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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 ( NO FEE REQUIRED)
For the transition period from __________________________
COMMISSION FILE NUMBER 0-2401
E-SYNC NETWORKS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 06-0625999
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
35 NUTMEG DRIVE, TRUMBULL, CT 06611
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(203) 601-3600
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B)
OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ( )
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )
The issuer's revenue for its most recent fiscal year was $7,490,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 20, 2000 was:
$53,696,526
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THE ISSUER WAS NOT INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
As of March 20, there were 6,727,976 shares of Common Stock,
Par Value $0.01, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Directors, Management Remuneration and Security
Ownership of Certain Beneficial Owners and Management are contained in
the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders
and incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
BACKGROUND
E-Sync Networks, Inc. ("E-Sync" or the "Company"), is a Delaware corporation
which was incorporated in 1999. The Company's principal offices are located at
35 Nutmeg Drive, Trumbull, CT 06611. E-Sync Networks (UK) Ltd. ("E-Sync U.K.")
is a wholly owned subsidiary of the Company, and was organized in England in
1983 to provide E-Sync's services to international users. E-Sync U.K. is located
at 2 Apple Walk, Swindon, England. Braincraft Learning Technologies, Inc.
("Braincraft"), also a wholly-owned subsidiary of the Company, was acquired by
E-Sync on November 8, 1999. Braincraft is located at 627 Broadway, New York, New
York 10012.
Effective as of the open of business on July 28, 1999, Wiltek, Inc., a
Connecticut corporation ("Wiltek"), was merged with and into its wholly-owned
subsidiary, E-Sync Networks, Inc., a Delaware corporation, pursuant to an
Agreement and Plan of Merger dated as of July 15, 1999, by and between Wiltek
and E-Sync (the "Merger Agreement"). Pursuant to the terms of the Merger
Agreement, E-Sync is the surviving corporation (the "Surviving Corporation").
Pursuant to the Merger Agreement, each share of Wiltek common stock, no par
value per share, was converted into one fully paid and nonassessable share of
common stock of the Surviving Corporation, $.01 par value per share, and each
share of Wiltek Series A Preferred Stock, no par value per share (the only
Series of Preferred Stock then outstanding), was converted into one fully paid
and nonassessable share of the Surviving Corporation's Series A Preferred Stock,
$.01 par value per share. The Certificate of Incorporation of E-Sync became the
Certificate of Incorporation of the Surviving Corporation, and the By-laws of
E-Sync became the By-laws of the Surviving Corporation.
OVERVIEW
E-Sync is a global provider of managed business-to-business e-commerce
applications and solutions that help medium and large businesses, including
Fortune 1000 companies, reinvent their businesses, interact more efficiently
with business partners, and web-enable their existing infrastructure. Through
these offerings, E-Sync provides comprehensive capabilities that provide secure
communication, information exchange and web-based transactions. The Company has
historically provided reliable, high-quality messaging and hosting services to
its customers, which are critical components that can serve as the backbone of
supply chain management solutions. In addition, the Company offers professional
services, primarily to large corporations, including systems integration,
technology planning and information technology (IT) support.
Within the last year, the primary focus of the Company has been re-directed
toward offering powerful supply chain management solutions, consisting of secure
links between buyers and suppliers of goods and services, to its target market.
The Company's implementation strategy being deployed for the development and
delivery of these offerings combines XML-based, open standards with security
embedded directly into the applications, a predominantly modular architectural
design and core messaging capabilities, to create end-to-end solutions allowing
the web-enablement of legacy systems. Deep and trustworthy relationships with
its existing Fortune 1000 customer base will provide the Company with
opportunities to migrate customers from current activities to higher-value web
supply chain offerings.
In addition to the new strategy of the Company to develop and provide an
end-to-end web supply chain solution, the Company will continue to offer its
existing services on a modular basis to customers. These services include web
design consulting, secure online messaging, outsourced e-mail services,
directory and fax services, hosted communications, network design and
integration, messaging integration and message platform migration.
INDUSTRY BACKGROUND
NEW MARKETS
Today's increasingly competitive business environment has forced many companies
to increase efficiency while improving their flexibility and responsiveness to
changing market conditions. In addition to facing stronger competition regarding
product
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quality, variety and price, businesses must shorten lead times, adjust
production for frequent changes in customer requirements and quote more accurate
and reliable delivery dates. Furthermore, a company's supply chain may span
multiple continents, tying suppliers in one part of the world with a plant in
another to serve customers in yet a third location. These forces are prompting
companies to collaborate with a broad range of suppliers and customers to
improve efficiencies across multi-enterprise supply chains. The growth of the
Internet and intranets and the proliferation of middleware applications and
integration expertise are accelerating these changes by enabling a ubiquitous,
platform-independent communications network. The combination of these forces has
created a dynamic, complex and highly interdependent business environment. In
response to these evolving market forces, many companies have sought to
reengineer their business processes to reduce manufacturing cycle times, shift
from mass-production to order-driven manufacturing, increase use of outsourcing
and share information with vendors and customers. The implementation of software
solutions to efficiently integrate business processes has become a key component
of these reengineering initiatives. E-Sync believes that companies are
increasingly recognizing efficient business process integration as a critical
source of competitive advantage in this rapidly changing business environment.
Over the past 30 years, information technologies have brought automation to
departmental operations such as manufacturing resource planning, financial
management, sales force automation and human resource management. However, the
information technology platforms that made departmental automation possible did
not provide enterprise-wide connectivity within organizations or connectivity
between organizations. The diversity of computing environments and the inability
to share information across those environments have been major impediments to
realizing significant benefits from investments in legacy systems. Many
organizations' applications, particularly their enterprise resource planning, or
ERP, systems, were not designed to communicate outside of an enterprise, making
business-to-business communication difficult. Achieving integration often
requires significant re-keying of data from at least one, if not both, parties
to a transaction, increasing costs and data errors. A comprehensive end-to-end
solution must provide companies with integrated direct links to their major
customers and suppliers, while also facilitating participation in B2B
marketplaces to leverage their networks of buyers and suppliers. It should also
allow companies to offer their business partners the ability to exchange
information and conduct transactions across the Internet securely, reliably, and
in real time, regardless of installed technology infrastructure. This solution
must be flexible enough to meet the unique business process requirements of
large, multinational organizations and must be highly scalable, reliable and
rapidly deployable. It must take advantage of an organization's existing
investments in information technologies by working with and connecting to
multiple financial, human resource and enterprise resource planning systems.
STRATEGY
E-Sync's objective is to develop a leadership position in providing solutions to
coordinate the disparate elements of web-enabled Supply Chain Management (SCM).
The Company's strategy for achieving these objectives is comprised of the
following elements:
EXPAND TOTALCHAIN(TM) SCM PRODUCT OFFERINGS. In the first quarter of 2000,
E-Sync introduced TotalChain(TM) as a beta offering to the marketplace.
TotalChain(TM) assists organizations in implementing cross-corporate application
integration. E-Sync's Hub and Spoke model provides tools and runtime services
that overcome the current impediments to B2B e-commerce on the Internet. E-Sync
will also expand its offerings to include additional functionality as "spokes"
off this central hub. These offerings will include, among others, Warehousing
Management Systems (WMS), Transportation and Logistics.
DEVELOP STRONG SUPPORT CAPABILITIES FOR CUSTOMERS. To succeed in the
marketplace, E-Sync will need a full suite of support services for its
customers. These capabilities will include analysis, implementation, training
and customer service.
EXPAND EXPERTISE IN TARGETED VERTICAL MARKETS. The Company is currently focusing
on providing a horizontal solution that provides value to a broad range of
industries. Its TotalChain(TM) hub is applicable to any industry that needs to
provide integration between its supply chain elements. At the same time, the
Company understands that each industry faces unique problems and issues that
must be addressed by focused inter-enterprise SCM applications. As additional
market share is achieved, the Company intends to develop and maintain templates
that address the particular requirements of targeted vertical markets.
INVEST AGGRESSIVELY TO BUILD MARKET SHARE. E-Sync will make substantial
investments to expand its sales and marketing, research and development,
consulting and administrative infrastructure. The Company's management believes
that such investments are necessary to increase market share and to capitalize
on the growth opportunities in the emerging inter-enterprise SCM market. These
investments will also include expanding the Company's world class hosting
capabilities.
ACQUIRE OR INVEST IN COMPLEMENTARY BUSINESSES, PRODUCTS AND TECHNOLOGIES. E-Sync
intends to make targeted acquisitions or investments to broaden its product
offerings, capabilities and technologies for eBusiness. For example, the
recently completed acquisition of Braincraft enhanced the Company's capabilities
by providing advanced user interface capabilities.
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BUILD A NETWORK OF STRATEGIC ALLIANCES. The Company intends to expand and seek
additional strategic relationships with leading enterprise software and
eBusiness vendors to integrate the TotalChain(TM) into their software products
and to create joint marketing opportunities. In addition, the Company intends to
augment its sales efforts by establishing and expanding relationships with other
complementary eBusiness vendors and systems consulting and integration firms to
more rapidly penetrate its targeted markets.
EXPAND GLOBAL OPERATIONS. The Company intends to aggressively grow its global
presence by expanding its worldwide field sales, marketing and services
organizations. To complement this strategy, management intends to continue to
globalize operations and expand the Company's corporate and administrative
organizations and systems.
PRODUCTS AND SERVICES
MANAGED SERVICES
E-Sync has developed a range of services, which allow customers to:
o Connect dissimilar computer-based electronic mail -- generally these
systems operate within different divisions of the same company or in the
customers' trading partner facilities;
o Communicate with public email services to allow users of host-based and
client/server systems to correspond with e-mail users outside of their
company; and
o Send to facsimile devices located throughout the world utilizing the
Company's broadcast and customized facsimile delivery service based in the
U.S. and U.K.
Within the realm of messaging based technologies, use of messaging (e-mail, fax
and directory services) has become a standard operating procedure for successful
large and medium organizations. This trend should continue during 2000 as
technology costs continue to decline and technology ease-of-use increases. This
will lead to use and acceptance of collaborative computing technologies across a
much wider business market. E-Sync, by way of its experience and expertise, is
positioned solidly in the middle of these growth markets.
TOTALMAIL
TotalMail is E-Sync's complete messaging solution for Information Exchange
Service. TotalMail offers a range of available options, outsourced and
web-based, including the integration of e-mail with voice mail, paging,
telephony, calendaring, public and private folders, directory services,
distribution lists, and virus scanning. With the addition of SmartCard,
TotalMail provides portable access and security with unique cardholder data to
Information Exchange Services.
HOSTING SERVICES
WEB HOSTING SERVICES. E-Sync can design and implement a customized web
infrastructure to host a site that can be expanded into a high quality,
sophisticated Internet presence. This removes the requirement of a client to
purchase, configure, maintain or administer hardware, software, and Internet
connectivity.
APPLICATION HOSTING SERVICES. This service provides the ability for clients to
rent applications via an online link to E-Sync's Information Exchange Data
Center. The benefits to the client are fixed predictable costs, no upgrading
because the latest version is always available, and no file exchange. The
Company's Information Exchange Data Center maintains server hardware, security,
redundancy, and data backup to ensure that applications run efficiently and
effectively with 100% uptime. The Company also provides administrative services
and remote access to the applications via its Internet connections using
integrated digital certificate security.
MAILCONNECT
MailConnect increases clients' productivity by providing a common set of tools
and interfaces to create, send, and manage messages such as e-mail, fax, voice
mail, and pages. Through the MailConnect service, E-Sync leverages its
specialized
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expertise in legacy, LAN, and client/server-based mail systems to standardize an
organization's messaging infrastructure. This allows users of any of a client's
systems to send messages and attachments and to reply to messages sent from any
messaging platform within or outside that organization.
FAX SERVICES
Any organization that regularly faxes information such as purchase orders,
billing invoices, order acknowledgments, newsletters, marketing updates, and
product promotions is ideally suited to E-Sync's Fax Service. Customers can
easily send faxes from any e-mail client or host application. With unlimited
scalability and numerous custom features, E-Sync's automated fax services
eliminate the need for manual faxes, saving time and money while increasing
productivity. The Company's Help Desk is available 24/7, as is the Company's
Data Center that provides extensive redundancy and proactive monitoring of
system-level events. Fax Services include conversion, encryption and delivery of
faxes to e-mail or e-mail to faxes without any additional hardware or software
required.
o APPLICATION TO FAX.
