. This policy must name Landlord and The Advance Group as
additional insured;
(4) Worker's compensation insurance to the full extent required
by New Jersey state law for all employees of the Tenant engaged in any work
on or about the Premises with minimum employer's liability limits in
accordance with Law;
(5) Business interruption insurance in an amount equal to six
(6) months' loss of gross earnings and the extra expense that could result
from the cessation of the business conducted by the Tenant at the Premises;
(6) Automobile liability insurance with a combined single limit
of $1,000,000.00 covering all owned, non-owned and hired vehicles; and
(7) Insurance against such other hazards as may be reasonably
required by the Landlord from time to time and as are customarily insured
against by similar type tenants with respect to similar leased properties.
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Copies of certificates with respect to all Policies, together with evidence of
payment of the premium must be furnished to Landlord prior to the Anticipated
Commencement Date. If unavailable at such time, Policies may be evidenced by a
certificate of insurance, together with a copy of the declarations page. Any
Policy providing general liability coverage shall be written and endorsed so as
to name Landlord and The Advance Group as an additional insured, as their
interests may appear. With respect to Tenant's use and occupancy of the
Premises, Tenant's insurance shall provide primary coverage to Landlord when any
policy issued to Landlord provides duplicate or similar coverage, and in such
circumstance Landlord's policy will be excess over Tenant's Policy. Each Policy
shall be written by insurance companies authorized or licensed to do business in
the State of New Jersey having an A.M. Best Company, Inc. rating of A or higher
and a financial size category of VIII or higher, and shall be on such forms and
written by such companies as shall be reasonably approved by Landlord. Such
insurance coverage may be effected under overall blanket or excess coverage
policies of Tenant, except as to general liability insurance, which may be
effected under combined single limit. Each Policy shall be written or endorsed
so as to provide for commercially reasonable deductibles, although Tenant agrees
to indemnify Landlord for claims beginning with the first dollar whenever a
deductible applies to a claim requiring Tenant's indemnification. Each Policy
shall contain a provision to the effect that such policy shall not lapse or be
terminated, canceled, materially altered or in any way limited in coverage or
reduced in amount unless Landlord is notified in writing at least thirty (30)
days prior to such lapse, termination, cancellation, alteration, limitation or
reduction. Tenant shall pay the premiums for such insurance as the same shall
become due and payable. Not later than thirty (30) days prior to the expiration
date of any Policy, Tenant shall deliver to Landlord replacement certificates of
such Policy.
(b) WAIVER OF SUBROGATION. Tenant and Landlord each waive any claim
---------------------
it might have against the other for any injury to or death of any person or
damage to or theft, destruction, loss, or loss of use of any property in
connection with this Lease or the Premises (each, a "LOSS"), to the extent the
----
other party is insured against under any insurance policy required under the
terms hereof (inclusive of any self-insurance and/or deductible amounts),
REGARDLESS OF WHETHER THE NEGLIGENCE OF SUCH PARTY CAUSED THE LOSS. Tenant and
Landlord shall each cause its insurance carrier to endorse all applicable
policies waiving the carrier's rights of recovery under subrogation or otherwise
against the other.
(c) INDEMNITY. Subject to Section 9(a), Tenant shall defend,
---------
indemnify, and hold harmless Landlord and its representatives and agents from
and against all claims, demands, liabilities, causes of action, suits,
judgments, damages, and expenses (including reasonable attorneys' fees) arising
from (1) Tenant's use and occupancy of the Premises, or any work, activity or
thing done, allowed or suffered by Tenant in, on or about the Premises, the
Building or the Park, or (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease, and/or (3) any act or omission of Tenant or any
Tenant Party. Landlord shall defend, indemnify, and hold harmless Tenant and its
representatives and agents from and against all claims, demands, liabilities,
causes of action, suits, judgments, damages, and expenses (including attorneys'
fees) arising from (1) any work, activity or thing done, allowed or suffered by
Landlord in, on or about the Premises, the Building and/or the Park (other than
acts or omissions of Tenant or a Tenant Party), and/or (2) any breach or default
by Landlord of any of Landlord's obligations under this Lease. This indemnity
provision shall survive termination or expiration of this Lease. If any
proceeding is filed for which indemnity is required hereunder, the indemnifying
party agrees, upon request therefore, to defend
12
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the indemnified party in such proceeding at its sole cost utilizing counsel
satisfactory to the indemnified party.
(d) LANDLORD'S INSURANCE. Landlord shall maintain throughout the
--------------------
Term insurance policies in accordance with the insurance certificate attached
hereto as Exhibit R.
---------
10. SUBORDINATION AND NON-DISTURBANCE; ATTORNMENT; NOTICE TO LANDLORD'S
----------------------------------------------------------------------
MORTGAGEE.
- ---------
(a) SUBORDINATION AND NON-DISTURBANCE. This Lease shall be
-------------------------------------
subordinate to any mortgage or other security instrument, or any ground lease,
master lease, or primary lease, that now or hereafter covers all or any part of
the Premises, and also to all renewals, modifications, consolidations and
extensions of such underlying mortgage, security instrument, ground lease,
master lease or primary lease. Although no instrument or act on the part of
Tenant shall be necessary to effectuate such subordination, Tenant shall,
nevertheless, execute and deliver such further reasonable instruments confirming
such subordination as may be desired by Landlord's Mortgagee or by a lessor,
licensor or party to any agreement under any such underlying ground lease,
master lease, or primary lease provided, however, that, as a condition thereto,
Landlord shall obtain for Tenant a non-disturbance agreement in form reasonably
acceptable to Tenant from Landlord's Mortgagee which shall provide that, so long
as Tenant is not in default under the terms this Lease beyond applicable grace
periods, Landlord's Mortgagee shall not disturb Tenant's rights under this
Lease. Landlord agrees that the effectiveness of this Lease shall be conditioned
upon Landlord's delivery to Tenant of the initial subordination and
non-disturbance agreement in accordance with the terms hereof on or before
January 31, 1999. Any Landlord's Mortgagee may elect, at any time, unilaterally,
to make this Lease superior to its mortgage, ground lease, master lease, or
primary lease or other interest in the Premises by so notifying Tenant in
writing.
(b) ATTORNMENT. Tenant shall attorn to any party succeeding to
----------
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, and shall execute such reasonable agreements confirming
such attornment as such party may reasonably request.
(c) NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to enforce
------------------------------
any remedy it may have for any default on the part of Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlord's Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
(d) LANDLORD'S MORTGAGEE'S PROTECTION PROVISIONS. If Landlord's
------------------------------------------------
Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord's
Mortgagee shall not be: (1) liable for any act or omission of any prior lessor
(including Landlord except to the extent such act or omission constitutes a
Landlord Default which is continuing); (2) except to the extent received by
Landlord's Mortgagee, bound by any Rent which Tenant might have paid for more
than the current month to any prior lessor (including Landlord), and all such
Rent shall remain due and owing, notwithstanding such advance payment; (3)
except to the extent received by Landlord's Mortgagee, bound by any security or
advance rental deposit made by Tenant which is not delivered or paid over to
Landlord's Mortgagee and with respect to which Tenant shall look solely to
Landlord
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for refund or reimbursement; (4) bound by any termination, amendment or material
modification of this Lease made without Landlord's Mortgagee's consent and
written approval, except for those terminations, amendments and modifications
permitted to be made by Landlord without Landlord's Mortgagee's consent pursuant
to the terms of the loan documents between Landlord and Landlord's Mortgagee;
and (5) subject to the offset rights and defenses, which Tenant might have
against any prior lessor (including Landlord) except for those offset right and
defenses which are expressly provided in this Lease. Landlord's Mortgagee shall
have no liability or responsibility under or pursuant to the terms of this Lease
or otherwise after it ceases to own an interest in the Building. Nothing in this
Lease shall be construed to require Landlord's Mortgagee to see to the
application of the proceeds of any loan, and Tenant's agreements set forth
herein shall not be impaired on account of any modification of the documents
evidencing and securing any loan.
11. RULES AND REGULATIONS. Tenant shall comply with the rules and
-----------------------
regulations of the Building which are attached hereto as Exhibit H; provided,
---------
however, that to the extent any rule and/or regulation conflicts with the terms
of this Lease, the terms of this Lease shall control. Landlord may, from time to
time, change such rules and regulations for the safety, care, or cleanliness of
the Building, the Park and related facilities, provided that such changes are
applicable to all tenants of the Building and will not unreasonably interfere
with Tenant's use of the Premises. Tenant shall be responsible for the
compliance with such rules and regulations by itself and each Tenant Party.
Provided, however, that with respect to any new rules and regulations
promulgated by Landlord, Tenant shall receive at least ten (10) days written
notice thereof; such Rules and regulations shall be uniformly applied to all
tenants in the Building, shall not be arbitrarily applied to Tenant, and shall
not materially increase Tenant's obligations or materially decrease Landlord's
obligations pursuant to the Lease.
12. CONDEMNATION.
------------
(a) TOTAL TAKING. If an acquisition by right of eminent domain or
------------
conveyance in lieu thereof (a "TAKING") occurs with respect to the entire
------
Building or the entire Premises, this Lease shall terminate as of the date of
the Taking, and Rent shall be prorated as of such date.
(b) PARTIAL TAKING - TENANT'S RIGHTS. If any part of the Building
-----------------------------------
or the Park becomes subject to a Taking and such Taking materially prevents
Tenant from conducting its business in the Premises for a period of more than
ninety (90) days, then Tenant may terminate this Lease as of the date of such
Taking by giving written notice to Landlord within thirty (30) days after the
expiration of such ninety (90) day period, and Rent shall be apportioned as of
the date of such Taking. If Tenant does not terminate this Lease, then Rent
shall be abated on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking as of the date of the Taking.
(c) PARTIAL TAKING - LANDLORD'S RIGHTS. If at least fifty percent
-------------------------------------
(50%) of the Building becomes subject to a Taking, or if Landlord is required to
pay any of the proceeds received for a Taking to a Landlord's Mortgagee, and
sufficient proceeds do not remain to reconstitute the Building to an
architectural whole, then Landlord may terminate this Lease by delivering
written notice thereof to Tenant within thirty (30) days after such Taking, and
Rent shall be apportioned as of the date of such Taking. If Landlord does not so
terminate this Lease, then this Lease will continue, but if any portion of the
Premises has been taken, Rent shall abate as provided in the last sentence of
Section 12(b).
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(d) AWARD. If any Taking occurs, then Landlord shall receive the
-----
entire award or other compensation for the Land, the Building, and other
improvements taken. Tenant shall have no claim against Landlord and shall not
have any claim or rights to any portion of the amount that may be awarded as
damages as a result of any such Taking; and all right of Tenant to such damages
therefor are hereby assigned by Tenant to Landlord. Notwithstanding the
foregoing, Tenant may separately pursue a claim (to the extent it will not
reduce Landlord's award) against the condemnor for the value of Tenant's
personal property which Tenant is entitled to remove under this Lease, moving
costs, and other claims it may have.
(e) TRANSFER OF TITLE. Tenant agrees to execute and deliver any
-----------------
instruments as may be deemed reasonably necessary or required to expedite any
Taking or effectuate a proper transfer of title.
13. FIRE OR OTHER CASUALTY.
----------------------
(a) REPAIR ESTIMATE. If the Premises or the Building are damaged
----------------
by a fire or other casualty (a "CASUALTY"), Landlord shall, within forty-five
--------
(45) days after such Casualty, deliver to Tenant a good faith estimate of the
time needed to repair the damage caused by a Casualty (a "DAMAGE NOTICE").
-------------
(b) TENANT'S RIGHTS. If a material portion of the Premises or the
---------------
Building is damaged by Casualty such that Tenant is materially prevented from
conducting its business in the Premises and Landlord reasonably estimates that
the damage caused thereby cannot be repaired within one hundred eighty (180)
days after the Casualty, or, in the event any such Casualty occurs during the
last two (2) years of the Term or during any Renewal Term, then Tenant may
terminate this Lease by delivering written notice to Landlord of its election to
terminate within thirty (30) days after the Damage Notice has been delivered to
Tenant. If Tenant does not so timely terminate this Lease, then (subject to
Section 13(c)) Landlord shall repair the Building or the Premises, as the case
may be, as provided below, and Rent for the portion of the Premises rendered
untenantable by the Casualty shall be abated on a proportionate basis from the
date of Casualty until the completion of the repair.
(c) LANDLORD'S RIGHTS. If (1) at least fifty percent (50%) of the
------------------
Building is damaged by Casualty, or (2) if Landlord is required to pay any
insurance proceeds arising out of the Casualty to a Landlord's Mortgagee and
there remains insufficient proceeds to so restore the Building to the condition
it was in prior to the Casualty, or (3) the Expiration Date (as it may be
extended if the Renewal Option has been exercised by Tenant in accordance with
the provisions of Exhibit C hereof) is less than one (1) year from the date of
such Casualty, then, in any of said events, Landlord may terminate this Lease by
giving written notice of its election to terminate within thirty (30) days after
the Damage Notice has been delivered to Tenant, and Basic Rent and Additional
Rent shall be abated as of the date of the Casualty.