Application to Fax is a flexible, low-cost way to deliver a high volume
of system-generated files from computer applications to any fax device
worldwide. Application to Fax can be customized to meet an
organization's requirements and supports mainframe, minicomputer, and
personal computer-based applications over a number of protocols,
including TCP/IP and SNA.
o MAILFAX.
MailFax is an enterprise service that allows clients with e-mail
capability to send domestic and international faxes automatically from
their desktop without additional hardware or software. As an optional
feature of MailFax, the Company offers Inbound Fax, which allows
customers to receive faxes as e-mail messages. The Secure Fax option
can be added to ensure that fax messages are not intercepted during
transmission across public networks and to verify the identity of the
sender.
DIRECTORY SERVICES
E-Sync's directory synchronization services enable customers' multiple-messaging
systems to have all user address information presented in a complete, native
format to all participating systems. This service feature also allows external
trading partner systems to participate in the directory synchronization process.
As an enhancement, messaging integration, which connects users of disparate
messaging applications (Lotus Notes, cc:Mail, Profs, etc.) within an
organization can be implemented over intranets, extranets, and virtual private
networks (VPNs). E-Sync offers outsourced Directory Services in the following
areas:
o DIRECTORY SYNCHRONIZATION.
Directory Synchronization provides full directory synchronization
between disparate systems and standards, enabling the communication of
e-mail and directory information among various incompatible
standards-based systems. For separate lists of users in e-mail,
file-server, human resources, accounting, sales, and other databases,
Directory Synchronization assures that all changes, such as adding a
user, in the directory service flow to all other resources.
o METADIRECTORY SERVICES.
When different parts of an organization have different naming schemes,
a metadirectory can synchronize two or more directory services,
allowing a single entry point for information to be shared by multiple
platforms. E-Sync's Metadirectory Services will review an
organization's information holdings and determine the requirements of a
client's metadirectory. The Company can then develop a customized
metadirectory or work with the client's staff to develop, enhance, or
maintain an existing metadirectory.
o ACTIVE DIRECTORY IMPLEMENTATION.
As a Microsoft Solutions Provider Partner, E-Sync can implement Windows
2000 Active Directory, Microsoft's answer to unite and organize diverse
server hierarchies. Active Directory provides a unified view of
networks, uniting and organizing diverse server hierarchies, thereby
significantly reducing the number of directories with which network
administrators and users must manage.
SECURITY
E-Sync uses its relationship with E-Certify, a leading provider of PKI-based
Internet security and encryption technology, to ensure that its clients can
exchange sensitive documents and private information with improved confidence
and reliability. The Company first analyzes the existing network infrastructure
and its security components and then makes recommendations that will provide the
client with the appropriate level of security for the network. Clients using any
of the Company's Managed
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Services can benefit from E-Certify's expertise. By adding PKI encryption to
TotalMail, a message is signed with a digital certificate and encrypted before
it is transmitted, thereby enhancing the security of electronic communications.
The recipient can identify the sender of the message and ensure that the message
has not been intercepted, viewed, or altered. TotalMail Smart Card provides the
added security of a smart card, containing a digital ID, which is issued to
authorized users only. Directory Synchronization can be implemented with full
PKI security, and smart cards and other hardware tokens can also be installed
for an additional level of security. The Company also offers Secure Messaging, a
cryptographic solution for secure communications, and Secure Fax, an enhancement
to the Company's Fax Services which offers greater security when sending and
receiving faxes using e-mail. As part of the Company's Hosting Services, it
provides administration services and remote access to applications via Internet
connections using integrated digital certificate security. E-Sync's anti-virus
protection can be developed and adapted to specific network configuration,
operating systems, and resources. In addition, E-Sync can filter suspect e-mail
messages and automatically scan messages and their attachments for viruses. The
Company offers a total, fully-integrated solution that will protect
applications, data, messaging, and user systems and that can be deployed
enterprise-wide without disrupting day-to-day operations.
PROFESSIONAL SERVICES
A key element in supporting E-Sync's clients is a full set of professional
services. These services include not only TotalChain(TM) planning and
implementation, but also a broad range of additional services including web
design, security planning, and network design and integration.
BUSINESS PROCESS ASSESSMENT
E-Sync's professionals assist clients in evaluating their IT needs, from
specialized applications to database and web servers, hardware, networks,
switches, firewalls, security, and storage technology. The Company also assesses
applicable business rules and processes for clients' supply chain and related
messaging infrastructure needs.
WEB DEVELOPMENT SERVICES
Through its Braincraft subsidiary, the Company offers web site design services
and web-based corporate communications and training tools across internal and
external settings. E-Sync's designers, producers, programmers, and project
managers can rapidly create and launch a web site that provides clients with a
quality "user experience." Through Braincraft, E-Sync offers organizations an
opportunity to create a more captivating, understandable, and easy-to-navigate
web site that will maximize user satisfaction, information retention, return
visits, sales, and brand recognition. After the site is created, E-Sync's Web
Hosting Services can design and implement a customized web infrastructure to
host the site. Recognized in the industry as a leader in "outside-the-box"
creative work, Braincraft received two Creative Summit Awards in 1999 for its
work in the Consumer Web Site and Self-Promotion Web Site categories. Braincraft
is also the developer of choice for Macromedia, Inc.'s Flash and Generator, two
products used in creating high-impact web sites for clients who require a
distinctive communications strategy.
NET SOLUTIONS
A major problem that many organizations face today is the incompatibility of
their current systems with new technologies employed by the Internet. E-Sync's
Net Solutions leverages a client's investment in the Internet, intranet, and
extranet by integrating existing platforms with new standards and technologies,
such as XML and Java, to provide a practical and secure front-end for users and
clients. The result is optimum performance with minimal disruption during
transition. The Company can also build custom applications to integrate Lotus
Notes, Microsoft Exchange, or other messaging systems with an existing network
infrastructure.
SECURITY SOLUTIONS
E-Sync's SECURITY SOLUTIONS area provides the ability to exchange sensitive
documents and private information securely with confidence and reliability.
E-Sync uses public key infrastructure (PKI) technology to deliver digital
certificates, encryption keys, and SmartCards for optimum secure messaging. With
large-scale anti-virus protection capabilities and e-mail anti-virus filtering,
E-Sync can provide full protection for applications, data, messaging, and user
systems across entire networks. E-Sync's Security Solutions evaluates the costs
and benefits of ID/password pairs, challenge/response tokens, smart cards,
biometrics, or other devices that provide unique profiles. Once a user's
identity is established, PKI can confirm that identity to all available
resources. E-Sync can also provide recognized digital certificates to
authenticate business documents, place orders, transfer funds, and perform other
e-business transactions.
NETWORK DESIGN AND INTEGRATION
In the NETWORK DESIGN AND INTEGRATION area, the Company provides expert
resources for all network design and integration needs. E-Sync assesses
information, messaging, and connectivity needs, evaluates existing
infrastructure architecture for
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adaptability to change, defines and tests migration processes, executes and
documents phased migration procedures for disparate messaging platforms, and
prepares enterprise-wide implementation plans. E-Sync also offers numerous
services in application development and support and in workflow automation.
E-Sync can install a Virtual Private Network (VPN) to ensure that only
authorized users can access a client's network and that data cannot be
intercepted.
MICROSOFT BACKOFFICE(R) CONSULTING
E-Sync is a unique Microsoft Solutions Provider Partner that specializes in
Microsoft BackOffice(R) architecture, design, and implementation services. Its
knowledge of electronic messaging infrastructure, application developments, and
project management techniques provides clients with customized, efficient
solutions that work. The Company's Microsoft Certified Professionals, Systems
Engineers, and Trainers offer a complete BackOffice(R) solution, including
assessing system requirements, installing, configuring, and training.
EXECUTIVE BRIEFING CENTER
E-Sync opened its Executive Briefing Center in May, 1999. Sponsored in part by
Compaq Computers, this state-of-the art facility showcases Microsoft's latest
technology offerings in a simulated working environment as presented by E-Sync's
team of professional services representatives.
NEW PRODUCT DEVELOPMENT
E-Sync is developing TotalChain(TM), a product and solution suite using a
"hub-and-spoke" Supply Chain Management approach to e-business that is
specifically designed to assist organizations in implementing intra- and
inter-corporate application integration. TotalChain(TM) provides tools and
runtime services that overcome the current impediments to B2B e-commerce on the
Internet. TotalChain(TM), supports the exchange of data over the Internet
between inter-corporate applications and intra-company applications using XML
standards. E-Sync introduced a beta version of TotalChain(TM) in March 2000.
The TotalChain(TM) suite includes a powerful document routing engine, providing
interfaces for ERP, Web Servers, Mail Servers, Directory and Fulfillment
systems. In addition to the core tool set, E-Sync will provide a comprehensive
workflow engine at the business application layer, allowing corporations and
their partners to model and dynamically change their business supply chain. The
Company believes that another important element of TotalChain(TM)'s competitive
advantage is that it offers a unique single platform for coordinating multiple
web supply chains.
While several companies offer leading edge point solutions for Supply Chain
Management, the Company believes that an enterprise cannot realize the full
potential of these solutions without a way to integrate the various levels and
tiers of their supply chain in a manner that allows consistent content and
document flow. The Company's TotalChain(TM) Integration Manager serves as
the foundation for that integration. TotalChain(TM) Integration Manager is a
secure and open web-based platform bringing together clients' internal supply
chain applications, as well as coordinating their applications with those of
their customers and suppliers.
E-Sync's Supply Chain Management elements will include Trading Markets, Order
Processing, Warehousing, Logistics, Scheduling and Workflow. TotalChain(TM) is
scalable, modular, and can be implemented in 30 to 90 days for a large part of
the Company's target market. TotalChain(TM) is fully compatible with TRW's
premier MARC(TM) warehouse management system, as well as with other systems.
The critical needs of supply chain solutions require not only consistent
document content across the enterprise, but also security. As part of the
Company's product offering, E-Sync's EAI solutions will include attribute
security certificates and key management solutions. This enhanced capability
will provide the only business-to-business security mechanism available on the
market today. Unlike traditional business-to-business service offerings that
protect from server to client, E-Sync's solution provides a means of protecting
each document transaction across the Internet, providing a truly secure supply
chain solution.
TOTALCHAIN(TM) BUSINESS PORTAL
TotalChain(TM) Business Portal serves as an electronic entry point into
TotalChain(TM) and any other business application. Through TotalChain(TM)
Business Portal, users can access TotalChain(TM) Order Processing Manager to
create purchase orders or other procurement-related documents. Systems
Administrators can access TotalChain(TM) Workflow Manager to configure or update
business rules and workflow assignments. Users signing on to a TotalChain(TM)
system can work securely, knowing that every communication, end-to-end,
throughout the supply chain is not only encrypted but also digitally
authenticated and certified. To define the entry point into the Internet and
enhance the user experience, the award-winning design and production teams at
E-Sync's Braincraft subsidiary can rapidly create the look, feel, and
functionality of the client's TotalChain(TM) Business Portal.
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TOTALCHAIN(TM) ORDER PROCESSING MANAGER
This offering is a complete e-procurement package providing Order Entry,
Purchase Order, Accounts Payable, Accounts Receivable, General Ledger, and
Materials Management modules. TotalChain(TM) Order Processing Manager validates
and completes transactions, scheduling transportation and delivery and
generating critical management reports.
TOTALCHAIN(TM) WORKFLOW MANAGER
TotalChain(TM) Workflow Manager is the core of the TotalChain(TM) System. It
allows the mapping and application of business rules and processes in the
client's supply chain system. Based upon the business rules and processes that
are defined, TotalChain(TM) Workflow Manager then controls the document workflow
throughout the client's supply chain and enforces security throughout the
communication process, using digital certificate PKI technology and encryption
for every communication sent and received using the Internet. XML translation
and the Company's TotalChain(TM) Integration Manager Series of translators allow
communication among many types of e-procurement and ERP systems, including
Commerce One, Ariba, SAP, Baan, and PeopleSoft.
TOTALCHAIN(TM) INTEGRATION MANAGER SERIES
TotalChain(TM) Integration Manager is a universal translator between different
platforms and applications, sitting between a TotalChain(TM) Workflow Manager
and its connected applications. TotalChain(TM) Integration Managers are
Java-based, making them platform and operating system independent. Platform
independence allows simple and easy implementations to get a client's supply
chain web-enabled quickly without requiring system or application changes.