(d) REPAIR OBLIGATION. If this Lease is not terminated following
------------------
a Casualty, then Landlord shall, within a reasonable time after such Casualty,
begin to repair the Building and the Premises and shall proceed with reasonable
diligence to restore the Building and Premises to substantially the same
condition as they existed immediately before such Casualty; however, Landlord
shall not be required to repair or replace any of the furniture, equipment and
fixtures which
15
<PAGE>
may have been placed by, or at the request of, Tenant or other occupants in the
Building or the Premises, and Landlord's obligation to repair or restore the
Building or Premises shall be limited to the extent of the insurance proceeds
actually received by Landlord for the Casualty in question.
Landlord shall not exercise any rights that it may have to terminate
this Lease with respect to any Casualty unless it simultaneously terminates the
leases of all other tenants in the Building that are similarly affected by such
Casualty.
14. ENVIRONMENTAL COMPLIANCE.
------------------------
(a) (1) Unless otherwise specified herein, the following terms used
in this Section 14 shall have the following meanings:
"DEP": New Jersey Department of Environmental Protection and any
---
successor agency.
"ENVIRONMENTAL LAWS": All present and future federal, state or
-------------------
local laws, codes, ordinances, rules, regulations and other requirements as
the same, from time to time, may be amended, which relate to the human
health or safety concerns or to the environment, including those applicable
to the storage, treatment, disposal, handling and release of any Hazardous
Substances or Wastes.
"ENVIRONMENTAL CLAIM": Any complaint, order, directive, claim,
--------------------
action, investigation, lawsuit, demand, citation, notice, proceeding or
lien, or threatened complaint, order, directive, claim, action,
investigation, lawsuit, demand, citation, notice, proceeding or lien, by a
federal, state or local governmental entity involving Environmental Laws or
Environmental Conditions which affect Tenant or its conduct of business in
the Premises.
"ENVIRONMENTAL CONDITION": Any emission, spill, discharge,
------------------------
contamination or threatened contamination of any kind or nature whatsoever
at, on or from the Premises or affecting systems servicing the Premises
which may violate any Environmental Law, including, without limitation, the
presence of Hazardous Substances or Wastes.
"HAZARDOUS SUBSTANCES OR WASTES": Any toxic substance, hazardous
------------------------------
substance, contaminant, waste, pollutant or other similar product or
substance that may pose a threat to the environment or human health safety,
as defined in Environmental Laws.
(2) At all times during the Term, Tenant, at its sole expense,
shall fulfill, cure, observe and comply with any and all Environmental
Claims. Tenant agrees not to generate, store, manufacture, refine,
transport, treat, dispose or otherwise permit to be present on or about the
Premises any Hazardous Substances, except in de minimus quantities for
ordinary cleaning or office purposes. The provisions contained in this
Section shall be applicable on a prospective basis only notwithstanding the
fact that any substance shall not be deemed to be a Hazardous Substance at
the time of its use by Tenant but shall thereafter be deemed to be a
Hazardous Substance.
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<PAGE>
(3) If Tenant receives any notice of the occurrence or existence
of an Environmental Condition and/or Environmental Claim, then Tenant shall
give prompt notice of same to Landlord.
(4) If Tenant fails to comply with its obligations pursuant to
this Section 14, including without limitation the requirements of Section
14(a)(3), Landlord shall have the option, but shall not be obligated, to
enter onto the Premises with such notice as is otherwise required herein
and perform such obligations. All reasonable costs and expenses incurred by
Landlord in the exercise of any such rights shall be paid by Tenant as
Additional Rent.
(5) Without limitation upon any other event which may constitute
an Event of Default on the part of Tenant under this Lease, if any person
or entity asserts or creates a lien upon the Building, Park and/or the
Premises or any portion thereof by reason of the occurrence of an
Environmental Condition and/or Environmental Claim resulting solely or
partly as a result of the act or omission of Tenant, such act shall
constitute an Event of Default on the part of Tenant under this Lease,
entitling Landlord to all of the rights and remedies provided therefor;
provided, however, the occurrence of an Environmental Claim shall not
constitute an Event of Default if, within thirty (30) days of the
occurrence giving rise to the Environmental Claim: (1) Tenant can prove to
Landlord's reasonable satisfaction that Tenant has commenced and is
diligently pursuing either: (a) a cure or correction of the event which
constitutes the basis for the Environmental Claim and continues diligently
to pursue such cure or correction to completion; or (b) legal proceedings
preventing such governmental entity or entities from asserting such
Environmental Claim; and (2) Tenant has posted a bond, letter of credit, or
other security reasonably satisfactory in form, substance and amount to
Landlord to secure the proper and complete cure or correction of the event
which constitutes the basis for the Environmental Claim.
(6) Tenant shall permit Landlord or a Landlord Party access
during normal business hours, or during other hours either by agreement of
the parties or in the event of any emergency related to Environmental Laws
(after giving Tenant reasonable advance notice thereof, which may be oral
notice, except in cases of real or apparent emergency, in which case no
notice shall be required), to: (A) permit any of such parties to examine,
audit, copy or make extracts from, any and all books, records and documents
in possession of Tenant, its agents, representatives, environmental
consultants, or independent contractors relating to Tenant's compliance
with Environmental Laws; (B) inspect the Premises, and/or (C) perform any
work at the Premises to assure that the Premises are in compliance with all
Environmental Laws.
(7) In the event that either the SIC number or the operations
and processes undertaken by Tenant or any occupant of the Premises are to
change, Tenant shall provide not less than ten (10) days notice to Landlord
prior to implementing such change.
(8) At no expense to the Landlord, Tenant promptly shall provide
all reasonable information requested by Landlord or any federal, state or
local governmental entity regarding any Environmental Laws and promptly
shall sign such affidavits and submissions (subject to the reasonable
approval of Tenant's counsel) when requested to do so by Landlord or any
federal, state or local governmental entity. In the event an affidavit or
submission is
17
<PAGE>
inaccurate or incomplete, Tenant shall cooperate and provide such
information so that it can be made accurate and complete, at which time
Tenant promptly shall sign same.
(9) As a condition precedent to any Transfer by Tenant (other
than a Business Assignment), Tenant, at Tenant's own expense, shall comply
with Section 14(b) hereof and fulfill all of Tenant's obligations under
Section 14(a) hereof, in addition to complying with all other requirements
of this Lease.
(b) (1) Without limitation upon any of Tenant's obligations
pursuant to Section 14(a), Tenant, at its sole cost and expense, shall
comply with the Industrial Site Recovery Act, N.J.S.A. 13:K-6 et seq.
------
("ISRA") to the extent that the provisions of IRSA apply to Tenant's
----
operation from the Premises, including but not limited to, making all
submissions and providing all information to the DEP and otherwise
complying with all requirements of ISRA.
(2) Should Tenant's operations at the Premises not be subject
to ISRA, Tenant, at is sole cost and expense, shall obtain a letter of
non-applicability or de minimus quantity exemption from the DEP prior to
the expiration or earlier termination of the Term and promptly shall
provide Tenant's submission and the DEP's exemption letter to Landlord.
(3) Tenant represents and warrants to Landlord that Tenant
intends to use the Premises for the Permitted Use, and that Tenant's use of
the Premises shall be restricted to the SIC number set forth in the Lease
Summary (or any succeeding SIC number that may be assigned to the Permitted
Use by the appropriate governmental agency) unless Tenant obtains
Landlord's prior written consent to any change, which consent may be
unreasonably withheld in Landlord's sole discretion.
(c) Tenant agrees that each and every provision of this Section 14
shall survive the expiration or earlier termination of the Term of this Lease,
regardless of the reason for such termination, it being agreed and acknowledged
that Landlord would not have entered into this Lease but for the provisions of
this Section 14 and the survival thereof. Tenant's failure to abide by the terms
of this Section 14 shall be restrainable by injunction.
(d) Notwithstanding the foregoing, if compliance with any
Environmental Laws (including but not limited to ISRA) becomes necessary with
respect to the Land, the Park, the Building or the Premises because of (1) the
existence of any Hazardous Substances not caused by an act of omission of Tenant
or a Tenant Party, or (2) any action or inaction on the part of the Landlord,
including but not limited to, Landlord's execution of a contract for the sale of
the Building, the Land or the Park, any change in ownership of the Building, the
Land or the Park, initiation of bankruptcy proceedings, Landlord's
reorganization or sale of the controlling share of Landlord's assets or any
other event which triggers ISRA, then Landlord shall comply with ISRA and all
requirement of the DEP at Landlord' sole cost and expense.
15. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes levied
-----------------------
or assessed against personal property, furniture, or fixtures placed by Tenant
in the Premises. If any taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord's property and Landlord elects to pay the same, or
if the assessed value of Landlord's property is increased by inclusion of such
personal property, furniture or fixtures and Landlord elects to pay the taxes
based on such
18
<PAGE>
increase, then Tenant shall pay to Landlord, as Additional Rent, the part of
such taxes for which Tenant is primarily liable hereunder; provided, however,
Landlord shall not pay such amount if Tenant notifies Landlord that it will
contest the validity or amount of such taxes before Landlord makes such payment,
and thereafter diligently proceeds with such contest in accordance with law and
if the non-payment thereof does not pose a threat of loss or seizure of the
Building or interest of Landlord therein or impose any fee or penalty against
Landlord.
16. DEFAULT.
-------
(a) Each of the following occurrences shall be an "EVENT OF DEFAULT":
----------------
(1) Tenant's failure to pay Rent within ten (10) days after the
date that the same is due; provided however that Landlord shall provide
Tenant with one (1) late notice in any twelve (12) Lease Month period in
which event Tenant's failure to pay rent shall not be an Event of Default
unless Tenant fails to pay such sums within five (5) days of Landlord's
late notice;
(2) Tenant abandons or vacates the Premises or any substantial
portion thereof;
(3) Tenant fails to comply with the Permitted Use set forth
herein and the continuance of such failure for a period of five (5)
business days after Landlord has delivered to Tenant written notice
thereof;
(4) Tenant fails to provide any estoppel certificate within the
time period required under Section 23(e) hereof and such failure shall
continue for five (5) business days after written notice thereof from
Landlord to Tenant;
(5) Tenant's failure to perform, comply with, or observe any
other agreement or obligation of Tenant under this Lease and the
continuance of such failure for a period of more than thirty (30) days
after Landlord has delivered to Tenant written notice thereof, or, if such
default cannot reasonably be cured within thirty (30) days, Tenant's
failure to commence cure within that thirty (30) day period and diligently
prosecute to completion;
(6) A Transfer in violation of the provisions of this Lease;
(7) Tenant's failure to maintain insurance in accordance
with the provisions of this Lease, which is not cured within three (3)
business days of Tenant's receipt of notice from Landlord; and
(8) The filing of a petition by or against Tenant (A) in any
bankruptcy or other insolvency proceeding; (B) seeking any relief under any
state or federal debtor relief law; (C) for the appointment of a liquidator
or receiver for all or substantially all of Tenant's property or for
Tenant's interest in this Lease; or (D) for the reorganization or
modification of Tenant's capital structure; provided, however, if such a
petition is filed against Tenant, then such filing shall not be an Event of
Default unless Tenant fails to have the proceedings initiated by such
petition dismissed within sixty (60) days after the filing thereof.
19
<PAGE>
(b) Upon any Event of Default, Landlord may, in addition to all
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions:
(1) Terminate this Lease by giving Tenant written notice
thereof, in which event Tenant shall pay to Landlord the sum of (A) all
Rent accrued hereunder through the date of termination, (B) all amounts due
from time to time under Section 17(a), and (C) an amount equal to (x) the
total Rent that Tenant would have been required to pay for the remainder of
the Term discounted to present value at a per annum rate equal to the Prime
Rate as published on the date this Lease is terminated minus (y) the then
present fair rental value of the Premises for such period, similarly
discounted;
(2) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (A) all Rent and other amounts accrued
hereunder to the date of termination of possession, (B) all amounts due
from time to time under Section 17(a) hereof, and (C) all Rent and other
net sums required hereunder to be paid by Tenant during the remainder of
the Term, diminished by any net sums thereafter received by Landlord
through reletting the Premises during such period, after deducting all
reasonable costs incurred by Landlord in reletting the Premises. Landlord
shall use reasonable efforts to relet the Premises on such terms as
Landlord in its sole discretion may determine (including a term different
from the Term, rental concessions, and alterations to, and improvement of,
the Premises) in accordance with all applicable Laws; provided, however,
Landlord shall not be obligated to relet the Premises before leasing other
portions of the Building or the other buildings in the Park. Landlord shall
not be liable for, nor shall Tenant's obligations hereunder be diminished
because of, Landlord's failure to relet the Premises or to collect rent due
for such reletting provided Landlord has made all reasonable efforts to
mitigate damages in accordance with all applicable Laws. Tenant shall not
be entitled to the excess of any consideration obtained by reletting over
the Rent due hereunder. Reentry by Landlord in the Premises shall not
affect Tenant's obligations hereunder for the unexpired Term; rather,
Landlord may, from time to time, bring an action against Tenant to collect
amounts due by Tenant, without the necessity of Landlord's waiting until
the expiration of the Term;
(3) Unless Landlord delivers written notice to Tenant expressly
stating that it has elected to terminate this Lease, all actions taken by
Landlord to dispossess or exclude Tenant from the Premises shall be deemed
to be taken under Section 16(b)(2). If Landlord elects to proceed under
Section 16(b)(2) hereof, it may at any time thereafter elect to terminate
this Lease under Section 16(b)(1);
(4) Tenant hereby waives all right of redemption to which Tenant
or any person under Tenant might be entitled by any law now or hereinafter
in force.
17. PAYMENT BY TENANT; NON-WAIVER.
-----------------------------
(a) PAYMENT BY TENANT. Upon any Event of Default, Tenant shall pay to
-----------------
Landlord all reasonable costs incurred by Landlord (including court costs and
reasonable attorneys' fees and expenses should Landlord prevail in any
litigation) in (1) obtaining possession of the Premises, (2) removing and
storing Tenant's or any other occupant's property, (3) repairing,
20
<PAGE>
restoring, altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (8) if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting all or any part of the
Premises (including reasonable brokerage commissions, cost of tenant finish
work, and other costs incidental to such reletting), (9) performing Tenant's
obligations which Tenant failed to perform, and (10) enforcing, or advising
Landlord of, its rights, remedies, and recourses arising out of the Event of
Default, in addition to the unamortized portion of the Construction Allowance,
Free Rent and any brokerage commissions paid by Landlord in connection with this
Lease. If Tenant prevails in such litigation, Landlord shall pay Tenant its
court costs and reasonable attorneys' fees and expenses in connection with such
action. To the full extent permitted by Law, Landlord and Tenant agree the
federal and state courts of the State of New Jersey shall have exclusive
jurisdiction over any matter relating to or arising from this Lease and the
parties' rights and obligations under this Lease.
(b) NO WAIVER. Landlord's acceptance of Rent following an Event of
---------
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by either party of any violation or breach of any of the terms contained
herein by the other party shall waive such party's rights regarding any future
violation of such term. Landlord's acceptance of any partial payment of Rent
shall not waive Landlord's rights with regard to the remaining portion of the
Rent that is due, regardless of any endorsement or other statement on any
instrument delivered in payment of Rent or any writing delivered in connection
therewith; accordingly, Landlord's acceptance of a partial payment of Rent shall
not constitute an accord and satisfaction of the full amount of the Rent that is
due.
18. SURRENDER OF PREMISES. No act by Landlord shall be deemed an
-----------------------
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord. At the expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises with all improvements located therein in good repair
and condition, free of Hazardous Substances placed on the Premises by Tenant or
a Tenant Party during the Term, broom-clean, reasonable wear and tear (and
condemnation and Casualty damage, as to which Sections 12 and 13 shall control)
excepted, and shall deliver to Landlord all keys to the Premises. Provided that
there is no then-existing Event of Default hereunder, Tenant may, prior to the
end of the Term, remove all unattached trade fixtures, furniture, and personal
property placed in the Premises or elsewhere in the Building by Tenant.
Additionally, at Landlord's option, Tenant shall, prior to the end of the Term,
remove such alterations, additions, improvements, trade fixtures, personal
property, equipment, wiring, cabling, and furniture (excluding Tenant's initial
fit-up of the Premises) as Landlord may request; however, Tenant shall not be
required to remove any addition or improvement to the Premises if Landlord has
specifically agreed in writing at the time such improvement was installed that
the improvement or addition in question need not be removed at the end of the
Term. Tenant shall repair all damage caused by such removal prior to the
expiration or sooner termination of this Lease. All items not so removed shall
within five (5) business days of Tenant's receipt of notice regarding such
items, at Landlord's option, be deemed to have been abandoned by Tenant and may
be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items;
any such disposition shall not be considered a strict foreclosure. The
provisions of this Section 18 shall survive the end of the Term.
21
<PAGE>
19. HOLDING OVER. If Tenant fails to vacate the Premises at the end of the
------------
Term, then Tenant shall be a tenant from month to month and, in addition to all
other damages and remedies to which Landlord may be entitled for such holding
over, Tenant shall pay, in addition to the other Additional Rent, Basic Rent
equal to one hundred fifty percent (150%) of the Basic Rent in effect as of the
Lease Month immediately preceding such time, which shall be payable in advance
on the first day of each month. The provisions of this Section 19 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law.
20. CERTAIN RIGHTS RESERVED BY LANDLORD. Provided that the exercise of
--------------------------------------
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in and
about the Building, or any part thereof; to enter upon the Premises (after
giving Tenant reasonable advance notice thereof, which may be oral notice,
except in cases of real or apparent emergency, in which case no notice shall be
required) and, during the continuance of any such work, to temporarily close
doors, entryways, public space, and corridors in the Building; to interrupt or
temporarily suspend Building services and facilities; to change the name of the
Building; and to change the arrangement and location of entrances or
passageways, doors, and doorways, corridors, elevators, stairs, restrooms, or
other public parts of the Building, provided, however, that Landlord shall not
close, obstruct or otherwise change the location of the existing front and rear
entrances to the Building;
(b) To take such reasonable measures as Landlord deems advisable
for the security of the Building and its occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily denying access to the
Building; and closing the Building after Business Hours and on weekends and
holidays, subject, however, to Tenant's right to enter when the Building is
closed after Business Hours under such reasonable regulations as Landlord may
prescribe from time to time; and
(c) To enter the Premises at reasonable hours to show the Premises to
prospective purchasers, lenders, or, during the last twelve (12) months of the
Term, tenants.
In exercising any of Landlord's rights under this Lease, including,
but not limited to it rights pursuant to this Section 20, Landlord agrees (1)
not to unreasonably interfere with the operation of Tenant's business in the
Premises, nor the ingress or egress or visibility therefrom, including any
signage, (2) to diligently prosecute to completion any repairs, alterations,
additions, or improvements within the Premises which Landlord is required or
elects to perform pursuant to the terms of this Lease and performs such repairs
in such a way as not to unreasonably interfere with Tenant's operation of its
business in the Premises, during Business Hours and in the presence of an
authorized employee of Tenant (except in cases of real or apparent emergency, in
which case no notice shall be required), and (3) to cause said work to be
accomplished in as expeditious a manner as is reasonably practicable, and upon
reasonable advance notice to Tenant(except in cases of real or apparent
emergency, in which case no notice shall be required). Landlord shall promptly
restore any damage to any portion of the Premises resulting from its exercise of
its rights under this Lease, including, but not limited to those caused by any
acts or omissions of Landlord, its agents, servants, employees or contractors.
22
<PAGE>
21. INTENTIONALLY OMITTED.
---------------------
22. PARKING. Tenant shall have the non-exclusive right to use the
-------
Tenant Parking Spaces and the exclusive right to use the Tenant Visitor Reserved
Spaces in the parking area associated with the Building which is more
particulary described on Exhibit B attached hereto (the "PARKING AREA") during
--------- ------------
the Term subject to such reasonable terms, conditions and regulations as are
from time to time applicable to patrons of the Parking Area. Landlord shall have
no liability on account of any damage or loss to any vehicle or its contents
located in the Parking Area, regardless of cause, except for Landlord's willful
misconduct or negligence. Landlord covenants that it shall (a) not provide any
other tenant in the Building, or its customers or invitees, with any reserved
parking spaces in the Parking Area in excess of that granted to Tenant
hereunder, and (b) maintain the parking ratios in the Parking Area in accordance
with local code. Tenant acknowledges and agrees that Landlord is providing the
Tenant Visitor Reserved Spaces to Tenant as a courtesy and that Landlord is not
assuming any responsibility with regard to the policing of the Tenant Visitor
Reserved Spaces to ensure the parties other than Tenant's visitors do not use
such spaces.
23. INTENTIONALLY OMITTED.
---------------------
24. MISCELLANEOUS.
-------------
(a) LANDLORD TRANSFER. Landlord may sell its interest in the Building
-----------------
and/or transfer or assign any of its rights under this Lease. If Landlord sells
its interest in the Building or assigns its rights under this Lease, then
Landlord shall thereby be released from any further obligations hereunder
arising after the date of the sale or transfer (but not before), provided,
solely with respect to an assignment of this Lease, that the assignee assumes
Landlord's obligations hereunder in writing.
(b) LANDLORD'S LIABILITY. The liability of Landlord to Tenant for
--------------------
any default by Landlord under the terms of this Lease shall be limited to
Tenant's actual direct, but not consequential, damages therefor and shall be
recoverable only from the interest of Landlord in the Building, the Land and/or
the Park and Landlord shall not be personally liable for any deficiency.
(c) FORCE MAJEURE. Other than for Tenant's obligations under this
-------------
Lease that can be performed by the payment of money (e.g., payment of Rent and
maintenance of insurance), whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations, or restrictions, or any
other causes of any kind whatsoever which are beyond the control of such party.
(d) BROKERAGE. Neither Landlord nor Tenant has dealt with any broker
---------
or agent in connection with the negotiation or execution of this Lease, other
than the Broker, whose commission shall be paid by Landlord, pursuant to a
separate written agreement. Tenant and Landlord shall each indemnify the other
against all costs, expenses, attorneys' fees, and other liability for
commissions or other compensation claimed by any other broker or agent claiming
the same by, through, or under the indemnifying party.
23
<PAGE>
(e) ESTOPPEL CERTIFICATES. From time to time (but not more than two
---------------------
times per twelve (12) Lease Month period), Tenant shall furnish to any party
designated by Landlord, within ten (10) days after its receipt of Landlord's
request therefor, a certificate signed by Tenant confirming and containing such
factual certifications and representations as to this Lease as Landlord may
reasonably request. Unless otherwise required by Landlord's Mortgagee, the form
of estoppel certificate to be signed by Tenant shall be substantially similar to
the form attached hereto as Exhibit I.
---------
(f) NOTICES. All notices and other communications given pursuant
-------
to this Lease shall be in writing and shall be (11) mailed by first class,
United States Mail, postage prepaid, certified, with return receipt requested,
(12) sent by a nationally recognized overnight courier service, or (13) sent by
facsimile transmission during normal business hours followed by a confirmatory
letter sent in another manner permitted hereunder, and addressed to the parties
hereto at the addresses specified in the Lease Summary. All notices shall be
effective upon delivery to the address of the addressee; provided, however, that
the date of any refusal by a party to accept delivery of a notice shall be
deemed to be the effective date of such notice. The parties hereto may change
their addresses by giving notice thereof to the other in conformity with this
provision.
(g) SEPARABILITY. If any clause or provision of this Lease is
------------
illegal, invalid, or unenforceable under present or future Laws, then (unless
Tenant's use of the Premises is materially, adversely affected) the remainder of
this Lease shall not be affected thereby and in lieu of such clause or
provision, there shall be added as a part of this Lease a clause or provision as
similar in terms to such illegal, invalid, or unenforceable clause or provision
as may be possible and be legal, valid, and enforceable.
(h) AMENDMENTS AND BINDING EFFECT. This Lease may not be amended
--------------------------------
except by instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by either party unless such
waiver is in writing signed by the other party, and no custom or practice which
may evolve between the parties in the administration of the terms hereof shall
waive or diminish the right of each party to insist upon the performance by the
other party in strict accordance with the terms hereof. The terms and conditions
contained in this Lease shall inure to the benefit of and be binding upon the
parties hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and, other than Landlord's
Mortgagee, no third party shall be deemed a third party beneficiary hereof.
(i) QUIET ENJOYMENT. Provided Tenant has performed all of its
---------------
material obligations hereunder, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term, without hindrance from Landlord or a Landlord
Party, but not otherwise, subject to the terms and conditions of this Lease.
(j) NO MERGER. There shall be no merger of the leasehold estate
----------
hereby created with the fee estate in the Premises or any part thereof if the
same person acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
24
<PAGE>
(k) NO OFFER. The submission of this Lease to Tenant shall not be
--------
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
(l) ENTIRE AGREEMENT. This Lease constitutes the entire agreement
----------------
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The normal rule of
construction that any ambiguities be resolved against the drafting party shall
not apply to the interpretation of this Lease or any exhibits or amendments
hereto.
(m) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
--------------------
LANDLORD AND TENANT EACH WAIVE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING
OUT OF OR WITH RESPECT TO THIS LEASE.
(n) GOVERNING LAW. This Lease shall be governed by and construed in
-------------
accordance with the laws of the State of New Jersey.
(o) JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more than
---------------------------
one party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
(p) FINANCIAL REPORTS. Within fifteen (15) days after Landlord's
-----------------
request, Tenant will furnish Landlord with Tenant's most recent annual and
quarterly reports. Landlord will not disclose any aspect of Tenant's financial
statements that Tenant designates to Landlord as confidential except (14) to
Landlord's Mortgagee or prospective purchasers of the Building, (15) in
litigation between Landlord and Tenant, or (16) if required by court order.
Tenant shall not be required to deliver the reports required under this Section
more than once in any twelve (12) month period.
(q) INTENTIONALLY OMITTED.