E-Sync's pre-packaged ERP Series of TotalChain(TM) Integration Managers will
include support of Baan, Oracle, PeopleSoft, and SAP systems. Customized
translators can also be designed to connect with existing proprietary systems.
E-Sync's Communications Series of TotalChain(TM) Integration Managers allows
clients to quickly interface with companies whose primary means of communication
involve less sophisticated systems, such as fax, e-mail, and web servers.
TOTALCHAIN(TM) OUTSOURCING SERVICES.
E-Sync offers a totally outsourced, web-based supply chain solution that
integrates and maintains dynamic connections with clients' suppliers, partners
and customers. Every communication throughout a client's supply chain can be
encrypted and digitally authenticated and certified. The Company's Information
Exchange Data Center maintains server hardware, security, redundancy and data
backup to ensure that applications run efficiently and effectively with 100%
uptime and access to a 24/7 help desk.
SALES AND MARKETING
The Company focuses its marketing efforts toward educating its target market,
generating new sales opportunities, and creating awareness for its
business-to-business electronic commerce solutions. E-Sync conducts a variety of
marketing programs to educate its target market. The Company has engaged in
marketing activities such as business seminars, trade shows, press relations and
industry analyst programs and advisory councils.
E-Sync's marketing organization also serves an integral role in acquiring,
organizing and prioritizing customer and industry feedback in order to help
provide product direction to the Company's development organizations. The
Company has traditionally targeted large multi-national companies that are
likely to have dissimilar computer systems and applications in multiple
locations. Such companies have been plagued with inter-divisional communication
problems because their computing strategies often differed from division to
division, resulting in computing systems that communicate ineffectively with
each other. E-Sync's customer list contains over 50 large corporations, most of
which are Fortune 500 companies.
CUSTOMERS
E-Sync provides Fortune 1000 clients with secure web-based, business-to-business
solutions and services. E-Sync's customers include the following:
o American Standard, Inc.
o Ameritech
o AT&T
o Briggs & Stratton Corporation
o Compaq
o Crum & Forster Insurance
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o ESPN
o DaimlerChrysler
o First Data Resources
o Ford Motor Company
o GE Capital
o Instinet
o IVANS, Inc.
o Johnson & Johnson
o Metromedia International Telecommunications, Inc.
o Otis Elevator
o Pepsi Cola
o Ralston Purina
o St. Paul Fire & Marine Insurance Company
o Travelers Insurance
o USABancShares
PARTNERS
E-Sync has a variety of relationships with leading information technology
providers, enabling it to offer its clients a choice of the best technologies
not offered by a sole technology source.
E-CERTIFY is a leading provider of PKI-based Internet security and encryption
technology. With this technology, E-Sync's clients can take advantage of a new
level of secure B2B e-commerce. Many of E-Sync's Managed Services, including
Total Mail, Fax Services, MailConnect, Directory Services, and Hosting Services,
benefit from E-Certify's expertise.
MICROSOFT
E-Sync is a Microsoft Solutions Provider Partner, uniquely qualifying the
Company to conduct application analysis and to develop migration planning and
implementation. The Company also provides support for Windows 2000 Active
Directory, Windows NT, MS Exchange, Systems Management Server (SMS), SNA Server,
and Internet/intranet deployment.
IVANS, INC. uses E-Sync to provide messaging and fax services to the insurance
and healthcare industry.
TRW
E-Sync integrates advanced TRW technologies into its service and product
offerings.
In addition, the Company's products and services leverage off of the products
and services of the following companies:
COMPAQ sponsors E-Sync's Information Exchange Data Center and its Executive
Briefing Center.
ISOCOR is E-Sync's partner for messaging platforms, providing messaging
integration for disparate mail systems, as well as technology for Directory
Synchronization.
EASTMAN SOFTWARE, a Kodak business, provides E-Sync with enterprise work
management technology. Eastman Software's portfolio of products includes
award-winning software for imaging, workflow, computer output to laser disk
(COLD), and document management.
NETIQ CORPORATION provides technology for E-Sync's Remote Management Services.
CISCO SYSTEMS, INC. provides E-Sync with network solutions to enhance its
product and service offerings.
MAJOR VENDORS
The Company relies on various suppliers for equipment and services to provide
its services to its customers. Among them are standard computer servers and
hardware, standard telecom services, and proprietary software. While the Company
currently relies on Compaq and Cisco equipment purchased through resellers for
its computer hardware, and Qwest and AT&T for its telecom services, the Company
believes that alternate suppliers would be readily available should one of its
current suppliers become unavailable.
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<PAGE> 10
The Company currently uses proprietary software, requiring proprietary hardware,
to provide its Managed Services offerings. While there are several sources of
this hardware, there is currently only one manufacturer. Should this hardware
become unavailable, the Company believes it could find alternate solutions to
enable it to continue to provide its services. However, identifying and
implementing alternate solutions could take an undetermined amount of time and
could have a negative impact on the Company's service offerings. In addition,
there are no guarantees that if an alternate solution is found, that it could be
implemented in a cost-effective manner, or provide the same functionality as the
Company's current system.
NET SALES BACKLOG
Management believes that sales backlog is not a meaningful indication of future
revenue because most of its revenue is derived from short-term contracts for
both Managed Services and Professional Services which are generally initiated
within 90 days of receipt of an order.
PRODUCT DEVELOPMENT
Management believes that its proprietary product development efforts provide the
Company with a competitive advantage by defining the needs for new products,
guiding future enhancements and testing new implementations. The Company's
research and development activities are principally directed toward the
development of web supply chain system integration technology and software as
well as enhancing existing services. During fiscal years 1999 and 1998 E-Sync
spent $1.3 million and $0.5 million, respectively, on research and development.
EMPLOYEES
As of December 31, 1999, the Company had 94 full-time employees, including 9
primarily engaged in research and development activities and 11 engaged in sales
and marketing activities. The Company's future success depends in significant
part upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense
and there can be no assurance that the Company can retain its key managerial and
technical employees or that it can attract, assimilate or retain other highly
qualified technical and managerial personnel in the future. None of the
Company's employees are represented by collective bargaining units and the
Company has never experienced a work stoppage. The Company believes that its
employee relations are good.
COMPETITION
The market for the Company's Managed Services and Professional Services
offerings is intensely competitive, evolving and subject to rapid technological
change. The Company has encountered competition with respect to different
aspects of its existing offerings from a variety of vendors including Critical
Path and ICG for its Managed Services, and Andersen Consulting, IBM and others
for our Professional Services.
While none of the Company's competitors or potential competitors currently
produces an identical web supply chain end-to-end solution, the Company is
subject to current or potential competition from large software vendors; systems
integrators; B2B marketplaces that develop their own B2B integration solutions;
certain EDI vendors; and vendors of proprietary EAI and application server
products, who have added XML capabilities to their products.
Many of the Company's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition, a broader range of products to offer and a larger installed base of
customers than the Company, each of which could provide them with a significant
competitive advantage over the Company. In addition, the Company expects to
experience increasing price competition as the Company and its competitors
compete for market share. There can be no assurance that the Company will be
able to compete successfully with existing or new competitors or that
competition will not have a material adverse effect on the Company's business,
operating results and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company anticipates that its future success will be heavily dependent upon
its proprietary technology. To protect its proprietary rights, the Company
relies on a combination of copyright, trade secret and trademark laws, and
nondisclosure and other contractual restrictions. As part of its confidentiality
procedures, the Company generally enters into nondisclosure agreements with its
employees, consultants, and strategic partners and limits access to and
distribution of its designs, software and other proprietary as it deems
appropriate.
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<PAGE> 11
ITEM 2. PROPERTIES
The Company's headquarters, which includes executive management, operations,
sales, marketing, research and development, and administration, are located in
Trumbull, Connecticut. At the same location is the Company's state-of-the-art
high security data center enabling E-Sync to offer clients reliable, cost
effective and efficient services such as network monitoring, applications
support, and a help desk. The Company also has sales and development offices in
New York City and a secure data center located in the United Kingdom. E-Sync
currently has 94 employees serving clients around the globe.
The Company occupies a portion of a three-story building at 35 Nutmeg Drive,
Trumbull, Connecticut, as a tenant under a lease expiring December 31, 2014. The
space consists of approximately 20,555 rentable square feet and is utilized for
offices and a computer center. The Company also has 1,200 square feet at
Building 101, Merritt 7 Corporate Park, Norwalk, Connecticut, under a lease
expiring July 23, 2001 and 2,500 rentable square feet at 627 Broadway, New York,
New York under a lease expiring October 31, 2001. Additionally, the Company is
leasing approximately 3,500 square feet in Swindon, England for the E-Sync U.K.
computer center under a lease which expires February 1, 2004.
ITEM 3. LEGAL PROCEEDINGS
On November 9, 1999 Systems Research Applications Corporation ("SRA") of
Fairfax, VA commenced an action against E- Sync in the Circuit Court for Fairfax
County. There are no other parties to the suit. The complaint alleges that
E-Sync breached a written agreement whereby SRA was to provide for the
documentation and migration of E-Sync's computer systems to a new location. The
complaint seeks money damages in the principal amount of $327,371.86, sounding
in three counts alleging breach of contract and anticipatory breach of contract.
E-Sync removed the case to the United States District Court for the Eastern
District of Virginia, where the case is currently pending. Systems Research and
Applications Corp. v. E-Sync Networks, Inc., Civ. No. 00-39-A. By its answer
dated January 12, 2000, E-Sync denied all material allegations of the complaint,
set forth affirmative defenses and counterclaimed against SRA for money damages
and attorneys' fees based upon breach of contract and breach of warranty. The
action remains pending and the parties are exchanging discovery.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
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<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The Company's Common Stock is traded on the OTC Bulletin Board (through
which various market dealers make the market of the Company's Common Stock and
trades are reported through what is commonly known as the "pink sheets") under
the symbol ESNI. The following table shows the range of closing bid prices for
the Common Stock, in the over-the-counter market for the fiscal quarters
indicated, as reported by the NASD. The quotations represent prices in the
over-the-counter market between dealers in securities, do not include retail
mark-up, mark-down or commission and do not necessarily represent actual
transactions:
<TABLE>
<CAPTION>
Bid Prices
-----------------------
1999 High Low
- ------------- ------- ---------
<S> <C> <C>
First Quarter 2 7/16 9/16
Second Quarter 5 31/32 2 9/16
Third Quarter 6 1/16 3 3/16
Fourth Quarter 14 1/4 4
1998 High Low
- ------------- ------- ---------
First Quarter 27/32 7/16
Second Quarter 3/4 1/2
Third Quarter 7/8 5/8
Fourth Quarter 23/32 3/8
</TABLE>
(b) Approximate number of holders of the Company's common equity:
<TABLE>
<CAPTION>
Approximate Number of
Record Holders as of
Title of Class March 28, 2000
-------------- -----------------------
<S> <C>
Common Stock, par value $0.01 585
Series A Preferred Stock, par value $0.01 2
Series B Preferred Stock, par value $0.01 15
</TABLE>
(c) Dividends
Under a credit facility expiring in August, 2001, the Company is prohibited from
paying cash dividends.
The Company has never paid cash dividends on its Common Stock. The Company plans
to reinvest its cash flow in its business and does not anticipate payment of
cash dividends in the foreseeable future.
(d) Issuances of Securities
On November 1, 1999, the Company issued an aggregate of 1,590,909 shares of
Series B Convertible Preferred Stock at $4.40 per share to fifteen accredited
investors, and, shortly thereafter, the Company's U.K. subsidiary issued
3,000,000 preference shares, which shares are exchangeable at the option of the
holder thereof, at any time, for 681,818 additional shares of the Company'
Series B Preferred Stock, to one accredited investor. The Company (including its
U.K. subsidiary) received cash proceeds of $10.0 million from such sales, net
of offering costs. The Company believes that such issuances were exempt from
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<PAGE> 13
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), by virtue of the exemptions set forth in Section 4(2) thereof
and Rule 506 of Regulation D thereunder.
On November 8, 1999, the Company issued 680,256 shares of its common stock, and
paid $250,000 in cash, to the two stockholders of Braincraft in exchange for all
of Braincraft's issued and outstanding capital stock. The common stock issued by
the Company was valued at $2.9 million. The Company believes that such issuance
was exempt from the registration requirements of the Securities Act by virtue of
the exemption contained in Section 4(2) thereof.