---------------------
(r) TELECOMMUNICATIONS. Tenant and its telecommunications companies,
------------------
including local exchange telecommunications companies and alternative access
vendor services companies shall have no right of access to and within the
Building and/or the Land, for the installation and operation of
telecommunications systems including voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave,
wireless, and any other transmission systems, for part or all of Tenant's
telecommunications within the Building and from the Building and/or the Land to
any other location without Landlord's prior written consent, which consent shall
not be unreasonably, withheld, conditioned or delayed.
(s) INTENTIONALLY OMITTED.
---------------------
(t) EXHIBITS. All exhibits and attachments attached hereto are
--------
incorporated herein by this reference.
25
<PAGE>
(u) DEFINITIONS. (1) "INCLUDING", means including, without
----------- ---------
limitation; (2) "LEASE MONTH" shall mean each calendar month during the Term
------------
(and if the Commencement Date does not occur on the first day of a calendar
month, the period from the Commencement Date to the first day of the next
calendar month shall be included in the first Lease Month for purposes of
determining the duration of the Term, and the monthly Basic Rent rate applicable
for such partial month shall be apportioned as provided in Section 4(a) of the
Lease); (3) "TANGIBLE NET WORTH" shall mean the excess of total assets over
-------------------
total liabilities, in each case as determined in accordance with generally
accepted accounting principles consistently applied ("GAAP"), excluding,
----
however, from the determination of total assets all assets which would be
classified as intangible assets under GAAP including goodwill, licenses,
patents, trademarks, trade names, copyrights, and franchises; (4) "PRIME RATE"
----------
shall mean the prime rate as published by The Wall Street Journal, Northeast
Edition, in its listing of "Money Rates"; and (5) the "PRICE INDEX" shall mean
-----------
the Consumer Price Index (New Series 1982-84-100) published by the Bureau of
Labor Statistics of the U.S. Department of Labor, All Items, New York, New York
Northeastern N.J.,for All Urban Consumers.
25. OTHER PROVISIONS.
----------------
(a) LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY
THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND
TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF
THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE
RENT, WITHOUT ABATEMENT, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY
LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
(b) Landlord hereby represents and warrants to Tenant upon which
warranties and representation Tenant has relied in executing and delivering this
Lease that:
(1) Landlord has no actual knowledge of, and has received no
notice of, any violation of any Law affecting the Premises, the Building,
the Land or the Park.
(2) Landlord has no actual knowledge of any confirmed or
unconfirmed special assessments affecting the Premises, the Building, the
Land or the Park.
(3) Landlord has full power and right to enter into this Lease,
and upon the execution and delivery of this Lease by Landlord, this Lease
will be legally binding upon Landlord in accordance with all of its terms
and conditions, without any qualification whatsoever which is not expressly
provided for herein.
(4) Landlord has no actual knowledge of any structural problems
currently affecting or the Premises and/or the Building.
(5) To the best of Landlord's knowledge, there are no pending
actions against the Landlord under any Environmental Law and the Landlord
has not received notice in any form of such an action, or of a possible
action.
26
<PAGE>
(6) To the best of Landlord's knowledge, there have not been,
nor are there now, any releases of Hazardous Substances in, on, over, at,
from, into or onto any portion of the Premises, the Building, the Land or
the Park in violation of any applicable laws.
(7) To the best of Landlord's knowledge, there is no
environmental condition, contamination, situation or incident on, at, or
concerning the Premises, the Building, the Land or the Park that may give
rise to an action or to liability under any law, rules, ordinance or common
law theory.
(8) To the best of Landlord's knowledge, Landlord, with
respect to the Premises, the Building, the Land and the Park, has been and
is in full compliance with any and all environmental permits and all other
requirements under all Environmental Laws.
(9) Landlord is solely vested with fee simple title to the
Building and has full right and lawful authority to lease the Premises to
Tenant pursuant to the terms hereof.
(10) No zoning or similar ordinance, restrictive covenant or
other encumbrance or restriction prevents the use of the Premises for the
Permitted Use, or otherwise conflicts or is inconsistent with the terms of
this Lease.
(11) No joinder or approval of any other person or entity is
required with respect to Landlord's right and authority to enter into this
Lease, including any lender or mortgagee.
(12) There is no underlying or superior lease with respect to
the Premises or any other part of the Building.
(c) If Landlord fails to perform, comply with, or observe any term or
covenant required to be performed by it under this Lease, and continues such
failure for a period of more than thirty (30) days after Tenant has delivered to
Landlord written notice thereof, or, if such default cannot be reasonably be
cured within thirty (30) days, Landlord's fails to commence cure within that
thirty (30) day period and diligently prosecute such cure to completion (a
"LANDLORD DEFAULT"):
----------------
(1) Tenant may, but shall not be obligated to, remedy such
default and in connection therewith may pay expenses and employ counsel.
All reasonable out-of-pocket sums expended by Tenant in connection
therewith (including reasonable attorneys' fees) shall be paid by Landlord
to Tenant upon thirty (30) days demand; or
(2) Tenant may commence an action in the Superior Court of New
Jersey seeking to compel Landlord to perform its obligations hereunder; or
(3) Tenant may terminate this Lease upon giving at least thirty
(30) days notice to Landlord of its intention so to do, in which event this
Lease shall terminate upon the date fixed in such notice, unless Landlord
shall have meanwhile cured such default (or, if such default is not
susceptible of cure within such thirty (30) day period, Landlord has
provided Tenant with reasonable assurance that such cure will be
accomplished promptly, has in fact commenced such cure and thereafter
diligently pursues such cure to completion).
27
<PAGE>
Tenant may exercise any of the foregoing remedies singly
or concurrently and without prejudice to the future exercise of any remaining
available remedies.
Anything in this Lease to the contrary notwithstanding,
Tenant shall not terminate this Lease because of a Landlord Default until
Landlord has had the opportunity to cure the Landlord Default as provided above
and until Tenant has then given written notice to Landlord's Mortgagee
specifying the nature of Landlord's Default and allowing Landlord and Landlord's
Mortgagee, or any of them, sixty (60) days after the date of such notice to cure
such default. If circumstances are such that such default cannot reasonably be
cured within that sixty (60) day period, Tenant shall allow a reasonable period
of time to complete such cure provided that such parties commence such cure
within the original sixty (60) day period and diligently pursue such cure to
completion.
(d) Except as otherwise specifically set forth herein, whenever
Landlord's consent or approval is required to be obtained by Tenant in this
Lease, Landlord agrees that it shall not unreasonably withhold or delay its
consent or approval.
(e) If Tenant desires any of the services specified in Section
6(a)(2) of the Lease: (A) at any time other than the Business Hours, or (B) on
weekends or holidays, Tenant shall pay to Landlord $25.00/hour per floor or
partial floor on which such services are required, as Additional Rent; provided,
however, Tenant shall receive five (5) hours per week of such after hours
services at no additional charge.
28
<PAGE>
(f) Exhibit K (Right of First Offer) and Exhibit O (Signage)
---------- ---------
are incorporated herein by reference for all purposes.
Dated as of the date first above written.
TENANT: DSET CORPORATION,
a New Jersey corporation
By: /s/ William P. McHale, Jr.
---------------------------------
Name: William P. McHale, Jr.
-------------------------------
Title: President/CEO
------------------------------
LANDLORD: ADVANCE/GLB I L.L.C., a Delaware limited
liability company
By: Advance/GLB Development Partners,
L.L.C., a Delaware limited liability
company, its manager member
By: Advance Land Holdings, L.L.C.,
a New Jersey limited liability
company, its manager
By: Advance Realty Advisors,
Inc., a New Jersey
corporation, its managing
member
By: /s/ Robert P. Cahill
----------------------------
Name: Robert P. Cahill
Title: Senior Vice President
29
<PAGE>
EXHIBIT A
---------
PLAN OF PREMISES
----------------
<PAGE>
[FLOOR PLAN OF LEASED PREMISES GOES HERE]
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF LAND AND/OR SITE PLAN
------------------------------------
<PAGE>
[SITE PLAN OF LEASED PREMISES GOES HERE]
<PAGE>
EXHIBIT C
---------
RENEWAL OPTION
--------------
Provided no Event of Default exists, Tenant may renew this Lease for the
Renewal Term, by delivering written notice of the exercise thereof to Landlord
not earlier than twelve (12) months before the Expiration Date. The Basic Rent
payable for each month during such extended Term shall be ninety-five percent
(95%) of the prevailing rental rate (the "PREVAILING RENTAL RATE ") at the
------------------------
commencement of such extended Term, for renewals of space of equivalent quality,
size, utility and location, with the length of the extended Term and the credit
standing of Tenant to be taken into account; provided, however, that in no event
shall the Prevailing Rental Rate be less than the rental rate in effect during
the last year of the Term.
The Renewal Term shall be upon the same terms, covenants and conditions of
this Lease as shall be in effect immediately prior to the renewal, except that:
(a) Basic Rent shall be adjusted to the Prevailing Rental Rate; (b) Landlord
will establish a new Expense Estimate (to be based upon the actual Operating
Costs during the twelve (12) Lease Month period immediately preceding the
commencement of the Renewal Term) which shall be effective as of the first day
of the Renewal Term; (c) Tenant shall have no further renewal option unless
expressly granted by Landlord in writing; and (d) Landlord shall provide to
Tenant a refurbishing allowance of $10.00 per Tenant's Rentable Square Feet (the
"RENEWAL ALLOWANCE"), which shall be disbursed to Tenant when the work has been
-----------------
substantially completed and Tenant has caused to be delivered to Landlord (1) an
invoices from Tenant's general contractor evidencing the cost of performing the
work, together with lien waivers from such party, and a consent of the surety to
the finished work (if applicable) and (2) a certificate of occupancy from the
appropriate governmental authority, if applicable to the work, or evidence of
governmental inspection and approval of the work. Landlord shall not provide to
Tenant any other allowances (e.g., moving allowance and the like) or tenant
inducements.
For the purposes of determining the Prevailing Rental Rate, the following
procedures shall apply:
(i) Landlord shall give Tenant notice (the "RENT NOTICE") not later
------------
than 180 days prior to the commencement of the Renewal Term, which
Rent Notice shall set forth Landlord's determination of the Prevailing
Rental Rate ("LANDLORD'S DETERMINATION");
------------------------
(ii) Tenant shall give Landlord notice ("TENANT'S NOTICE"), within
----------------
forty-five (45) days after delivery of the Rent Notice, stating
whether Tenant accepts or disputes the Landlord's Determination. If
Tenant's Notice accepts Landlord's Determination or Tenant fails or
refuses to give Tenant's Notice, Tenant shall be deemed to have
accepted Landlord's Determination. If Tenant's Notice disputes
Landlord's Determination, Tenant's Notice shall specify Tenant's
determination of the Prevailing Rental Rate ("TENANT'S DETERMINATION")
----------------------
as determined by an independent real estate appraiser;
(iii) Landlord shall give Tenant notice ("LANDLORD'S NOTICE"), within
-----------------
twenty (20) days after delivery of Tenant's Determination, of whether
Landlord accepts or disputes Tenant's Determination. If Landlord's
Notice accepts Tenant's Determination or if Landlord fails or refuses
to give Landlord's Notice, Landlord shall be deemed to have accepted
Tenant's
C-1
<PAGE>
Determination. If Landlord's Notice disputes Tenant's Determination,
Landlord shall deliver to Tenant, within thirty (30) days after
receipt of Tenant's Notice, Landlord's determination of the Prevailing
Rental Rate ("LANDLORD'S SECOND DETERMINATION"), as determined by an
--------------------------------
independent real estate appraiser. If Landlord's Second Determination
exceeds Tenant's Determination by ten percent (10%) or less, the Basic
Rent shall be the average of Landlord's Second Determination and
Tenant's Determination. If Landlord's Second Determination exceeds
Tenant's Determination by more than ten percent (10%), Landlord or
Tenant shall apply to the American Arbitration Association (or any
successor organization) to designate a third independent real estate
appraiser (the "THIRD APPRAISER") in accordance with the
-----------------
then-prevailing rules, regulations and/or procedures of the American
Arbitration Association, and if the American Arbitration Association
(or any successor organization) shall be unable or unwilling to
designate the Third Appraiser, then either party may commence a legal
proceeding to have the Third Appraiser appointed.
(iv) The Third Appraiser shall conduct such hearings and
investigations as he may deem appropriate and shall, within thirty
(30) days after the date of designation of the Third Appraiser, choose
either Landlord's Second Determination or Tenant's Determination, and
such choice shall be conclusive and binding upon Landlord and Tenant.
Each party shall pay its own counsel fees and expenses in connection
with any arbitration hereunder, including the expenses and fees of any
appraiser selected by it in accordance with the terms hereof. The
unsuccessful party shall bear the costs and expenses of the Third
Appraiser. Any appraiser appointed hereunder shall be an independent
real estate appraiser with at least ten (10) years experience in
leasing and valuation of properties which are similar in character to
the Building. The appraisers shall not have the power to add to,
modify or change any of the provisions of this Lease.
(v) If the final determination of the Prevailing Rental Rate shall
not be made on or before the first day of the Renewal Term, pending
such final determination, Tenant shall continue to pay, as the Basic
Rent for the Renewal Term, an amount equal to Landlord's Determination
(or, if Landlord shall have given Landlord's Second Determination,
Landlord's Second Determination), which amount shall in all events be
in addition to all Additional Rent payable under the terms of this
Lease. If, based upon the final determination hereunder of the Basic
Rent, the payments made by Tenant on account of Basic Rent for such
portion of the Renewal Term were greater than the Basic Rent payable
for the Renewal Term, the amount of such excess shall be refunded by
Landlord to Tenant within ten (10) business days following the final
determination of Basic Rent.
(vi) Landlord and Tenant shall promptly execute an amendment to this
Lease evidencing any extension of the Term pursuant to this Exhibit,
but no such amendment shall be necessary in order to make the
provisions of this Exhibit effective.
Tenant's rights under this Exhibit shall terminate if (17) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant fails to
timely exercise its option under this Exhibit, time being of the essence with
respect to Tenant's exercise thereof, or (3) an Event of Default exists at the
time of exercise of the option or on the date the renewal term would commence.
C-2
<PAGE>
EXHIBIT D
---------
TENANT WORK LETTER: ALLOWANCE
-----------------------------
(Landlord Performs the Work)
1. Landlord, at its sole cost and expense, and in addition to the
Construction Allowance and Free Rent Period, shall furnish and install the main
lobby and amenities package, including first floor locker rooms, work-out
equipment and shower rooms, utility rooms and common meeting rooms (including
furniture), Building directory and monument signage, along with: (a) the HVAC
system which will be distributed to the V.A.V. boxes in the Premises in
accordance with Exhibit D-1, and radiant heat around the perimeter of each
------------
floor; (b) the perimeter walls and columns in the Premises shall be sheet
rocked, taped, spackled and ready to receive paint; (c) the base building
electrical system and emergency lighting to all core areas and 400 amps of
electrical service to the third floor and 200 amps of electrical service to the
second floor of the Premises, together with two high voltage panels, two
transformers and four secondary panels and one meter; (d) sprinkler system for
the shell; (e) for divided-floor tenancies, all walls separating the Premises
from other tenant space. Landlord shall be responsible for only one-half (1/2)
of the cost of constructing any demising wall that abuts the Premises; and (f)
interior core improvements, including men's and women's toilet rooms, telephone
closets, electrical closets, janitorial closets and core walls.
2. Tenant will submit a finished, final space plan with respect to the
Premises (the "SPACE PLAN") to Landlord for Landlord's review and approval. This
----------
approval, with respect only to improvements within the Premises shall not be
unreasonably withheld, conditioned or delayed. If the Space Plan requires any
variance or modification of the existing site plan, provided Landlord has
approved this portion of the Space Plan in its sole discretion, Tenant shall be
responsible for obtaining all required approvals at Tenant's sole cost and
expense.
3. Within ten (10) days of its receipt of the Space Plan, Landlord shall
have the construction manager prepare a budget (the "BUDGET") of the Work (as
------
hereinafter defined). Tenant shall notify Landlord whether it approves of the
Budget within three (3) business days after the submission thereof. If Tenant
fails to notify Landlord that it disapproves of the Budget within such time
period, then Tenant shall be deemed to have approved the Budget. If Tenant
notifies Landlord that it disapproves the Budget within such time period, Tenant
and Landlord shall, within five (5) business days thereafter, value engineer the
Budget. This process shall continue until the Budget has been finally approved
by Tenant; provided, however, that the parties understand and agree that in the
event the Budget is not finally approved on or before February 1, 1999, the
Delay Date and the October 1, 1999 date referenced in Section 3(b) of the Lease
shall each be extended one (1) day for each day after February 1, 1999 that the
Budget is not finally approved. Notwithstanding the foregoing, that parties
understand and agree that, in the event Tenant has not finally approved the
Budget on March 1, 1999, the most recent version of the Budget as of such date
shall be deemed approved by Tenant. The parties agree that, at all times during
the process of the Work described hereunder, Landlord shall operate on an
"open-book" basis, with Tenant having the right to review all bids and costs
described herein.
Within two (2) business days of the final approval of the Budget, Landlord
shall engage a design consultant, at its sole cost and expense, to prepare final
Construction Documents with respect to all
D-1
<PAGE>
improvements to be installed in the Premises based upon the Space Plans and the
Budget and deliver the same to Tenant for its review and approval (which
approval shall not be unreasonably withheld, conditioned or delayed). Tenant
shall devote such time as is necessary to enable the design consultant to
complete the Construction Documents in accordance with this Exhibit. Tenant
shall notify Landlord whether it approves of the Construction Documents within
five (5) business days after Landlord's submission thereof. If Tenant fails to
notify Landlord that it disapproves of the initial Construction Documents within
five (5) business days after the submission thereof, then Tenant shall be deemed
to have approved the Construction Documents. If Tenant disapproves of the
Construction Documents, then Tenant shall notify Landlord thereof specifying in
reasonable detail the reasons for such disapproval, in which case Landlord
shall, within five (5) business days after such notice, have such Construction
Documents revised in accordance with Tenant's objections and submit to Tenant
for its review and approval. Tenant shall notify Landlord in writing whether it
approves of the resubmitted Construction Documents within five (5) business days
after its receipt thereof. This process shall be repeated until the Construction
Documents have been finally approved by Landlord and Tenant; provided, however,
that the parties understand and agree that in the event the Construction
Documents are not finally approved on or before March 1, 1999, the Delay Date
and the October 1, 1999 date referenced in Section 3(b) of the Lease shall each
be extended one (1) day for each day after March 1, 1999 that the Construction
Documents are not finally approved. Notwithstanding the foregoing, that parties
understand and agree that, in the event Landlord and Tenant have not finally
approved the Construction Documents on April 1, 1999, the most recent version of
the Construction Documents as of such date shall be deemed approved by Landlord
and Tenant. Any delay caused by Tenant's unreasonable withholding of its consent
or delay in giving its written approval as to such Construction Documents shall
constitute a Tenant Delay Day (defined below). To the extent that such
Construction Documents also require Landlord's approval, Landlord shall approve
such Construction Documents within three (3) business days after the design
consultant's submission of such Construction Documents to Landlord, which
approval shall not be unreasonably withheld, conditioned or delayed. Further, if
any of the Work will affect the Building's HVAC, electrical, mechanical, or
plumbing systems, then the Construction Documents pertaining thereto must be
approved by the Building's engineer of record. As used herein, "CONSTRUCTION
------------
DOCUMENTS" shall mean the final construction documents approved by Landlord
- ---------
(including, but not limited to, any working drawings necessary to complete the
Work), as amended from time to time by any approved changes thereto (it being
further agreed that the final Construction Documents shall be sealed by
Landlord's architect), and "WORK" shall mean all improvements to be constructed
----
in accordance with and as indicated on the Construction Documents, together with
any work required by governmental authorities to be made to other areas of the
Building solely as a result of the Work. Landlord's approval of the Construction
Documents shall not be a representation or warranty of Landlord that such
drawings are adequate for any use or comply with any Law and/or are in
accordance with Exhibit D-1, but shall merely be the consent of Landlord
------------
thereto. Tenant shall, at Landlord's request, sign the Construction Documents to
evidence its review and approval thereof. All changes in the Work must receive
the prior written approval of Landlord (which approval shall not be unreasonably
withheld, conditioned or delayed) and in the event of any such approved change
Tenant shall, upon completion of the Work, furnish Landlord with an accurate,
reproducible "as-built" plan of the improvements as constructed. After the
Construction Documents have been approved, Landlord shall cause the Work to be
performed in accordance with the Construction Documents. Tenant shall receive a
full set of final Construction Documents at no cost to Tenant.
D-2
<PAGE>
Landlord covenants and agrees that it shall require the construction
manager to seek at least three (3) bids from each of the major trades to
complete the Work based on the Construction Documents. The parties agree that in
the event the estimate to complete the Work, after the receipt of such bids, is
greater than the Budget that has been approved by Tenant, the parties shall work
together in an effort to reduce such costs to the approved Budget.
4. Except for any such delayed governed by the provisions of Section 24(c)
of the Lease, if a delay in the performance of the Work occurs because (a) of
any change by Tenant to the Space Plans or Construction Documents, (b) of any
specification by Tenant of materials or installations in addition to or other
than Landlord's standard finish-out materials, (c) of unanticipated building
code issues arising solely from the Space Plans, (d) Tenant fails to comply with
the time schedules set forth herein, or (e) Tenant or Tenant's agents otherwise
delays completion of the Work, then, provided Landlord has given Tenant prior
notice of such event, and Tenant does not promptly cure, notwithstanding any
provision to the contrary in this Lease (each day of delay caused by any such
event shall be a "TENANT DELAY DAY"), Tenant's obligation to pay Rent hereunder
----------------
shall commence on the Commencement Date, as such day may be adjusted by any
Tenant Delay Day; provided, however, that no delay has been caused by Landlord
or any Landlord Party.
5. Landlord shall engage a construction manager to oversee the Work, make
disbursements required to be made to the subcontractors, and act as a liaison
between the subcontractors and Tenant and coordinate the relationship between
the Work, the Building, and the Building's systems. Tenant shall pay a
construction management fee equal to seven percent (7%) of the Total
Construction Costs (hereinafter defined), which fee is included in Total Project
Costs (hereinafter defined).
6. The entire cost of performing the Work (including costs of construction
labor and materials, electrical usage within the Premises during construction,
additional janitorial services related to the Work , related taxes, if any, and
insurance costs, and general conditions), all as shall be contemplated by the
Budget, but excluding the cost of preparing all working drawings, Construction
Documents and all necessary permits and approvals, including a Certificate of
Occupancy, as hereinabove provided) is herein collectively called the "TOTAL
-----
CONSTRUCTION COSTS". The Total Construction Costs, together with the
- --------------------
construction management fee referred to in Section 5 above, is collectively
called the "TOTAL PROJECT COSTS". Any portion of the Total Project Costs in
---------------------
excess of the Construction Allowance (hereinafter defined) shall be paid by
Tenant. Upon approval of the Construction Documents and Budget and selection of
subcontractors, Tenant shall promptly execute a work order agreement prepared by
Landlord which identifies the Construction Documents, itemizes the Total Project
Costs, sets forth the Construction Allowance, and sets forth the initial
proportionate share of the Total Project Costs, if any, which is Tenant's
responsibility ("TENANT'S CONTRIBUTION"), the parties understanding that
-----------------------
Tenant's Contribution shall be revised in the event Additional Project Costs
(hereinafter defined) are incurred as a result of any change orders by Tenant.
If Tenant requests any changes to the Work after approval of the Construction
Documents, Tenant shall pay all costs, including permits and fees,
architectural, engineering and related design expenses directly resulting from
such changes, and such costs shall be added to the Total Construction Costs (the
"ADDITIONAL PROJECT COSTS"). No such changes shall be made without the prior
--------------------------
written consent of Landlord which approval, so long as the changes do not
include changes outside the Premises, shall not be unreasonably withheld,
conditioned or delayed. Landlord shall not be responsible for delay in occupancy
by Tenant because of changes to the Construction
D-3
<PAGE>
Documents after approval by Tenant as outlined above. Upon completion of such
revised Construction Documents, Landlord shall notify Tenant in writing of the
cost which will include a service fee of twenty-eight percent (28%) of the
Additional Project Costs, which shall be paid by Tenant together with monthly
payments during construction as provided for below. Tenant shall, within five
(5) business days of Landlord's notice, notify Landlord in writing whether
Tenant desires to proceed with such changes. In the absence of such written
authorization or Tenant's notice of election not to proceed with such changes,
Landlord shall not be obligated to perform the Work and Tenant shall be
responsible and chargeable for any and all delays in completion of the Premises
resulting therefrom. To the extent that Additional Project Costs are not related
to change orders requested by Tenant, such Additional Project Costs shall be at
Landlord's expense. To the extent that the Total Project Costs do not exceed the
Construction Allowance, Tenant shall receive a Rent credit or refund of any such
difference.
7. Upon Landlord's delivery to Tenant of an invoice from the construction
manager itemizing the portion of the Tenant's Contribution then due, Tenant
shall, within ten (10) days of its receipt of such invoice (such invoices to be
provided by Landlord to Tenant monthly during the course of construction of the
Work), make a payment to Landlord equal to Tenant's Contribution with respect to
such Total Project Costs described in the invoice.
8. Tenant may make periodic inspections of the Premises during the
construction provided that such inspections are made during reasonable business
hours with prior notice to Landlord and provided further that Tenant is
accompanied by a representative of Landlord. Tenant shall advise Landlord
promptly in writing of any objection to the performance of the Work.
9. Within five (5) business days of Landlord's notice to Tenant that the
Premises is completed, Tenant shall inspect the Premises in the presence of
Landlord and Landlord's construction manager to establish the Punch List Items
to be completed as soon thereafter as is reasonably possible. Any costs
reasonably incurred with respect to Punch List Items shall be included as part
of Total Project Costs and not as an additional cost to Tenant. Further, within
such time period, Landlord shall provide Tenant with a completion notice
described in Section 3(b) of the Lease.