On December 8, 1999, the Company issued options to purchase 40,000 shares of its
common stock at an exercise price of $4.20 per share to Dr. David Gray, a
consultant in connection with Dr. Gray acting as a technical advisor for E-Sync
U.K. for three years. These options are exercisable for a period of ten years
and vest ratably over three years. The value of the option given in return for
the services was $519,000. The Company believes that such issuance was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof.
On December 14, 1999, the Company issued 32,523 shares of its common stock
valued at $154,000 to Commercial Electronics, LLC, a shareholder of the Company,
for services performed relating to an executive search. Also on such date, the
Company issued 75,000 non-refundable shares of its common stock to Greenhill &
Co. LLC, a financial advisor, for services to be performed over three years. The
value of these services and the shares was $422,000. The Company believes that
such issuances were exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof.
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<PAGE> 14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
E-Sync is a global provider of managed business-to-business e-commerce
applications and solutions that help medium and large businesses, including
Fortune 1000 companies, reinvent their businesses, interact more efficiently
with business partners, and web-enable their existing infrastructure. Through
these offerings, E-Sync provides comprehensive capabilities that provide secure
communication, information exchange and Web-based transactions. The Company has
historically provided reliable, high-quality messaging and hosting services to
its customers, which are critical components that can serve as the backbone of
supply chain management solutions. In addition, the Company offers professional
services, primarily to large corporations, including systems integration,
technology planning and information technology (IT) support.
Within the last year, the primary focus of the Company has been re-directed
toward offering powerful supply chain management solutions, consisting of secure
links between buyers and suppliers of goods and services, to its target market.
The Company's implementation strategy being deployed for the development and
delivery of these offerings combines XML-based, open standards with security
embedded directly into the applications, a predominantly modular architectural
design and core messaging capabilities, to create end-to-end solutions allowing
the web-enablement of legacy systems. Deep and trustworthy relationships with
the Company's existing Fortune 1000 customer base will provide the Company with
opportunities to migrate customers from current activities to higher-value web
supply chain offerings.
In addition to the Company's new strategy to develop and provide an end-to-end
web supply chain solution, the Company will continue to offer its existing
services on a modular basis to customers. These services include web design
consulting, secure online messaging, outsourced e-mail services, directory and
fax services, hosted communications, network design and integration, messaging
integration and message platform migration.
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE TWELVE MONTHS ENDED
OCTOBER 31, 1998
The Company's revenues consist of fees for Professional Services provided to its
customers in the form of web development, messaging infrastructure and other
consulting services, and Managed Services in the form of hosting and messaging
services. Professional Services, including services provided by the Company's
Braincraft subsidiary, are normally billed on a time and material basis with
contracts typically ranging from 1 to 12 months. Managed Services consist of
both fixed charges, billed in advance, and usage based charges billed at the end
of the month. Contracts for Managed Services are typically for a one-year
period. The Company recognizes revenue in the period the services are performed.
Managed Services revenues decreased by 19.2% and Professional Services revenues
increased by 24.7% in the year ended December 31, 1999. Managed Services
revenues decreased primarily due to the decision to end support for older
technology platforms that are no longer part of the Company's strategic focus as
well as price reductions for certain messaging services in response to
competitive conditions. The increase in Professional Services revenue is
primarily due to the acquisition and consolidation of Braincraft Learning
Technologies, Inc. ("Braincraft") in November of 1999. Net of the effect of the
consolidation of Braincraft, Professional Services revenue increased by 8.3%
over the periods principally due to an increase in the volume of professional
services provided.
Gross margin for Managed Services decreased to negative 0.2% in the year ended
December 31, 1999 (expenses exceeded revenues), compared to 45.8% for the year
ended October 31, 1998, mainly due to the lower revenues discussed above and
increased costs associated with expanded capacity to support future growth in
new products. Gross margin for Professional Services decreased to 19.6% in the
year ended December 31, 1999, from 28.9% for the twelve months ended October 31,
1998, principally due to increased costs associated with the recruiting and
training of additional consulting personnel to support anticipated growth,
partially offset by a reduction in the use of higher cost subcontract
consultants and increased revenue from higher margin projects.
Sales and marketing expenses increased $1,552,000, or 150.5%, in the current
year, and as a percent of total revenues increased from 13.6% in the year ended
October 31, 1998, to 34.5% for the year ended December 31, 1999. The increase is
a result of the hiring of additional sales and sales support personnel as well
as higher advertising and promotion expenses related to increasing the Company's
visibility with current and potential customers.
The Company's general and administrative expenses were $2,581,000 or 298.4%
higher for the year ended December 31, 1999, then for the fiscal year ended
October 31, 1998. As a percent of total revenues, general & administrative
expenses increased
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<PAGE> 15
from 14.0% to 52.6% over the periods. The increase is primarily attributable to
the Company's change in strategy to offering supply chain management solutions,
which resulted in significant increases in general, sales and operations
management personnel and capabilities, relocation and expansion of the Company's
headquarters and data center, and increased professional and consulting fees.
Research and development expenditures were $1,291,000 and $491,900 for the years
ended December 31, 1999 and October 31, 1998, respectively. The 182.4% increase
in expense for the year ended December 31, 1999 was mainly due to the increase
in the number of research and development personnel as well as the increased use
of outside consultants. To date, all development costs have been expensed in the
period incurred.
Interest income, net of interest expense, was $5,700 in the year ended December
31, 1999, as compared to an expense of $48,300 in the year ended October 31,
1998. The change was mainly due to the investment of funds received through the
issuance of preferred stock prior to their use.
In December 1999, the Company issued options to purchase 40,000 shares of its
common stock at an exercise price of $4.20 per share to a consultant in
connection with the consultant acting as a technical advisor for E-Sync's U.K.
operations for three years. These options are exercisable for a period of ten
years and vest ratably over three years. The Company accounts for these options
in accordance with Emerging Issues Task Force Abstract No. 96-18, "Accounting
for Equity Instruments That are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling Goods or Services." Pursuant to EITF 96-18, the
Company has valued the options using a Black-Scholes pricing model. The $519,000
ascribed to the options reflects the market value as of December 31, 1999 and
has been recorded as deferred compensation. This cost is being amortized over
the applicable vesting periods. The value ascribed to the options will be
adjusted at each intervening balance sheet date to bring the total charge up to
the then current market value. The Company has amortized $14,000 of the deferred
compensation as of December 31, 1999. Such amount is included within non-cash
compensation in the statement of operations.
In the fourth quarter of 1999, the Company issued 32,523 shares of its common
stock valued at $154,000 to an advisor for services performed, which were
expensed immediately. In 1999, the Company issued 75,000 non-refundable shares
of its common stock to an advisor for services to be performed over three years.
The $422,000 value ascribed to the 75,000 shares is recorded as an other asset
and is being ratably amortized over three years, with $141,000 of such
amortization expensed in 1999. The issuance of the shares is non-refundable.
TWO MONTHS ENDED DECEMBER 31, 1998
Revenue for the two months ended December 31, 1998 was $1.2 million. For the
period, approximately $650,000, or approximately 54.1% of the Company's revenue,
was derived from Managed Services revenue, with the balance being derived from
Professional Services.
Cost of sales, as a percent of total revenue, was approximately 58.3% for the
two month period. This ratio was essentially unchanged when compared to the 12
months ended October 31, 1998.
Sales and marketing expenses for the period represented approximately 16.6% of
total revenue. The major components of sales and marketing expenses were
salaries and benefits, and advertising, comprising 64.3% and 10.3% of total
sales and marketing expenses, respectively.
General and administrative expenses for the period were $218,000, approximately
18.3% of revenue. The primary components of general and administrative expenses
in the period were salaries and benefits, and professional fees, comprising
55.6% and 14.8% of total general and administrative expenses respectively.
Research and development expenses were approximately 6.8% of total revenue, or
$81,500 for the period. As a percent of revenue, these expenses were comparable
to research and development expenses incurred in the previous twelve months. The
primary component of research and development expense for the two-month period
was salaries and benefits, representing 74.5% of total research and development
expense for the period.
Interest expense for the two-month period was approximately $5,100 or 0.4% of
revenue. This represented interest paid to a bank with whom the Company had
executed a financing agreement.
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<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased during the twelve months ended December 31,
1999, by $6.4 million from $796,800 at December 31, 1998. The Company raised
$15.4 million through financing activities, primarily from the issuance of
preferred stock. Of that amount, the Company invested approximately $3.0 million
in capital purchases related to the relocation and expansion of the Company's
headquarters and data center, and used an additional $0.5 million to acquire
Braincraft. Operations of the Company used approximately $5.5 million. At
December 31, 1999, the Company had working capital (current assets minus current
liabilities) of approximately $4.9 million.
Net cash used in operating activities was $4.9 million for the year ended
December 31, 1999. Net cash flows used in operating activities in the period
reflect increased net losses of $7.2 million, offset in part by an increase of
$1.6 million in accounts payable and accrued expenses primarily related to the
completion of the relocation of the Company's principal offices to Trumbull,
Connecticut.
Net cash used in investing activities was $3.5 million for the year ended
December 31, 1999. Cash used in investing activities primarily reflects
purchases of property and equipment for the installation of new computer
equipment, purchases of furniture and equipment for employees, and leasehold
improvements related to the expansion of data center capacity and the relocation
of the Company's principal office to Trumbull, Connecticut. Investing activities
during the period also reflected cash used to acquire Braincraft, net of the
cash acquired.
Net cash provided by financing activities was $15.4 million for the year ended
December 31, 1999, primarily from the net proceeds of the Series B Convertible
Preferred Stock financing through the issuance of approximately 2.3 million
shares for gross proceeds of $10.0 million. In January 1999, the Company sold
1.0 million shares of Series A Preferred Stock for gross proceeds of $3.0
million. Also, in August 1999, warrants to purchase 1.5 million shares of common
stock were exercised for gross proceeds of $1.5 million.
Capital expenditures, including capital leases, were $3.0 million for the year
ended December 31, 1999. E-Sync's capital expenditures principally consisted of
purchases of hardware and software, office furniture and equipment, and
leasehold improvements. Management expects that the Company's capital
expenditures will continue to increase in the future. During this period,
management expects to fund capital expenditures either through the use of
working capital or with capital leases.
As of December 31, 1999 the Company had $7.2 million of cash and cash
equivalents. The Company expects to experience significant growth in its
operating expenses, particularly research and development and sales and
marketing expenses for the foreseeable future in order to execute its business
plan. As a result, the Company anticipates that such operating expenses, as well
as planned capital expenditures, will constitute a material use of cash
resources. In addition, the Company may utilize cash resources to fund
acquisitions or investments in complementary businesses, technologies or product
lines. Thereafter, the Company may find it necessary to obtain additional equity
or debt financing. In the event additional financing is required, the Company
may not be able to raise funds on acceptable terms or at all.
YEAR 2000
The Company established a Year 2000 (Y2K) executive oversight committee in 1998
to review all of the Company's computer systems and programs as well as those of
third parties whose data the Company relies on in any material respect. The
objective of the review was to assess the ability of the computer systems and
programs to process transactions in the year 2000 and to implement remedial
solutions to preclude interruption of the Company's business operations and
services to its supplier and customers. Part of the remediation process included
transitioning customers from and retirement of Y2K non-compliant legacy systems.
The legacy system transitioning process, including final verification and
testing, was complete during the third quarter of 1999. The Company does not
believe that any material problems to its hardware and software, or its
products, arose or were discovered at the commencement of the year 2000. The
Company does not believe that it will incur any future material Y2K expenses.
FORWARD LOOKING STATEMENTS
The statements in this annual report on Form 10-KSB that are not historical fact
constitute "forward-looking statements." Said forward-looking statements involve
risks and uncertainties that may cause the actual results, performance or
achievements of the Company and its subsidiaries to be materially different from
any future results, performance or achievements, express or implied by such
forward-looking statements. These forward-looking statements are identified by
their use of forms of such terms and phrases as "expects", "intends", "goals",
"estimates", "projects", "plans", "anticipates", "should", "future", "believes",
and
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<PAGE> 17
"scheduled".
The variables which may cause differences include, but are not limited to, the
following general economic and business conditions: competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and cost of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and exceptions of the Company will be achieved.