10. Subject to the provisions of Section 3(b) of the Lease, Tenant may
install Tenant's Work in the Premises in accordance with the terms of the Lease
and in compliance with the following:
(a) No such work shall proceed without Landlord's prior written
approval (such approval not to be unreasonably withheld, conditioned or delayed)
of (1) any contract Tenant enters into with respect to Tenant's Work; (2)
detailed plans and specifications for the work; and (3) a certificate of
worker's compensation insurance showing that Tenant maintains insurance in
accordance with the Lease.
(b) Tenant shall and shall cause its contractors to abide by all
safety and construction laws, ordinances, rules and regulations. All work and
deliveries shall be scheduled through Landlord in accordance with the Rules and
Regulations attached as Exhibit H to the Lease. Entry onto the Premises by
---------
Tenant's contractors shall be pursuant to the terms, covenants, provisions and
conditions of the Lease. All Tenant's materials, Tenant's Work, installations
and decorations of any nature brought upon or installed in the Premises before
the Commencement Date shall be at
D-4
<PAGE>
Tenant's risk, and (except for willful misconduct) neither Landlord nor any
party acting on Landlord's behalf shall be responsible for any damage thereto or
loss or destruction thereof. Tenant shall not employ any contractor, who, in
Landlord's reasonable opinion, may prejudice Landlord's negotiations or
relationships with Landlord's contractors or subcontractors with their
employees, or as may disturb harmonious labor relations.
(c) Tenant shall reimburse Landlord for any additional expense
incurred by Landlord by reason of any Tenant Work not performed in accordance
with the terms hereof, or by reason of Tenant Delays caused by such Tenant Work,
or by reason of cleanup, which fails to comply with the provisions hereof.
11. All Work, and any alteration or improvement by Tenant in accordance
with this Exhibit of the Lease, shall be performed in accordance with the
Schedule of Standard Tenant Improvements attached hereto as Exhibit D-1. Tenant
-----------
shall promptly replace any such Work, alteration or improvement that is not so
performed, at Tenant's sole expense. Notwithstanding any failure by Landlord to
object to any such Work, alteration or improvement, Landlord shall have no
responsibility therefor.
12. To the extent not inconsistent with this Exhibit, Section 7(a) of this
Lease shall govern the performance of the Work and Landlord's and Tenant's
respective rights and obligations regarding the improvements installed pursuant
thereto.
13. In the event Tenant defaults in any payment required by this Exhibit,
(following written notice to Tenant and Tenant's failure to pay within ten (10)
days of such notice) Landlord shall, in addition to all other legally allowable
remedies, have the same rights as in the case of an Event of Default with
respect to the payment of Rent under the Lease. Once the Punch List Items have
been completed in accordance with this Exhibit, Tenant shall pay to Landlord,
within five (5) business days of demand thereof, any remaining portion of
Tenant's Contribution.
D-5
<PAGE>
EXHIBIT D-1
-----------
SCHEDULE OF STANDARD TENANT IMPROVEMENTS
----------------------------------------
The following Schedule of Standard Tenant Improvements is provided to specify
the minimum quality standards of the building materials to be used in the
construction of the interior Tenant improvements.
1. Partitions
----------
(a) Partitions within the Premises shall have 1/2" gypsum board on
each side of 3-5/8" metal studs, 16" on center, taped and spackled. Partitions
between the Premises, corridor(s) and between the Premises and adjacent space,
shall have 5/8" fire code gypsum board, taped and spackled, on each side of
3-5/8" metal studs, 16" on center above finished ceiling to underside of metal
deck. Demising partitions and corridor partitions to have thermofibre insulation
installed within, and to be constructed from floor to underside of metal deck
above.
2. DOORS AND BUCKS
---------------
(a) All frames to be hollow metal knock down door frames.
(b) Doors within the Premises to be 3'-0" x 8'-0" x 1'3/4" solid
core, stain grade birch veneer.
(c) Entrance doors from corridors thru to the Premises to be full
height (8'-0") double herculite frameless 3/4" clear glass doors, or double wood
solid core Mahogany veneer doors (see attached typical Tenant Entrance).
(d) All doors to be located, oriented and with hardware in accordance
with applicable codes.
3. Glazing
-------
Glazing in windows, doors and partitions shall be as required by code.
4. Hardware
--------
(a) Provide cylindrical latch sets with lever handle, on individual
office doors within the Premises.
(b) Provide lock sets with level handle and closers, on doors from
corridor(s) to the Premises.
(c) Provide sets and latch sets to be Schlage, Series "D", or
equivalent, as approved by Landlord.
D-6
<PAGE>
(d) All lock sets shall be keyed to the building master key system.
5. Acoustical Ceilings
-------------------
(a) Lay-in acoustic tile ceilings, within the Premises, shall be 2' x
4' acoustical lay-in ceiling, Armstrong Second Look II (white) in 15/16" grid
(white).
(b) Ceiling heights within the Premises to be nominal 9'-0" at
typical floors.
(c) Direction of ceiling grid to be as determined by Landlord.
6. Floorings
---------
(a) All carpet materials will be selected by Tenant subject to flame
spread rating submitted to both Fire Department and Landlord.
(b) Supply rooms, telephone rooms, equipment rooms and mail rooms
within the Premises will receive vinyl composition tile and 4" vinyl base.
7. Painting
--------
(a) Interior wall surfaces of gypsum board shall receive two (2)
coats of flat latex paint, Benjamin Moore, or equal, colors to be selected by
Tenant.
(b) All interior ferrous metal surfaces shall receive two (2) coats
of alkyd semi-gloss enamel paint over shop-applied primer.
(c) All wood doors to receive one (1) coat of sealer and two (2)
coats of clear polyurethane waterbase satin finish or two (2) coats of enamel.
(d) All wallcovering materials will be selected by Tenant subject to
flame spread rating must be submitted to both Fire Department and Landlord.
8. Window Covering
---------------
Building standard blinds shall be Levolor - Riviera Dustguard 1"
Horizontal aluminum blind. Color #892 Low Gloss Black. Substitution of building
standard blinds by Tenants is not permitted.
9. Electrical Specifications
-------------------------
(a) Lighting: 2' x 4' recessed flourescent lay-in 3" deep, 18 cell
low iridescence Parabolic louver (1 fixture per 80SF), Energy efficient ballast.
(b) The average electric load of the Premises shall not exceed sib
(6) watts per usable square foot for power and three (3) watts per square foot
for lighting.
D-7
<PAGE>
10. Fire and Life Safety Features
-----------------------------
(a) The building is to be fully sprinklered.
(b) Sprinkler installation to consist of recessed heads sprinklers
with white covers in Tenant's space.
(c) Fire alarm system consisting of manual pull boxes, annunciators,
alarm bells, control panel, to code.
(d) Smoke detectors, photoelectric type in elevator lobbies, electric
equipment rooms, elevator machine rooms, and in ducts where quantity is over
15,000 CFM. Firestats in the duct work where air quantity is less than 15,000
CFM.
(e) Emergency and exit lighting in public spaces.
(f) All work involving smoke detectors and fire alarms must be
performed by Landlord's designated subcontractor.
11. Telephone Data
--------------
(a) Landlord shall arrange with local telephone company for telephone
service within the equipment room in the building core.
(b) All telephone work and wiring in partitions, floors and ceilings
to be paid for by Tenant and arrange for by Tenant with the telephone company or
other qualified installer selected by Tenant but approved by Landlord. Landlord
will coordinate work with other trades as required. All electrical load centers,
special wiring and plywood, supplied for telephone equipment, shall be an extra
cost to be paid by Tenant. Telephone and data wiring is to meet all prevailing
codes.
(c) Fibre optic capability is available on Route 22 to Tenant, at
Tenant's expense.
12. HVAC Specification
------------------
(a) Heating, ventilation and air-condition system shall be capable of
maintaining the following interior conditions, subject to governmental
regulations:
Summer - 78 degrees F (+/-2 degrees C) dry bulb and 50% relative
humidity when outside temperature is 90 degrees F dry bulb and 75
degrees F wet.
Winter - 70 degrees F when outside temperature is 13 degrees F.
(b) HVAC systems shall be variable air volume (V.A.V.) system. V.A.V.
- - DDC control units will have automatic thermostats and volume controls mounted
in the rooms or open spaces within the Premises. Control units can operate from
100% of nominal volume to 10% of nominal volume.
D-8
<PAGE>
(c) The control units are connected to supply duct systems which are
supplied with conditioned air from rooftop air handling units with cooling
coils, filters, mixing dampers and relief dampers.
(d) A control panel for each system contains time clock,
refrigeration step controller, duct supply air control thermostat and automatic
economizer controls.
(e) HVAC. Design Conditions:
Summer Outside 90 degrees Fahrenheit Dry Bulb 75 Fahrenheit Wet Bulb
Summer Inside 78 degrees Fahrenheit Dry Bulb +/-2 degrees
Winter Outside 13 degrees Fahrenheit 15 MPH wind
Winter Inside 70 degrees Fahrenheit Dry Bulb
(f) HVAC Zoning:
o All exterior zones shall have one VAV box per 1200 square feet
and one VAV box per corner office (two or more exposure).
o All interior spaces shall have one VAV box per 2000 square feet.
o All interior perimeter shall have not water radiant ceiling heat
panels.
(g) HVAC Ductwork. Medium pressure duct system will be designed at
air velocity range from 2500 - 3000 FPM. All ductwork will be
installed in accordance with the latest SMACANA Standards.
(h) If Tenant's interior layout provides for an above normal amount
of floor-to ceiling partitions, or if Tenant's equipment (i.e., conference
rooms, mail rooms, lunch rooms, etc.( requires air-conditioning above and beyond
building standard, as outlined, said additional air-conditioning (including cost
of operation as stipulated on the Lease) shall be paid for by Tenant as an extra
cost. Any special exhaust requirements will also be an extra costs to be paid by
Tenant.
(i) All work involving the connection of HVAC control systems must be
performed by Landlord's designated contractor.
13. Disturbance to Other Tenants
----------------------------
Penetration of another tenant's space shall not commence until Tenant
has notified Landlord and Landlord has approved the schedule of work. The tenant
whose space is being penetrated has the right to demand the work within its area
be done on an overtime basis.
14. Noise
-----
The use of jack hammers, core drilling, or other heavy noise shall not
be used until Landlord has been notified and has given approval.
D-9
<PAGE>
EXHIBIT E
---------
AMENDMENT NO. 1
---------------
This Amendment No. 1 (this "AMENDMENT") is executed as of ,
--------- ---------------
199 between ADVANCE/GLB I L.L.C., a Delaware limited liability company
---
("LANDLORD"), and DSET CORPORATION, a New Jersey corporation ("TENANT"), for the
-------- ------
purpose of amending the Lease Agreement between Landlord and Tenant dated
, 199 (the "LEASE"). Capitalized terms used herein but not
- --------------- --- -----
defined shall be given the meanings assigned to them in the Lease.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are acknowledged,
Landlord and Tenant agree as follows:
1. CONDITION OF PREMISES. Tenant has accepted possession of the Premises
---------------------
pursuant to the Lease. Any improvements required by the terms of the Lease to be
made by Landlord have to Tenant's knowledge, but subject to the terms and
conditions of the Lease, been completed in all respects except for the punchlist
simultaneously delivered to Landlord (the "PUNCHLIST ITEMS"), and except for
----------------
such Punchlist Items, Landlord has fulfilled all of its duties under the Lease
with respect to such initial tenant improvements. Furthermore, Tenant
acknowledges that the Premises are suitable for the Permitted Use.
2. COMMENCEMENT DATE. The Commencement Date of the Lease is ,
----------------- ----------
199___. If the Anticipated Commencement Date set forth in the Lease is different
than the date set forth in the preceding sentence, then the Commencement Date as
contained in the Lease is amended to be the Commencement Date set forth in the
preceding sentence.
3. EXPIRATION DATE. The Term is scheduled to expire on , 199 .
--------------- ---------- --
If the scheduled expiration date of the initial Term as set forth in the Lease
is different than the date set forth in the preceding sentence, then the
scheduled expiration date as set forth in the Lease is hereby amended to the
expiration date set forth in the preceding sentence.
4. CONTACT NUMBERS. Tenant's telephone number in the Premises is .
--------------- --------
Tenant's telecopy number in the Premises is .
----------
5. BINDING EFFECT; GOVERNING LAW. Except as modified hereby, the Lease
-----------------------------
shall remain in full effect and this Amendment shall be binding upon Landlord
and Tenant and their respective successors and assigns. If any inconsistency
exists or arises between the terms of this Amendment and the terms of the Lease,
the terms of this Amendment shall prevail. This Amendment shall be governed by
the laws of the State of New Jersey.
6. COUNTERPARTS. This Amendment may be executed in multiple
------------
counterparts, each of which shall constitute an original, but all of which shall
constitute one document.
E-1
<PAGE>
Executed as of the date first written above.
TENANT: DSET CORPORATION,
a New Jersey corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
LANDLORD: ADVANCE/GLB I L.L.C., a Delaware limited
liability company
By: Advance/GLB Development Partners, L.L.C.,
a Delaware limited liability company, its
managing member
By: Advance Land Holdings, L.L.C., a New
Jersey limited liability company, its
manager
By: Advance Realty Advisors, Inc., a
New Jersey corporation, its
managing member
By:
----------------------------------
Name: Peter J. Cocoziello
Title: President
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EXHIBIT G
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CLEANING SPECIFICATIONS
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PRIVATE AND GENERAL
OFFICE CLEANING: PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. Hand dust and wipe clean within reach, all
office doors and furniture to include desks,
chairs, chair rails, tables, files, cabinets,
safes, etc.
2. Dust all window sills, baseboard, and baseboard
heating, wash off same whenever necessary.
3. Wash all glass tables and desk tops.
4. Empty and clean all waste baskets, Receptacles,
damp dust and wash same whenever necessary.
5. Trash liners to be changed as needed.
6. Vacuum clean all carpeting each night, spot
clean weekly.
7. Remove all finger prints from windows, light
switches and doorways.
8. Dust under all desk equipment and telephones.
9. Upon completion of the foregoing work
assignments, all lights will be turned off,
all doors locked and premises left in a neat
and orderly condition. Attention to be given to
interior lights being turned off.
CONFERNECE AND TRAINING
ROOM CLEANING: PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. Vacuum carpet and remove spots nightly.
2. Wipe clean and dust all tables, chairs, built
in woodworking and marking board, unless
labeled otherwise not to clean.
3. Remove stains from wall fabric.
4. Empty and reline trash cans as needed.
5. After cleaning, arrange furniture and turn off
lights.
STAIRWAY AND
ELEVATOR CLEANING: PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. Vacuum carpet and remove spots.
2. Clean and polish stainless steel handrails,
doors, door frames and wipe clean elevator
walls.
3. Thoroughly vacuum elector door tracks.
4. Wipe clean handrails in stairways as well as
oak doors.
5. Damp mop and/or sweep steps and landings.
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6. Wipe clean and dust stairway stringers and
undersides.
LOBBY AND CORRIDOR
CLEANING (PUBLIC AREAS): PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. Vacuum carpet and remove spots.
2. Clean and polish glass, handrails, and entry
Doors.
3. Dust all lounge furniture, displays,
woodworking and brush upholstery. Upholstery
to be vacuumed weekly.
4. Remove all fingerprints from all glass and dust
wood handrails.
5. Wash and sanitize all water fountains and
bottled water dispensers.
6. Wipe all exterior elevator metal clean.
RESTROOM CLEANING: PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. Sweep and mop floors using approved
disinfectant process.
2. Spot wash all tile walls and metal dividing
partitions.
3. Scour clean and disinfect all basins, bowls and
urinals. This will include the undersides of
these fixtures.
4. Wash and disinfect both sides of all toilet
seats.
5. Wash and polish all mirrors, bright work and
enamel surfaces.
6. Empty and clean all waste receptacles, liners
to be replaced daily.
7. Fill all tissue, towel, sanitary napkin, toilet
seat cover and soap dispensers.
GROUNDS AND EXTERIOR
WALKWAY CLEANING: PERFORMED DAILY, MONDAY THROUGH FRIDAY, EXCEPT FOR
HOLIDAYS.
1. All entrance walkways and steps should be
swept.
2. Exterior metal handrails are to be wiped clean.
3. All litter to be picked up and discarded in
proper receptacles.
PERIODIC CLEANING
REQUIREMENTS: TO BE PERFORMED WEEKLY
1. Sanitize all public and private telephones.
2. Machine scrub all quarry tile flooring in the
corridors, cafeteria and restrooms.
3. Dust the tops of all modular furniture
systems.
4. Dust all chair bases.
5. Damp wipe all desk tops that are cleared of
papers.
6. High dust all furniture, pictures and equipment
not performed daily.
7. Machine clean elevator carpeting
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PERIODIC CLEANING
REQUIREMENTS
(CONTINUED): TO BE PERFORMED AS SPECIFIED
1. Every (3) three months, machine scrub, wash
and polish all resilient flooring, apply (2)
two coats of non-slip floor wax.
2. Every month, clean the interior of all
refrigerators, per procedure.
3. Every month, machine clean third floor freight
elevator lobby.
GENERAL CLEANING
GUIDELINES: TO BE PERFORMED AS NOTED AND REQUIRED
1. Collect and place all office garbage in the
compactor dumpster located at the loading dock
area. Follow the established recycling
procedures to determine what goes where.
2. Report all irregularities, damaged equipment
and furniture and anything else that is out of
order to the building manager as soon as
possible.
3. Secure entire building per the established
closing procedures.
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EXHIBIT H
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BUILDING RULES AND REGULATIONS
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The following rules and regulations shall apply to the Premises, the
Building, the Park, and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be inscribed, painted,
affixed of displayed in, on, upon or behind any windows or doors, except as may
be required by law or agreed upon by the parties; and no company name, logo,
sign, advertisement or notice shall be inscribed, painted or affixed outside the
tenant's leased premises or entrance or on any doors, without the prior written
reasonable consent of Landlord. If such consent is given by Landlord, any such
sign, advertisement or notice shall be inscribed, painted or affixed by
Landlord, but the reasonable cost of same shall be charged to and be paid by
Tenant, and Tenant agrees to pay the same promptly, on demand. Landlord agrees
that each tenant shall be suitably identified by providing standard signs within
the Building. No signs, advertisements or notices of any kind shall be affixed
to the outside of any tenant's leased premises, or to the Land or the Park,
without the express written consent of the Landlord. No curtains or other window
treatments shall be placed between the glass and the Building standard window
treatments.
4. Landlord shall provide all door locks in each tenants leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
in its leased premises without Landlords prior written consent. Two (2) keys
will be furnished to Tenant by Landlord; two (2) additional keys will be
supplied to Tenant, by Landlord upon request, and without charge. Any additional
keys will be supplied to Tenant by Landlord upon request, and without charge.
Any additional keys requested by Tenant shall be paid for by Tenant. All keys to
doors and washrooms shall be returned to Landlord upon the termination of the
tenancy, and, in the event of loss of any keys furnished, tenant shall pay
Landlord the cost thereof.
5. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted in such a manner as Landlord may
reasonably require. Each tenant assumes all risks of and shall be liable for all
damage to articles moved and injury to persons or public engaged or not engaged
in such movement, including equipment, property and personnel of Landlord if
damaged or injured as a result of acts in connection with such activity, but the
cost to correct all damage done to the Building and/or the Park by moving or
maintaining any such equipment or freight shall be paid by any such tenant.
Landlord reserves the right to reasonably inspect all freight to be brought into
the Building, and to
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exclude from the Building all freight which violates any of these Rules and
Regulations, or violates the Lease, of which these Rules and Regulations are a
part. Tenant shall provide Landlord with one (1) day prior notice to the
positioning or installation of any item requiring Landlord's attention under
this paragraph.
6. Landlord may prescribe size and weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner acceptable to
Landlord which may include the use of such supporting devices as Landlord may
reasonably require. All damages to the Building caused by the installation or
removal of any property of a tenant, or done by a tenant's property while in the
Building, shall be repaired at the expense of such tenant.
7. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
bicycles, vehicles or animals shall be brought into or kept in, on or about any
tenants leased premises. No portion of any tenants leased premises shall at any
time be used or occupied as sleeping or lodging quarters.
8. Each tenant shall reasonably cooperate with Landlords employees in
keeping its leased premises neat and clean. Tenants shall not enter into any
contract of any kind with regard to any matter to be undertaken by Landlord,
including the cleaning specifications described on Exhibit G, pursuant to the
Lease or any exhibit thereto, without the prior written consent of Landlord.
Tenant shall not employ any person or persons other than Landlord's
janitors for the purpose of cleaning its leased premises, without prior written
consent of Landlord. Landlord shall not be responsible to any tenant for any
loss of property from its leased premises, however occurring, or for any damage
done to the effects of such tenant by such janitors or any of its employees, or
by any other person or any other cause.
9. To ensure orderly operation of the Building, no ice, towels, etc. shall
be delivered to any leased premises except by persons approved by Landlord,
provided, however, that water and newspapers may be delivered to a leased
premises without Landlord's approval.
10. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors in the Building or otherwise
materially interfere in any way with other tenants or persons having business
with them.
11. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance, except in such quantities as are normally used for
cleaning or as office supplies.
12. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not, provided, however, that Landlord shall be responsible for any property that
is stolen by an employee of Landlord.
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13. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written consent of Landlord.
14. Tenant shall not knowingly conduct any activity on or about the
Premises or Building which will draw pickets, demonstrators, or the like.
15. All vehicles are to be currently licensed, in good operating condition,
parked for business purposes having to do with Tenants business operated in its
leased premises, parked within designated parking spaces, one vehicle to each
space. No vehicle shall be parked as a "billboard" vehicle in the parking lot.
Any vehicle parked improperly may be towed away. Tenant, tenants agents,
employees, vendors and customers who do not operate or park their vehicles as
required shall subject the vehicle to being towed at the expense of the owner or
driver. Landlord may place a "boot" on the vehicle to immobilize it and may levy
a charge of $50.00 to remove the "boot."
16. Unless such area is located within the Premises, no tenant may enter
into phone rooms, electrical rooms, mechanical rooms, or other service areas of
the Building unless accompanied by Landlord or the Building manager.
17. Subject to the terms of the Lease, Tenant shall not use the Premises
for any use which creates extraordinary fire hazards, or results in an increased
rate of insurance on the Building or its contents, or for the storage of any
Hazardous Materials, except in de minimus quantities in accordance with Laws.
18. Building hours shall be from Monday through Friday 7:30 a.m. to 5:30
p.m. (the "BUSINESS HOURS"). Except as otherwise provided in the Lease, Tenant
shall at all times have access to the Premises during the Business Hours. Except
as otherwise provided in the Lease, Landlord however, reserves the right to
reasonably limit or regulate access to the Building and any leased premises
during nights and weekends, if required, to insure security of the Building and
the Park. Landlord reserves the right to exclude from the Building, at any time
other than the Business Hours, all persons who do not present a pass to the
Building signed by a tenant or an employee ID or key card of any tenant. Each
Tenant shall be responsible for all persons for whom it issues such a pass, ID
or key card and shall be liable to the Landlord for all acts of such persons.
During any time other than the Business Hours, Landlord shall not be required to
provide any HVAC through the central system of the Building. Such services shall
be limited to the perimeter units located with Tenant's leased premises. If
Tenant desires any of the services specified in Section 6(a)(2) of the Lease:
(A) at any time other than the Business Hours, or (B) on weekends or holidays,
then such services shall be supplied to Tenant by using the HVAC override switch
on each floor.
19. Tenant shall not paint or install lighting or decorations, window or
door lettering, or advertising media of any type on or about the Premises
without the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed; however, Landlord may withhold its consent to any such
painting or installation which would affect the appearance of the exterior of
the Building or of any common areas of the Building.
20. The Building is a smoke-free environment. There shall be no smoking
permitted anywhere in the Building within and including common areas, bathrooms,
hallways, stairwells and lobbies. Smoking is not permitted anywhere within each
tenant's leased premises.
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The Landlord provides receptacles outside of each Building's rear
entrance for use by those who do smoke. Smokers are requested to use the
receptacles on the ground. Do not discard cigarette butts on the ground or
outside the Building entrances so as to avoid an unsightly mess.
21. When electrical wiring of any kind is introduced, it must be connected
as reasonably directed by Landlord, and no stringing or cutting of wires will be
allowed, except with the prior written consent of Landlord, and shall be done
only by contractors approved by Landlord.
22. Service call hours are:
Monday - Friday
8:30 a.m. to 5:00 p.m.
Phone Number: 908-719-3000
In the event of an emergency, whether plumbing, water leaks, power
outage, fire, theft, etc., Landlord's maintenance department must be contacted
immediately at the main telephone number 908-719-3000.
23. The requirements of Tenant will be attended to only upon the making of
an application at the office of the Building Manager. Employees of Landlord
shall not perform any work for any tenant or do anything outside of their
regular duties unless under special instructions from the office of Landlord.
Landlord agrees to keep tenants advised at all times of how to contact the
Building Manager.
24. (a) Tenant shall not conduct, or permit any other person to conduct,
any auction on its leased premises; manufacture or store goods, wares or
merchandise (other than goods to be used in its leased premises) upon its leased
premises, without the prior written approval of Landlord, except for the storage
of usual supplies and inventory to be used by Tenant in the conduct of its
business; shall not permit its leased premises to be used for gambling; shall
not permit any musical instruments to be played in its leased premises; shall
not permit to be played any radio, television, record or wire music in such loud
manner as to disturb or annoy other tenants of the Building; or permit any
unusual odors to be produced upon its leased premises. Tenant shall not occupy
or permit any portion of its leased premises to be occupied as an office of
public stenographer or for the possession, storage, manufacture or sale of
intoxicating beverages, tobacco in any form, or as a barber or manicure shop.
(b) No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
or hung in, or used in connection with, any window or door of the premises
without the prior written consent of Landlord. Any curtains, blinds and shades
must be a quality, type, design and color and attached in a manner approved by
Landlord.
(c) Canvassing, solicitation and peddling in the Building are
prohibited, and each tenant shall cooperate to prevent the same.
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(d) There shall not be used in the leased premises, or the Building,
either by Tenant or by others, in the delivery or receipt of merchandise, any
hand trucks except those equipped with rubber tires and side guards.