In addition, there can be no assurance that the Company will be successful in
further developing any of its new products, that the Company will not experience
difficulties that could delay or prevent successful development, introduction
and sales of these products, or that its new products and enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. Although the Company expects to derive a substantial portion of its
revenue from the TotalChain(TM) offerings in the future, it is still developing
its pricing, expense and revenue model for the services associated with such
offerings. If the Company is unable to successfully establish a pricing, expense
and revenue model acceptable to its customers, the TotalChain(TM) offerings may
not be commercially successful. Management cannot be sure that existing and
future development efforts will be completed within the anticipated schedules or
that, if completed, they will have the features or quality necessary to make
them successful in the marketplace. Further, despite testing by the Company and
by current and potential customers, errors could be found in the Company's
products. E-Sync may not be able to successfully correct these errors in a
timely and cost effective manner. If the Company is not able to develop new
products or enhancements to existing products or corrections on a timely and
cost-effective basis, or if these new products or enhancements do not have the
features or quality necessary to make them successful in the marketplace, the
Company's business will be seriously harmed.
Management expects that most of the Company's enhancements to existing and
future products will be developed internally. However, the Company currently
licenses certain externally developed technologies and will continue to evaluate
externally developed technologies to integrate with its solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make the Company's solutions
successful in the marketplace, may seriously impact and harm the Company's
business. In addition, the Company must attract and retain highly qualified
employees to further its research and development efforts. The Company's
business could be seriously harmed if it is not able to hire and retain a
sufficient number of these individuals.
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<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
E-Sync Networks, Inc.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet at December 31, 1999 F-3
Consolidated Statements of Operations for each of the years ended December 31, 1999, and
October 31, 1998, and the two months ended December 31, 1998 F-4
Consolidated Statements of Stockholders Equity for each of the years ended December 31, 1999,
and October 31, 1998, and the two months ended December 31, 1998 F-5
Consolidated Statements of Cash Flows for each of the years ended December 31, 1999, and
October 31, 1998, and the two months ended December 31, 1998 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
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<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders of
E-Sync Networks, Inc.:
We have audited the accompanying consolidated balance sheet of E-Sync
Networks, Inc. and subsidiaries (the "Company") as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the transition period from November 1, 1998 to December 31, 1998 and
for the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of E-Sync
Networks, Inc. and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the transition period from November 1,
1998 to December 31, 1998 and for the year ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 5, 2000
F-1
<PAGE> 20
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of E-Sync Networks, Inc.
We have audited the consolidated statements of operations, stockholders' equity,
and cash flows of E-Sync Networks, Inc. (formerly known as Wiltek, Inc. and its
Subsidiary) (the "Company") for the fiscal year ended October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated statements of
operations, stockholders' equity, and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated statements of operations,
stockholders' equity, and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and consolidated
cash flows of the Company for the fiscal year ended October 31, 1998, in
conformity with accounting principles generally accepted in the United States.
GRANT THORNTON LLP
NEW YORK, NEW YORK
DECEMBER 29, 1998
F-2
<PAGE> 21
E-SYNC NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
---------------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents ......................................................... $ 7,182
Accounts receivable, less allowance for doubtful accounts of $124,000, and
$35,000 as of December 31, 1999 and 1998 respectively ......................... 1,148
Other current assets............................................................... 382
--------
Total current assets ......................................................... 8,712
Equipment, net ..................................................................... 3,620
Goodwill and other intangible assets, net .......................................... 4,419
Other assets ....................................................................... 250
--------
Total assets ................................................................. $ 17,001
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Term loans payable, current portion ............................................... $ 105
Obligations under capital leases, current portion ................................. 102
Accounts payable .................................................................. 1,465
Accrued expenses .................................................................. 1,941
Medical benefits obligation, current portion ...................................... 28
Deferred revenue .................................................................. 171
--------
Total current liabilities ...................................................... 3,812
Term loans payable, less current portion .............................................. 6
Obligations under capital leases, less current portion ................................ 60
Medical benefits obligation, less current portion ..................................... 210
--------
Total liabilities ..................................................................... 4,088
Stockholders' equity:
Convertible Preferred Stock, par value $.01 per share, 10,000,000 shares
authorized
Series A Convertible Preferred Stock, par value $.01 per share, 1,000,000 shares
issued and outstanding, with an aggregate liquidation preference of $2,985 ........... 10
Series B Convertible Preferred Stock, par value $.01 per share, 2,272,727 shares
issued and outstanding, with an aggregate liquidation preference of $10,000 .......... 23
Common Stock, stated value $.01 per share, 50,000,000 shares authorized,
7,607,692 shares issued and outstanding at December 31,1999 .......................... 76
Additional paid in capital ............................................................. 26,248
Accumulated deficit .................................................................... (11,723)
Deferred compensation .................................................................. (505)
Less treasury stock at cost, 992,565 shares ............................................ (1,216)
--------
Total Stockholders' Equity ...................................................... 12,913
--------
Commitments and Contingencies
Total liabilities and stockholders' equity ...................................... $ 17,001
========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 22
E-SYNC NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
---------------------------------------- TWO MONTHS ENDED
DECEMBER 31, 1999 OCTOBER 31, 1998 DECEMBER 31, 1998
----------------- ---------------- -----------------
<S> <C> <C> <C>
REVENUES:
Managed services ..................................... $ 3,620 $ 4,480 $ 647
Professional services ................................ 3,870 3,104 548
----------- ----------- -----------
Total revenues .................................. 7,490 7,584 1,195
COSTS AND EXPENSES:
Cost of managed services ............................. 3,626 2,429 363
Cost of professional services ........................ 3,110 2,208 334
Sales and marketing .................................. 2,583 1,031 199
General and administrative ........................... 3,643 1,069 219
Research and development ............................. 1,291 492 81
Non-cash compensation ................................ 309 -- --
----------- ----------- -----------
Total operating expenses ............................. 14,562 7,229 1,196
----------- ----------- -----------
Income (loss) from operations ........................ (7,072) 355 (1)
OTHER INCOME (EXPENSE):
Other expense, net .................................. (97) -- (1)
Interest expense .................................... (56) (48) (5)
Interest income ..................................... 62 -- --
----------- ----------- -----------
Total other (expense)................................ (91) (48) (6)
----------- ----------- -----------
Net earnings (loss) ...................................... $ (7,163) $ 307 $ (7)
=========== =========== ===========
Earnings (loss) per common share:
Basic ............................................... $ (1.51) $ .08 $ .00
=========== =========== ===========
Diluted ............................................. $ (1.51) $ .07 $ .00
=========== =========== ===========
Weighted average number of shares
used in per share calculation:
Basic ............................................... 4,752,629 3,838,483 3,892,128
=========== =========== ===========
Diluted ............................................. 4,752,629 4,140,364 3,892,128
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 23
E-SYNC NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997 -- -- -- -- 4,836,693 $ 1,612
Exercise of options -- -- -- -- 48,000 16
Issuance of treasury stock as
bonus -- -- -- -- -- --
Net income -- -- -- -- -- --
--------- -- ---------- -- --------- -------
Balance at October 31, 1998 -- -- -- -- 4,884,693 1,628
Net loss -- -- -- -- -- --
--------- -- ---------- -- --------- -------
Balance at December 31, 1998 -- -- -- -- 4,884,693 1,628
Par value adjustment -- -- -- -- -- (1,579)
Exercise of options -- -- -- -- 443,800 4
Exercise of warrants -- -- -- -- 1,500,00 15
Issuance of Series A Preferred
Stock 1,000,000 10 -- -- -- --
Issuance of Series B Preferred
Stock -- -- 2,272,727 23 -- --
Issuance of stock in lieu of
payment for services -- -- -- -- 75,000 1
Issuance of stock to an advisor -- -- -- -- 32,523 --
</TABLE>
E-SYNC NETWORKS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional Total
Paid-In- Deferred Accumulated Stockholders'
Capital Compensation Deficit Treasury Stock Equity
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997 $ 5,611 -- $ (4,860) (1,035,637) (1,269) $ 1,094
Exercise of options (4) -- -- -- -- 12
Issuance of treasury stock as
bonus (15) -- -- 43,072 53 38
Net income -- -- 307 -- -- 307
---------- -- ----------- ---------- ------ ----------
Balance at October 31, 1998 5,592 -- (4,553) (992,565) (1,216) 1,451
Net loss -- -- (7) -- -- (7)
---------- -- ----------- ---------- ------ ----------
Balance at December 31, 1998 5,592 -- (4,560) (992,565) (1,216) 1,444
Par value adjustment 1,579 -- -- -- -- --
Exercise of options 188 -- -- -- -- 192
Exercise of warrants 1,485 -- -- -- -- 1,500
Issuance of Series A Preferred
Stock 2,958 -- -- -- -- 2,968
Issuance of Series B Preferred
Stock 9,962 -- -- -- -- 9,985
Issuance of stock in lieu of
payment for services 421 -- -- -- -- 422
Issuance of stock to an advisor 154 -- -- -- -- 154
</TABLE>
F-5
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock options in
lieu of payment for services -- -- -- -- -- --
Amortization of deferred
compensation -- -- -- -- -- --
Issuance of common stock in
connection with acquisition
of Braincraft 671,676 7 -- -- -- --
Net loss -- -- -- -- -- --
-------------------------------------------------------------------------------------------------
Balance at December 31, 1999 7,607,692 $ 76 1,000,000 $ 10 2,272,727 $ 23
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock options in
lieu of payment for services 519 (519) -- -- -- --
Amortization of deferred
compensation 14 -- -- -- 14
Issuance of Common Stock in
connection with acquisition
of Braincraft 3,390 -- -- -- -- 3,397
Net loss -- -- (7,163) -- -- (7,163)
-----------------------------------------------------------------------------------------------
Balance at December 31, 1999 $26,248 $(505) $(11,723) (992,565) $(1,216) $12,913
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
E-SYNC NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWO MONTHS ENDED
DECEMBER 31, 1999 OCTOBER 31, 1998 DECEMBER 31, 1998
------------------- ----------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................... $ (7,163) $ 307 $ (7)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation and amortization........................ 528 218 44
Provision for doubtful accounts...................... 77 -- --
Loss on disposal of fixed assets..................... 99 -- --
Non-cash compensation................................ 309 -- --
Issuance of treasury stock as bonus.................. -- 37 --
Changes in operating assets and liabilities:
Accounts receivable............................... (138) 26 141
Other current assets.............................. (204) 6 (9)
Accounts payable and accrued expenses............. 1,639 (37) 30
Deferred Revenue.................................. (53) -- --
-------- ------- -------
Net cash (used in) provided by operating activities...... (4,906) 557 199
Cash flows from investing activities:
Acquisition of Braincraft, net of cash acquired.......... (518) -- --
Capital expenditures..................................... (2,952) (279) (60)
-------- ------- -------
Net cash used in investing activities...................... (3,470) (279) (60)
-------- ------- -------
Cash flows from financing activities:
Payments on bank loans................................... (764) -- --
Proceeds from bank loans................................. 750 -- 32
Proceeds from exercise of stock options and warrants..... 1,692 12 --
Proceeds from issuance of preferred stock................ 12,953 --
Advance payments on Series B preferred stock............. 352 -- --
Payments under capital lease obligations, net............ (222) (149) (42)
-------- ------- -------
Net cash provided by (used in) financing activities........ 14,761 (137) (10)
-------- ------- -------
Net increase in cash and cash equivalents.................. 6,385 141 129
Cash and cash equivalents at beginning of period........... 797 527 668
-------- ------- -------
Cash and cash equivalents at end of period................. $ 7,182 $ 668 $ 797
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................. $ 67 $ 56 $ 6
======== ======= =======
Income Taxes............................................. $ 7 $ 5 $ 1
======== ======= =======
Non-cash investing activities:
Capital lease obligations incurred for fixed asset
acquisitions.......................................... $ 74 $ 165 $ 15
======== ======= =======
</TABLE>
F-7
<PAGE> 26
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS.
The Company provides outsourced solutions for the development and
hosting of Web-based Extranet initiatives. Serving its Fortune 1000 customer
base, the Company offers secure online messaging, directory and fax services,
legacy-to-Web application development services, hosted communications, and
infrastructure support solutions that link business partners via the Web. The
operations of the Company are conducted through two business segments primarily
within the continental United States and the United Kingdom.
The Company's wholly owned subsidiary, Braincraft Learning
Technologies, Inc. ("Braincraft") provides the design and development of web
sites to various companies. Braincraft was incorporated in the State of New York
in 1995 and acquired by the Company in November, 1999.
The Company's Board of Directors decided on February 23, 1999 to change
the date on which the Company's fiscal year ends from October 31 to December 31.
The financial results for the two-month transition period commencing on November
1, 1998, and terminating on December 31, 1998 are reported on this Form 10-KSB.
(B) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company, its subsidiary, E- Sync Networks (U.K.) Ltd., and, from its
acquisition by the Company on November 8, 1999, the Company's subsidiary
Braincraft Learning Technologies, Inc. All significant intercompany transactions
have been eliminated in consolidation.
(D) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments including money market funds and certificates of
deposit with original maturities of three months or less to be cash equivalents.
(E) REVENUE RECOGNITION
Revenue from managed services and professional services, excluding the
design and development of Internet Websites, is recognized when services are
performed. Revenues from the design and development of Internet web sites are
recognized using the percentage-of-completion method. Deferred revenue
represents amounts billed in excess of costs incurred, and is recorded as a
liability. To the extent costs incurred and anticipated costs incurred and
anticipated costs to complete projects in progress exceed anticipated billings,
a loss is recognized in the period such determination is made for the excess.
F-8
<PAGE> 27
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
(F) EQUIPMENT
Equipment is stated at cost less accumulated depreciation. Depreciation
is calculated using the straight line method over the estimated useful lives of
the related assets, generally ranging from three to seven years. Equipment under
capital lease obligations are depreciated over the lesser of the useful life or
the term of the lease.
(G) PRODUCT DEVELOPMENT
Product development expenses include personnel and consulting costs
associated with the design, development and testing of the Company's systems
and are expensed as incurred.
(H) TAXES
Income taxes are accounted for under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that the tax change occurs. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
(I) EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is presented in accordance with the
provisions of SFAS No. 128, Earnings Per Share, and the Securities and Exchange
Commission Staff Accounting Bulletin No. 98. Under SFAS No. 128, basic EPS is
computed by dividing income or loss available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
and resulted in the issuance of common stock. As a result of the Company's net
loss, diluted net loss per share was the same as basic net loss per share for
the year ended December 31 ,1999 and the two months ended December 31, 1998,
since the effect of any potentially dilutive securities would be anti-dilutive.
Diluted net loss per common share for the year ended December 31, 1999,
and the two months ended December 31, 1998, does not include the effects of (i)
options to purchase 1,002,105, and 760,300 shares of common stock, respectively,
nor (ii) the issuance of 4,772,727, and 0, shares of common stock issuable upon
the conversion of Series A, and B preferred stock on an "as if" converted basis,
respectively, as the effect of their inclusion is anti-dilutive for each period.
Excluded in the computation of diluted earnings per share for the
twelve months ended October 31, 1998, were options to purchase 171,500 shares of
common stock because the option's exercise price was greater than the average
market price for the common shares.
(J) ADVERTISING COSTS
Advertising and promotion costs are expensed as incurred. These costs
were $333,800 for the twelve months ended December 31, 1999 and $106,000 for the
twelve months ended October 31, 1998.
F-9
<PAGE> 28
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS; RISK CONCENTRATION
Based on borrowing rates currently available to the Company for capital
leases with similar terms and maturities, the fair value of the Company's
capital leases approximates the carrying value. The carrying values of all other
financial instruments potentially subject to valuation risk, principally cash,
accounts receivable and accounts payable, also approximate fair value because of
their short-term maturities.
During the fiscal year ended December 31, 1999, two customers accounted
for more than 10% of the Company's total revenues. One customer's accounts
receivable balance exceeded 10% of the outstanding accounts receivable. During
the fiscal year ended October 31, 1998, two customers accounted for more than
10% of the Company's total revenues.
(L) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are stated net of accumulated
amortization. Goodwill and other intangible assets are being amortized on a
straight line basis over their expected period of benefit of five years.
(M) IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of"
("SFAS No. 121") establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets. Under provisions of SFAS No. 121, impairment losses are recognized
when expected future cash flows are less than the assets' carrying value.
Accordingly, when indicators of impairment are present, the Company will
evaluate the carrying value of equipment in relation to the operating
performance and future undiscounted cash flows of the underlying business. SFAS
No. 121 requires analysis of each item on an individual asset-by-asset basis,
where applicable. The amount of the impairment loss is the excess of the
carrying amount of the impaired asset over the fair value of the asset.
Generally, fair value represents the expected future cash flows from the use of
the asset or group of assets, discounted at an interest rate commensurate with
the risks involved.
(N) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, Accounting or Stock-Based
Compensation. As permitted by SFAS No. 123, the Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"), and related interpretations, in accounting for
employee stock options. As opposed to SFAS No. 123, which is a fair value based
method, APB No. 25 provides that compensation expense related to the Company's
employee stock options be measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that elect to follow APB No. 25 to
provide pro forma disclosure of the impact of applying the fair value method of
SFAS No. 123.
F-10
<PAGE> 29
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
(O) 401(K) PLAN
The Company established a 401(k) defined contribution plan covering
substantially all eligible employees. An eligible employee may elect to reduce
his taxable compensation and have the amount of any such reduction contributed
to the Plan on the employee's behalf. The Company may also make a discretionary
matching contribution to the Plan. During the years ended December 31, 1999 and
October 31, 1998, the Company's matching contribution was 15% of employee
contributions up to the applicable limit.
An eligible employee may elect to reduce his taxable compensation by
15% (but not more than $10,500 per year or such greater amount as may be set by
the Internal Revenue Service). The amount of the reduction is called elective
deferral. The Company will then contribute the elective deferral to the Plan on
the employee's behalf. The Company's contributions to the plan for the years
ended December 31, 1999 and October 31, 1998 and the two months ended December
31, 1998, were $37,000, $34,700, and $4,400 respectively.
(P) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133. SFAS No.
137 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company has not yet analyzed the impact of this pronouncement on
its financial statements.
(Q) REORGANIZATION
At the Company's annual shareholders' meeting held on July 15, 1999,
the shareholders approved the formation of E-Sync Networks, Inc., a Delaware
corporation and (at the time) a wholly-owned subsidiary of Wiltek Inc., and the
merger of Wiltek Inc. with and into E-Sync Networks, Inc., with the effect of
(i) changing the name of the Company, (ii) changing the state of incorporation
of the Company, and (iii) amending the Certificate of Incorporation and By-laws
of the Company (such events, collectively, the "Reorganization") The
Reorganization was consummated on July 28, 1999. The financial statements
discussed above for all periods prior to the Reorganization, represent the
balance sheets, consolidated statements of operations and cash flows of Wiltek,
Inc.; however, such financial statements have been renamed to E-Sync Networks,
Inc. to reflect the current name of the Company.
F-11
<PAGE> 30
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
(2) BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
Property and Equipment
December 31, 1999
-----------------
<S> <C>
($000's)
Computer equipment $3,241
Equipment acquired under capital leases 633
Furniture and fixtures 234
Leasehold improvements 883
------
4,991
Less: accumulated depreciation and amortization,
including $411 on equipment under capital lease 1,371
------
Equipment, net $3,620
======
Accrued Expenses
December 31, 1999
-----------------
($000)
Salary and related benefits $ 672
Deferred rent 220
Professional fees 135
Accrued acquisition costs 127
Severance 126
Other accrued expenses 661
------
Total accounts payable and accrued expenses $1,941
======
</TABLE>
(3) ACQUISITION
On November 8, 1999, the Company acquired 100% of the outstanding stock
of Braincraft Learning Technologies, Inc. ("Braincraft") for a total purchase
price of $3.8 million. The purchase price includes (i) $250,000 of cash, (ii)
680,256 shares of E-Sync common stock valued at $2.9 million (iii) acquisition
costs of $225,000 and (iv) options valued at $542,000. The Company assigned a
value of $4.6 million to goodwill and other intangible assets, of which $132,000
was amortized during 1999. The acquisition of Braincraft was accounted for as a
purchase business combination.
The following unaudited pro-forma consolidated amounts give effect to
the acquisition of Braincraft as if it had occurred on November 1, 1997, by
consolidating Braincraft's results of operations with the results of E-Sync for
the years ended December 31, 1999 and October 31, 1998 and the two months ended
December 31, 1998. The unaudited pro-forma consolidated results are not
necessarily indicative of the operating results that would have been achieved
had the transaction been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
The pro-forma basic and diluted net earnings (loss) per common share is computed
by dividing the net loss attributable to common stockholders by the
weighted-average number of common shares outstanding. The calculation of the
weighted average number of shares outstanding assumes that 680,256 shares of
E-Sync common stock issued in connection with its acquisition of Braincraft were
outstanding for the entire period.
F-12
<PAGE> 31
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------- TWO MONTHS ENDED
DECEMBER 31, 1999 OCTOBER 31, 1998 DECEMBER 31, 1998
----------------- ---------------- -----------------
<S> <C> <C> <C>
Revenue $ 8,377 $ 8,503 $ 1,412
Net income (loss) attributable to common
stockholders (7,704) 302 84
Earnings (loss) per share
Basic $ (1.44) $ 0.07 $ (0.02)
Diluted $ (1.44) $ 0.06 $ (0.02)
Weighted average shares used in net loss per
share calculation
Basic 5,332,133 4,518,339 4,572,384
Diluted 5,332,133 4,820,620 4,572,384
</TABLE>
(4) CAPITALIZATION
Common Stock
In 1999, the Company issued 1,943,800 shares upon the exercise of
common stock warrants and options and received net proceeds of $1,692,000. In
the fourth quarter of 1999, the Company issued 32,523 shares of common stock
valued at $154,000 to an advisor for services performed which was expensed
immediately. Also in 1999, the Company issued 75,000 shares of common stock to
an advisor for services to be performed over three years. The $422,000 value
ascribed to the 75,000 shares is recorded as other assets and is being ratably
amortized over three years, of which $141,000 has been amortized in 1999. The
issuance of the shares is non-refundable.
Series A Convertible Preferred Stock
On January 28, 1999, Commercial Electronics Capital Partnership, L.P.
("CECAP"), and a related entity, Commercial Electronics, L.L.C. (collectively,
"Purchaser"), purchased 732,160 shares of common stock from three retiring
directors of the Company at $.85 per share. In connection therewith, the
Purchaser also purchased (i) 1,000,000 shares of Series A convertible preferred
stock, and (ii) a warrant to purchase up to 1,500,000 shares of the Company's
common stock for 18 months at a price of $1.00 per share, for an aggregate cash
consideration paid to the Company of $3,000,000. The Purchaser exercised the
warrants during 1999. The Series A convertible preferred stock is convertible
into common stock at any time at the option of the holder on the basis of 2.5
shares of common stock for each share of Series A Preferred Stock.
In connection with the aforementioned transaction, the Purchaser became
the beneficial owner of 4,732,160 shares of the Company's authorized common
stock, representing (at the time) approximately 59% of the Company's outstanding
common stock (assuming the conversion of Purchaser's preferred stock into common
stock and the full exercise of the Purchaser's warrant to purchase common
stock). Such beneficial ownership, along with the fact that the Purchaser's
designees currently constitute a majority of the Company's Board of Directors,
and the fact that Purchaser has the contractual right to retain control of the
Company's Board of Directors, constituted a change in control of the Company
from the retiring directors to the Purchaser and their director nominees.
Utilization of the Company's net tax loss carry forwards will be significantly
limited as a result of the change in control of the Company.
Pursuant to the Purchase Agreement, the Company signed a "Medical
Benefit Letter" which obligates the Company to provide medical benefits to the
three retiring directors and their spouses until they reach age 65 (dates
ranging from September 12, 2004 to December 29, 2009). The Company's maximum
obligation under the Medical Benefit Letter is $400,000. The Company initially
recorded a liability approximating $260,000 representing the net present value
of the maximum $400,000 medical benefit obligation. The Company was also
required to deposit $250,000 in a Medical Escrow Fund to secure a portion of the
Company's obligation under the Medical Benefit Letter. The Company has
F-13
<PAGE> 32
classified the deposit of $250,000 as "other assets" in the accompanying balance
sheet. The Company is entitled to withdraw from the medical escrow fund medical
benefits paid pursuant to the Medical Benefit Letter on a quarterly basis. Such
payments totaled $21,775 during the twelve months ended December 31, 1999, and
were charged against the medical benefit obligation liability.
Series B Convertible Preferred Stock
In the fourth quarter of 1999, the Company issued 1,590,909 shares of
Series B Convertible Preferred Stock at $4.40 per share, and the Company's U.K.
subsidiary issued 3,000,000 preference shares, which preference shares are
exchangeable at the option of the holder thereof, at any time, for 681,818
additional shares of the Company's Series B Preferred Stock. The Company
(including its U.K. subsidiary) received aggregate cash proceeds of $9.985
million from such sales, net of offering costs ($10 million of gross proceeds).