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EXHIBIT I
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FORM OF TENANT ESTOPPEL CERTIFICATE
-----------------------------------
The undersigned is the Tenant under the Lease (defined below) between
Advance/GLB I L.L.C., a New Jersey limited liability company, as Landlord, and
the undersigned as Tenant, for the Premises on the floor(s) of the
-----------
office building located at , and commonly known
--------------------- -----------
as , and hereby certifies as follows:
-----------------------
1. The Lease consists of the original Lease Agreement dated as of
, 199 between Tenant and Landlord ['S PREDECESSOR-IN-INTEREST] and
- ----------- ---
the following amendments or modifications thereto (if none, please state
"none"):
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The documents listed above are herein collectively referred to as the "LEASE"
-----
and represent the entire agreement between the parties with respect to the
Premises. All capitalized terms used herein but not defined shall be given the
meaning assigned to them in the Lease.
2. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Section 1 above.
3. The Term commenced on , 199 and the Term expires,
------------------ --
excluding any renewal options, on , 200 , and Tenant has
---------------------- --
no option to purchase all or any part of the Premises or the Building or, except
as expressly set forth in the Lease, any option to terminate or cancel the
Lease.
4. Tenant currently occupies the Premises described in the Lease and
Tenant has not transferred, assigned, or sublet any portion of the Premises nor
entered into any license or concession agreements with respect thereto except as
follows (if none, please state "none"):
-----------------------------------------
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- --------------------------------------------------------------------------------
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5. All monthly installments of Basic Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through . The current monthly installment of Basic Rent is $ .
----------- --------
6. Except as set forth below, to the best of Tenant's knowledge, all
conditions of the Lease to be performed by Landlord necessary to the
enforceability of the Lease have been satisfied and, to the best of Tenant's
knowledge, Landlord is not in default thereunder. In addition, Tenant has not
delivered any notice to Landlord regarding a default by Landlord thereunder.
.
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7. Except as set forth below, as of the date hereof, to the best of
Tenant's knowledge, there are no existing defenses or offsets, or, to the
undersigned's knowledge, claims or any basis for a claim, that the undersigned
has against Landlord and, to the best of Tenant's knowledge, no event has
occurred and no condition exists, which, with the giving of notice or the
passage of time, or both, will constitute a default under the Lease .
-----------
8. Except as set forth below, no rental has been paid more than 30 days in
advance and no security deposit has been delivered to Landlord except as
provided in the Lease. .
---------------------------------
9. If Tenant is a corporation, partnership or other business entity, each
individual executing this Estoppel Certificate on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in the State of New Jersey and that Tenant has full
right and authority to execute and deliver this Estoppel Certificate and that
each person signing on behalf of Tenant is authorized to do so.
10. To Tenant's knowledge, there are no actions pending against Tenant
under any bankruptcy or similar laws of the United States or any state.
11. Other than in compliance with all applicable laws and incidental to the
ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
12. All tenant improvement work to be performed by Landlord under the Lease
has been completed in accordance with the Lease and has been accepted by the
undersigned and all reimbursements and allowances due to the undersigned under
the Lease in connection with any tenant improvement work have been paid in full.
Tenant acknowledges that this Estoppel Certificate may be delivered to
Landlord, Landlord's Mortgagee or to a prospective mortgagee or prospective
purchaser, and their respective successors and assigns, and acknowledges that
Landlord, Landlord's Mortgagee and/or such prospective mortgagee or prospective
purchaser will be relying upon the statements contained herein in disbursing
loan advances or making a new loan or acquiring the property of which the
Premises are a part and that receipt by it of this certificate is a condition of
disbursing loan advances or making such loan or acquiring such property.
Executed as of , 199 .
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TENANT: DSET CORPORATION,
a New Jersey corporation
By:
---------------------------------
Name:
-------------------------------
Title:
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EXHIBIT K
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RIGHT OF FIRST OFFER
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Subject to then-existing renewal options of other tenants, and provided no
Event of Default then exists, Landlord shall, prior to offering the same to any
party (other than the then-current tenant therein), first offer to lease to
Tenant any space located within the Building (the "OFFER SPACE") in an "AS-IS"
------------ -----
condition; such offer shall be in writing and specify the lease terms for the
Offer Space, including the Rent to be paid for the Offer Space, the term of the
lease of the Offer Space and the date on which the Offer Space shall be included
in the Premises (the "OFFER NOTICE"); provided, however, that this right of
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first offer shall not be effective until after Landlord has initially leased the
entire Building. Tenant shall notify Landlord in writing whether Tenant elects
to lease the Offer Space on the terms set forth in the Offer Notice, within ten
(10) days after Landlord delivers to Tenant the Offer Notice. If Tenant timely
elects to lease the Offer Space, then Landlord and Tenant shall execute an
amendment to this Lease, effective as of the date the Offer Space is to be
included in the Premises, on the terms set forth in the Offer Notice and, to the
extent not inconsistent with the Offer Notice terms, the terms of this Lease;
however, Tenant shall accept the Offer Space in an "AS-IS" condition and
-----
Landlord shall not provide to Tenant any allowances (e.g., moving allowance,
construction allowance, and the like) or other tenant inducements except as
specifically provided in the Offer Notice. Notwithstanding the foregoing, if
prior to Landlord's delivery to Tenant of the Offer Notice, Landlord has
received an offer to lease all or part of the Offer Space from a third party (a
"THIRD PARTY OFFER") and such Third Party Offer includes space in excess of the
-----------------
Offer Space, Tenant must exercise its rights hereunder, if at all, as to all of
the space contained in the Third Party Offer.
If Tenant fails or is unable to timely exercise its right hereunder, then
such right shall lapse, TIME BEING OF THE ESSENCE with respect to the exercise
thereof, and Landlord may lease all or a portion of the Offer Space to third
parties on such terms as Landlord may elect; provided, however, that if Landlord
offers the Offer Space to a third party, within [one hundred eighty (180) days]
of the Offer Notice, for a Basic Rent that is more than $1.00 less than the
Basic Rent set forth in the Offer Notice, Landlord, prior to entering into any
binding agreement with such third party, must send a notice to Tenant (the
"SECOND OFFER NOTICE") specifying the revised Basic Rent amount and providing
--------------------
Tenant with ten (10) days in which it may elect to lease the Offer Space on the
terms set forth in the Offer Notice, as revised by the Second Offer Notice. If
Tenant fails or is unable to timely exercise its right hereunder, then such
right shall lapse, TIME BEING OF THE ESSENCE with respect to the exercise
thereof, and Landlord may lease all or a portion of the Offer Space to third
parties on such terms as Landlord may elect.
Tenant may not exercise its rights under this Exhibit if an Event of
Default exists or Tenant is not then occupying the entire Premises. If an Offer
Notice is delivered for less than all of the Offer Space, and Tenant does not
exercise its rights pursuant to this Right of First Offer, then such portion of
the Offer Space shall thereafter be excluded from the provisions of this
Exhibit.
Tenant's rights under this Exhibit shall terminate if (a) this Lease or
Tenant's right to possession of the Premises is terminated, (b) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises other
than a Business Assignment, (c) Tenant fails to timely exercise its
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right under this Exhibit, time being of the essence with respect to Tenant's
exercise thereof, (d) Tenant's Tangible Net Worth as of the date of the Offer
Notice is less than Tenant's Tangible Net Worth as of the Date of this Lease, or
(e) less than two (2) full calendar years remain in the initial Term of this
Lease or the Renewal Term, if exercised by Tenant.
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EXHIBIT M
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RENT ABATEMENT PROVISIONS
-------------------------
The Free Rent portion of Basic Rent shall be applied during the first
twelve (12) Lease Months of the Term. Commencing with the thirteenth (13th)
Lease Month of the Term, Tenant shall make Basic Rent payments as otherwise
provided in the Lease. Notwithstanding such abatement of the Free Rent portion
of Basic Rent (a) all other sums due under the Lease, including Additional Rent
and Tenant's Proportionate Share of Taxes and the Expense Estimate shall be
payable as provided in the Lease, and (b) any increases in Basic Rent set forth
in the Lease shall occur on the dates scheduled therefor.
The abatement of Basic Rent provided for in this Exhibit is conditioned
upon Tenant's full and timely performance of all of its obligations under the
Lease. If at any time during the Term an Event of Default by Tenant occurs, then
the abatement of the Free Rent portion of Basic Rent provided for in this
Exhibit shall immediately become void, and Tenant shall promptly pay to
Landlord, in addition to all other amounts due to Landlord under this Lease, the
full amount of all of the then-accrued Free Rent portion of Basic Rent herein
abated.
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EXHIBIT O
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SIGNAGE
-------
On or before the date which is thirty (30) following the Date of this
Lease, Landlord shall engage a consultant to design a sign on behalf of Tenant
to be erected on the facade of the Building, which sign shall be highly visible
from Route 22. Landlord and Tenant shall each have the right to review and
approve the design and Tenant shall have the right to approve all fee estimates
in advance (which approval shall not be unreasonably withheld, delayed or
conditioned). The sign shall be designed, constructed and installed in
accordance with all Laws and shall incorporate Tenant's logo, and other
marketing identifying Tenant's business. Landlord's approval of the design
therefor shall not be a representation that the design complies with any Law.
All reasonable, out-of-pocket costs incurred by Landlord in connection with
the sign, including design, construction and installation, shall be paid by
Tenant.
In addition, Landlord shall provide a directory in the main lobby of the
Building identifying Tenant.
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EXHIBIT P
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OPERATING COSTS ESTIMATE
------------------------
Initial Expense Estimate for Tenant's Proportionate Share of Operating
Costs based upon Landlord's assumption of that the Building is fully-assessed
and ninety-five percent (95%) occupied. Landlord covenants that no services
described below are included in more than one category of services.
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ITEM $ PER SQUARE FEET
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Electric 1.15
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Gas 0.14
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Sewer/Water 0.13
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Janitorial (Contract & Supplies) 0.72
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Window Washing 0.02
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Exterminating 0.01
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HVAC Repairs & Maintenance 0.09
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Interior Repairs 0.03
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Fire & Life Safety 0.08
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Elevators 0.08
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Snow Removal 0.20
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Landscaping 0.31
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Roof 0.01
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Exterior Maintenance & Parking Lots 0.03
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Refuse Removal 0.04
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Management Fee 0.55
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Insurance 0.20
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Administration & Technician Payroll 0.65
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On-Site Expenses 0.10
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Equipment Lease 0.20
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Real Estate Taxes 2.26
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Total 7.00
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EXHIBIT Q
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OPERATING COSTS EXCLUSIONS
--------------------------
1. The cost of any work performed (such as preparing a tenant's space for
occupancy, including painting and decorating) or services provided (such as
separately metered electricity) for any tenant (including Tenant) at such
tenant's cost, or provided by Landlord without charge as an inducement to
lease (such as free rent or improvement allowances).
2. The cost of correcting defects in the initial design, construction, or
equipment of the Building.
3. Salaries of Landlord's officers, partners and its headquarters staff.
4. The cost of any work performed or service provided (such as electricity)
for any facility other than the Building for which fees are charged.
5. The cost of any items for which Landlord is reimbursed by condemnation
awards or any other party.
6. Insurance premiums to the extent any tenant causes Landlord's existing
insurance premiums to increase or requires Landlord to purchase additional
insurance.
7. Any advertising, marketing or promotional expenses.
8. Any costs representing an amount paid to a related or affiliated person of
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship.
9. Any expenses for repairs or maintenance which are covered by warranties,
guaranties or service contracts (excluding any mandatory deductibles).
10. Franchise taxes or income taxes of Landlord.
11. Refinancing costs and mortgage interest and amortization payments or any
late fees, additional interest or penalties charged to Landlord.
12. Damages based on the negligence of Landlord or its vendors, agents,
contractors or other tenants.
13. Any penalty, fine or expense resulting from Landlord's violation of any
governmental rule or unsuccessful defense against same.
14. The cost of any additions to the Building, the Land or the Park.
15. The cost of abating, removing, testing for or treating any environmental
condition in the Building, the Premises, the Park or the Land, except as
otherwise provided in the Lease.
Q-1
<PAGE>
16. The cost of alterations and improvements to the Building or the Land by
reason of the laws and requirements of any public authorities or insurance
agency, except as otherwise provided in the Lease.
17. Building "Start-up" and opening expenses.
Q-2
<PAGE>
EXHIBIT R
---------
[CERTIFICATE OF INSURANCE GOES HERE]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0001052196
<NAME> DSET Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,476
<SECURITIES> 42,830
<RECEIVABLES> 7,949
<ALLOWANCES> (192)
<INVENTORY> 0
<CURRENT-ASSETS> 52,912
<PP&E> 3,079
<DEPRECIATION> (1,489)
<TOTAL-ASSETS> 58,146
<CURRENT-LIABILITIES> 5,219
<BONDS> 0
0
0
<COMMON> 42,976
<OTHER-SE> 9,832
<TOTAL-LIABILITY-AND-EQUITY> 58,146
<SALES> 7,476
<TOTAL-REVENUES> 7,476
<CGS> 1,550
<TOTAL-COSTS> 5,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 888
<INCOME-TAX> 316
<INCOME-CONTINUING> 572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 572
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