For presentation purposes, these sales have been consolidated as if the 681,818
shares of Series B Preferred Stock underlying the preference shares were sold in
lieu of the preference shares.
Any holder of Series B Preferred Stock shall have the right, at its
option, at any time and from time to time, to convert any or all of such
holder's shares of Series B Preferred Stock into shares of Common Stock. Upon
the third anniversary of the Issue Date, each outstanding share of Series B
Preferred Stock, or if earlier, the transfer of any shares of Series B Preferred
Stock by an initial holder to any person other than an affiliate of such initial
holder, such shares shall automatically be converted into shares of Common
Stock.
Each share of Series B Preferred Stock entitles the holder thereof to
vote on each of the matters entitled to be voted on by holders of common stock,
voting together as a single class with other shares entitled to vote thereon.
Unless the consent or approval of a greater number of shares shall then be
required by law, the affirmative vote of the holders of at least a majority of
the outstanding shares of Series B Preferred Stock, voting as a single class,
shall be necessary to (i) authorize, increase the authorized number of shares
of, or issue any shares of any class of Senior Stock, (ii) amend, alter or
repeal the Certificate of Incorporation so as to affect the shares of Series B
Preferred Stock adversely, (iii) authorize or issue any security convertible
into Senior Stock or (iv) effect an Extraordinary Event (as defined therein).
The preference shares issued by E-Sync U.K. (i) have no voting rights
(other than with respect to the winding up of E-Sync U.K. and altering the
rights of such shares), (ii) have a priority in payment on a winding up of
E-Sync U.K., (iii) are not entitled to dividends, (iv) are non-transferable, and
(v) are redeemable on November 5, 2009.
Liquidation Preference
In the event of any liquidation or winding up of the Company, holders
of Series A and B convertible preferred stock will be entitled to an amount
equal to the applicable purchase price per share, plus any accrued but unpaid
dividends, before any amounts are paid on behalf of the Company's Common Stock.
(5) STOCK OPTIONS
In December 1999, the Company issued options to purchase 40,000 shares
of common stock at an exercise price of $4.20 per share to a consultant in
connection with acting as a technical advisor for the Company's U.K. operations
for three years. These options are exercisable for a period of 10 years. These
options vest ratably over three years. The Company accounts for these options in
accordance with Emerging Issues Task Force Abstract No. 96-18, "Accounting for
Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services." Pursuant to EITF 96-18, the Company
valued the options using a Black-Scholes pricing model. The $519,000 ascribed to
the options reflects their market value as of December 31, 1999, and has been
recorded as deferred compensation. This cost is being amortized over the
applicable vesting periods. The value ascribed to these options will be adjusted
at each intervening balance sheet date to bring the total charge up to the
then-current market value. The Company has amortized $14,000 of the deferred
compensation as of December 31, 1999. Such amount is included within non-cash
compensation in the statement of operations.
F-14
<PAGE> 33
In July 1999, the Shareholders of the Company approved the Company's
1999 incentive compensation plan. The plan consists of a total of 750,000 shares
issuable upon exercise of the underlying options or grants. At December 31,
1999, 49,395 shares were available for future grants. The maximum number of
shares which may have been awarded under the 1983 and 1988 stock option plans to
employees was 500,000 and 400,000, respectively. No shares are available for
future grants under these plans at December 31, 1999. An aggregate of 850,000
shares were authorized under the Company's 1994 stock option plan. No shares are
available for future grants under this plan at December 31, 1999. None of the
above option prices were less then fair market value at the date of grant.
Options issued under plans other than the 1999 plan are fully exercisable.
Vesting under the 1999 plan ranges from immediate to three years from the
employee's start date. The maximum term of the grant is ten years.
The following table summarizes the options granted under the various plans for
the period from November 1, 1997 through December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at 10/31/97.................. 779,300 $.52
Granted................................ 195,000 $.81
Exercised.............................. (48,000) $.25
Expired / Canceled..................... (238,000) $1.38
---------
Outstanding at 10/31/98................ 688,300 $.47
Granted.................................. 72,000 $.56
Exercised.............................. -- --
Expired / Canceled..................... -- --
---------
Outstanding at 12/31/98................ 760,300 $.48
Granted.................................. 700,605 $4.02
Exercised.............................. (443,800) $.43
Expired / Canceled..................... (15,000) $.70
---------
Outstanding at 12/31/99................ 1,002,105 $2.97
=========
</TABLE>
F-15
<PAGE> 34
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for its option plan under APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations and,
accordingly, no compensation cost has been recognized for the employee stock
option plan. Had compensation cost for the Company's employee stock option plan
been determined based on the fair value at the grant date for awards, net
earnings and earnings per share would have increased as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Two Months Ended
December 31, 1999 October 31, 1998 December 31, 1998
----------------- ---------------- -----------------
<S> <C> <C> <C>
NET EARNINGS
As reported $ (7,163) $ 307 $ (7)
Pro Forma $ (9,791) $ 195 $ (46)
EARNINGS PER SHARE
As reported
Basic $ (1.51) $ 0.08 $ 0.00
Diluted $ (1.51) $ 0.07 $ 0.00
Pro Forma
Basic $ (2.06) $ 0.05 $ 0.00
Diluted $ (2.06) $ 0.05 $ 0.00
</TABLE>
The resulting effect on the pro forma net loss per common share for
the years ended December 31, 1999 and October 31, 1998, and for the two months
ended December 31, 1998, is not likely to be representative of the effects on
the net loss on a pro forma basis in future years, because the pro forma results
include the impact of only two years, one year, and fourteen months ,
respectively, of grants and related vesting, while subsequent years will include
additional grants and vesting.
The following table summarizes information about the stock options at
December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------- -------------------------------------------
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
- ------------------ -------------------- ------------------------------------------ ---------------------- --------------------
<S> <C> <C> <C> <C> <C>
$0.00 - $0.25 141,000 4.85 $0.25 141,000 $0.25
$0.50 - $0.56 70,000 6.93 $0.55 70,000 $0.55
$0.87 - $1.28 85,000 7.99 $0.87 85,000 $0.87
$2.94 - $2.98 124,213 8.82 $2.98 27,189 $2.97
$4.13 - $5.02 581,892 9.88 $4.23 -- --
--------- -------
1,002,105 8.67 $2.97 323,189 $0.71
========= =======
</TABLE>
F-16
<PAGE> 35
(6) EARNINGS PER SHARE
For the periods presented in the Consolidated Statement of Operations, the
calculations of basic EPS and EPS assuming dilution vary in that the weighted
average shares outstanding assuming dilution include the incremental effect of
stock options. The following table shows the reconciliation of Basic and Diluted
EPS computations:
<TABLE>
<CAPTION>
Twelve Months Ended
October 31, 1998
-----------------------------------------
Earnings Shares Per Share
--------- --------- ---------
<S> <C> <C> <C>
Basic EPS
Earnings $ 307,400 3,838,083 $.08
Diluted Effect of Securities:
Stock Options -- 302,281 (.01)
--------- --------- ------
Diluted EPS
Earnings plus assumed conversions $ 307,400 4,140,364 $ .07
========= ========= ======
</TABLE>
Excluded in the October 31,1998 computation of Diluted EPS were options
to purchase 171,500 shares of common stock at prices ranging from $0.81 to $2.94
because the options' exercise price was greater than the average market price of
the common shares. These options, which expire March 21, 1999 to December 15,
2007, included 160,000 options issued during the twelve months ended October 31,
1998. All options and warrants have been excluded from the earnings per share
calculation for the two months ended December 31, 1998 and the twelve months
ended December 31, 1999, as the Company recorded a loss for those periods, and
inclusion of such options and warrants would have had an anti-dilutive effect.
(7) INCOME TAXES
For the year ended December 31, 1999 and the two months ended
December 31, 1998, there is no provision for federal, state or local income
taxes since the Company incurred losses during those periods.
Significant components of the Company's deferred tax assets as of
December 31, 1999 are as follows:
Deferred tax assets:
NET OPERATING LOSS CARRY-FORWARD $ 3,883,000
Investment tax credit carry-forward 18,000
Other, net 117,000
------------
Deferred tax asset 4,018,000
Less valuation allowance 4,018,000
------------
Net deferred tax assets $ 0
= =
F-17
<PAGE> 36
At December 31, 1999, the Company's U.S. operating loss carry-forwards
for Federal tax purposes approximated $9,017,000 and $7,973,000 for state tax
purposes. The Company's U.K. operating loss carry-forwards are approximately
$1,129,000 for tax purposes as of December 31, 1999. The expected Federal
Statutory rate is 34%. The Company has established a valuation allowance to
reduce its net deferred tax asset to zero at December 31, 1999 because current
evidence indicates that it is more likely than not that the deferred tax asset
will not be realized. The valuation reserve was increased by $2,725,000 in the
year ended December 31, 1999 as a result of utilization and expiration of net
operating loss carry-forwards. The Company accounts for the investment tax
credit by the flow-through method.
The Tax Reform Act of 1986 enacted a complex set of rules (Internal Revenue Code
Section 382) limiting the utilization of net operating loss carry-forwards to
offset future taxable income following a corporate "ownership change."
Generally, this occurs when there is a greater than 50% change in ownership.
(8) COMMITMENTS AND CONTINGENCIES
During the years ended December 31, 1999 and October 31, 1998, the
Company entered into various capital lease agreements for new computer equipment
totaling $73,619 and $164,600, respectively. The lease terms vary from 36 to 39
months, with interest rates between ranging from 8.77% and 35.08%.
The related future lease minimum payments as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Capital Leases
- ----------------------- --------------
<S> <C> <C>
2000 $ 129,000
2001 49,000
2002 11,000
------
Net minimum lease payment $ 189,000
Amount representing interest (weighted average interest rate of 13.0%) 27,000
------
Present value of net minimum capital lease payments $ 162,000
Less current portion 102,000
-------
Obligations under capital leases, excluding current portion $ 60,000
= ======
</TABLE>
Annual employment agreements are in effect with two officers of the
Company which call for a base compensation to be mutually agreed upon at renewal
and upon failure to reach agreement will terminate, with the officer, in certain
circumstances, being entitled to a severance payment in an amount equal to
one-half to one and one-half of his then
F-18
<PAGE> 37
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
current annual base compensation. Assuming that the severance arrangements under
such agreements become operative, the minimum aggregate payoffs under such
contracts would approximate $268,000.
Total rental expenses for office space, equipment and automobiles
included in the results of operations for fiscal years ended December 31, 1999
and October 31, 1998, were $720,000 and $291,000 respectively. Minimum rental
commitments under non-cancelable operating leases covering space and equipment
are as follows:
<TABLE>
<CAPTION>
Year Rental Commitments
---- ------------------
<S> <C>
2000 $ 415,410
2001 405,410
2002 355,410
2003 355,410
2004 274,565
----------
$1,806,205
==========
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
financial position, results of operation or liquidity.
(9) BUSINESS SEGMENT INFORMATION
The FASB issued Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS No. 131") in June
1997. SFAS 131 supersedes FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. SFAS 131 replaces the "industry segment'
concept of Statement 14 with a "management approach" concept as the basis for
identifying reportable segments. The management approach is based on the way
that management organizes the segments within the enterprise for making
operating decisions and assessing performance. Consequently, the segments are
evident from the structure of the enterprise's internal organization. It focuses
on financial information that an enterprise's decision makers use to make
decisions about the enterprise's operating matters. The Company adopted SFAS 131
in 1999.
The Company began foreign operations in 1983 when it established its computer
center in London, England. During 1999, the U.K. operation's total revenues were
$705,500 with a net loss of $401,200. Included in the above were $282,200 in
U.S. management costs allocated to U.K. operations and inter-company net
interest expense charged to E-Sync U.K. for $45,500. Identifiable total assets
amounted to $333,600. The U.S. dollar is the functional currency of the U.K.
operation.
During fiscal year 1998, the U.K. operation's total revenues were $923,900 with
a net loss of $116,300. Included in the above were $253,500 in U.S. management
costs allocated to U.K. operations and inter-company net interest expense
charged to E-Sync U.K. in the amount of $41,900. Identifiable total assets were
$424,600.
The Company provides outsourced solutions for the development and hosting of
web-based Extranet initiatives. Serving its Fortune 1000 customer base, the
Company offers secure online messaging, directory and fax services,
legacy-to-web application development services, hosted communications, and
infrastructure support solutions that link business partners via the web. The
operations of the Company are conducted through two business segments primarily
within the continental United States and the United Kingdom. Descriptions of the
business segments' services and operations are as follows:
Managed Services
Managed services provides customers with hosted global messaging services for
e-mail, fax, directory services, and remote management services supported by a
Company owned and operated, 24-hours-a-day, 7-days-a-week data center and help
desk that assures reliable and safe electronic communications. Messaging
services includes (i) TotalMail that provides user access to e-mail, shared
calendar scheduling, distribution lists and folders, and (ii) Hosting Services,
whereby the Company will maintain customers' mail servers and run the e-mail
function remotely at one of its sites. Fax services includes (i) Application to
Fax which simultaneously delivers computer generated files from mainframe or PC-
based applications to one or many facsimile devices worldwide, (ii) MailFax,
which sends faxes and attachments via e-mail, and (iii) Inbound Fax, which
allows receipt of inbound faxes at the desktop via e-mail. Directory Services
allows customers to outsource the management of their corporate data directories
via the Company's custom-designed directory solutions products. The Company also
offers secure e-mail and fax messaging services through public key
infrastructure (PKI), digital certificates, and SmartCard authentication
products.
F-19
<PAGE> 38
E-SYNC NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(All information subsequent to December 31, 1999 is unaudited)
Professional Services
Professional Services is a consulting systems design and integration services
organization that provides legacy-to-web application development and migration.
As a Microsoft Solution Provider Partner, certified system engineers and
Microsoft product specialists assist customers in designing and developing
migration strategies to Microsoft BackOffice(R) products. The Company's system
engineers also provide network design and integration services, whereby they
assess customers' web design, messaging, and connectivity needs, evaluate
existing infrastructure architecture, define and test migration processes, and
prepare enterprise-wide implementation plans. They also develop tools, utilities
and conversion software for directory support as well as design workflow
automation solutions.
Identifiable assets by segment are those assets that are used in the operations
of each segment as well as the accounts receivable generated by each segment.
Corporate assets consist primarily of cash and cash equivalents, short term
investments, prepaid expenses, and corporate furniture, fixtures, and equipment.
Capital expenditures are comprised primarily of additions to data processing
equipment, furniture and fixtures, and leasehold improvements.
The following table presents the Company's business segment financial
information (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWO MONTHS ENDED
------------------------------------------- ---------------------
DECEMBER 31, 1999 OCTOBER 31, 1998 DECEMBER 31, 1998
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
REVENUE:
Managed services $ 3,620 $ 4,480 $ 647
Professional services 3,870 3,104 548
---------- ----------- -----------
Total revenues $ 7,490 $ 7,584 $ 1,195
========== =========== ===========
OPERATING INCOME (LOSS):
Managed services $ (3,788) $ 801 $ 13
Professional services (3,284) (440) (15)
---------- ----------- -----------
Operating income (loss) from segments (7,072) 361 (2)
Corporate expenses, net (97) (6) (1)
Interest expense (income), net 6 (48) (4)
---------- ----------- -----------
Net earnings (loss) $ (7,163) $ 307 $ (7)
========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Managed services $ 202 $ 135 $ 5
Professional services 34 22 29
Corporate 292 61 10
---------- ----------- -----------
Total depreciation and amortization $ 528 $ 218 $ 44
========== =========== ===========
CAPITAL EXPENDITURES:
Managed services $ 927 $ 84 $ 59
Professional services 70 17 --
Corporate 1,955 13 1
---------- ----------- -----------
Total capital expenditures $ 2,952 $ 114 $ 60
========== =========== ===========
</TABLE>
F-20
<PAGE> 39
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS AT: DECEMBER 31, 1999
---------------------
<S> <C>
Managed services $ 2,071
Professional services 708
----------
Total assets for reportable segments 2,779
Corporate 14,222
----------
Total assets $ 17,001
==========
</TABLE>
F-21
<PAGE> 40
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the change in control reported on a Form 8-K filed with the
Securities and Exchange Commission on February 12, 1999, the Company, effective
March 5, 1999, terminated the Company's previous accountants, Grant Thornton LLP
("Grant Thornton"), and appointed the firm of KPMG LLP ("KPMG") as the Company's
new independent accountants. The decision to change accountants was approved by
the Company's Board of Directors. Grant Thornton's report on the Company's
financial statements for the years ended October 31, 1998 and 1997 did not
contain an adverse opinion or disclaimer of opinion and was not qualified as to
uncertainty, audit scope or accounting principles. During these two fiscal years
and any subsequent interim period preceding this dismissal, there were no
disagreements between the Company and Grant Thornton that, if not resolved to
Grant Thornton's satisfaction, would have caused Grant Thornton to make a
reference to the subject matter of the disagreement in connection with its
report. Neither the Company nor anyone acting on the Company's behalf consulted
KPMG regarding the application of accounting principles to a specific completed
or contemplated transaction, or the type of audit opinion that might be rendered
on the Company's financial statements, nor did the Company or anyone acting on
the Company's behalf receive written or oral advice from KPMG that was an
important factor considered by the Company in reaching a decision on any such
matter.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 9 is incorporated herein by reference to the
definitive proxy statement of E-Sync Networks, Inc. to be filed with the
Securities and Exchange Commission ("SEC") within 120 days following the end of
the Company's fiscal year ended December 31, 1999, relating to its 2000 Annual
Meeting of Stockholders.
ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS
Information required by this Item 10 is incorporated herein by reference to the
definitive proxy statement of E-Sync to be filed with the SEC within 120 days
following the end of the Company's fiscal year ended December 31, 1999, relating
to its 2000 Annual Meeting of Stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 11 is incorporated herein by reference to the
definitive proxy statement of E-Sync to be filed with the SEC within 120 days
following the end of the Company's fiscal year ended December 31, 1999, relating
to its 2000 Annual Meeting of Stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 12 is incorporated herein by reference to the
definitive proxy statement of E-Sync to be filed with the SEC within 120 days
following the end of the Company's fiscal year ended December 31, 1999, relating
to its 2000 Annual Meeting of Stockholders.
-19-
<PAGE> 41
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit Index
- -------------------------------------------------------------------------------------------------------------------------
Exhibit Location of exhibit in sequential
Number Description numbering system
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of September Incorporated by reference to Exhibit
27, 1999, by and among E-Sync Networks, Inc., 2.1 of Registrant's Form 8-K dated
Braincraft Learning Technologies, Inc., BLT Acquisition November 8, 1999
Corp., Dan Stechow and Kevin Marth.
- -------------------------------------------------------------------------------------------------------------------------
2.2 Amendment No. 1 to the Agreement and Plan of Merger, Incorporated by reference to Exhibit
dated as of November 8, 1999, by and among E-Sync 2.2 of Registrant's Form 8-K dated
Networks, Inc., Braincraft Learning Technologies, Inc., November 8, 1999
BLT Acquisition Corp., Dan Stechow and Kevin Marth.
- -------------------------------------------------------------------------------------------------------------------------
2.3 Securities Purchase Agreement, dated as of January 28, Incorporated by reference to Exhibit
1999, by and among Wiltek, Inc., Commercial 2.1 of Registrant's Form 8-K dated
Electronics Capital Partnership, L.P., and Commercial January 28, 1999
Electronics, L.L.C.
- -------------------------------------------------------------------------------------------------------------------------
2.4 Stock Purchase Agreement, dated as of January 28, 1999, Incorporated by reference to Exhibit
by and among Jay Fitzpatrick, Boris Frenkel, F. Spencer 2.2 of Registrant's Form 8-K dated
Pooley, Commercial Electronics Capital Partnership, January 28, 1999
L.P. and Commercial Electronics, L.L.C.
- -------------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Incorporated by reference to
Registrant's Definitive Proxy
Statement dated June 23, 1999
- -------------------------------------------------------------------------------------------------------------------------
3.2 Certificate of Amendment of Certificate of Incorporation Incorporated by reference to Exhibit
setting forth the terms of the "Senior Convertible Series 3.2 of Registrant's Form 8-K dated
A Preferred Stock," as filed with the Secretary of the January 28, 1999
State of the State of Connecticut on January 26, 1999.
- -------------------------------------------------------------------------------------------------------------------------
4.1 Certificate of Designations, Preferences and Rights of Filed herewith
Senior Convertible Series B Preferred Stock of E-Sync
Networks, Inc.
- -------------------------------------------------------------------------------------------------------------------------
4.2 Amended and Restated Registration Rights Agreement, Filed herewith
dated as of November 1, 1999, among Commercial
Electronics Capital Partnership, L.P., Commercial
Electronics, L.L.C., the New Purchasers listed therein,
and E-Sync Networks, Inc.
- -------------------------------------------------------------------------------------------------------------------------
10.1 Form of Employment Agreement between the Registrant Filed herewith
and David S. Teitelman
- -------------------------------------------------------------------------------------------------------------------------
10.2 Form of Employment Agreement between the Registrant Filed herewith
and Frank J. Connolly, Jr.
- -------------------------------------------------------------------------------------------------------------------------
10.3 Office Lease, dated as of March 25, 1999, between Filed herewith
Fairhaven Investors Limited Partnership and Wiltek, Inc.
- -------------------------------------------------------------------------------------------------------------------------
21 List of the Registrant's subsidiaries Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
23.1 Consent of Grant Thornton LLP Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
23.2 Consent of KPMG LLP Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
27 Financial Data Schedule Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 42
(b) Reports on Form 8-K
1. On February 12, 1999, the Company filed a report on Form 8-K announcing
the change in control of the Company.
2. On March 10, 1999, the Company filed a report on Form 8-K announcing the
appointment of KPMG, LLP as the Company's new auditors, and the changing of the
Company's fiscal year end from October 31 to December 31.
3. On July 30, 1999, the Company filed a report on Form 8-K announcing
the creation of and merger into E-Sync Networks, Inc. effectively changing its
name from Wiltek, Inc. to E-Sync Networks, Inc. and changing its state of
incorporation from Connecticut to Delaware.
4. On November 23, 1999, the Company filed a report on Form 8-K announcing
the acquisition of Braincraft Learning Technologies, Inc.
5. On January 24, 2000, the Company filed a report on Form 8-K/A (as an
amendment to the Form 8-K filed on November 23, 1999) to report the financial
information required in connection with its acquisition of Braincraft Learning
Technologies, Inc.
-21-
<PAGE> 43
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
E-Sync Networks, Inc.
By:
/s/ Jonathan S. Rubin
----------------------
Jonathan S. Rubin, CEO
/s/ Frank J. Connolly, Jr.
---------------------------
Frank J. Connolly, Jr., CFO
Date: March 31, 2000
-22-
<PAGE> 44
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
/s/ John C. Maxwell, III
- ------------------------- Date: March 31, 2000
John C. Maxwell, III
Chairman
- ------------------------- Date: March 31, 2000
Peter J. Boni
Director
/s/ Nathan Gantcher
- ------------------------- Date: March 31, 2000
Nathan Gantcher
Director
/s/ Stephen D. Grubbs
- ------------------------- Date: March 31, 2000
Stephen D. Grubbs
Director
/s/ Jonathan S. Rubin
- ------------------------- Date: March 31, 2000
Jonathan S. Rubin
Director
-23-
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Exhibit Location of exhibit in sequential
Number Description numbering system
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of September Incorporated by reference to Exhibit
27, 1999, by and among E-Sync Networks, Inc., 2.1 of Registrant's Form 8-K dated
Braincraft Learning Technologies, Inc., BLT Acquisition November 8, 1999
Corp., Dan Stechow and Kevin Marth.
- -------------------------------------------------------------------------------------------------------------------------
2.2 Amendment No. 1 to the Agreement and Plan of Merger, Incorporated by reference to Exhibit
dated as of November 8, 1999, by and among E-Sync 2.2 of Registrant's Form 8-K dated
Networks, Inc., Braincraft Learning Technologies, Inc., November 8, 1999
BLT Acquisition Corp., Dan Stechow and Kevin Marth.
- -------------------------------------------------------------------------------------------------------------------------
2.3 Securities Purchase Agreement, dated as of January 28, Incorporated by reference to Exhibit
1999, by and among Wiltek, Inc., Commercial 2.1 of Registrant's Form 8-K dated
Electronics Capital Partnership, L.P., and Commercial January 28, 1999
Electronics, L.L.C.
- -------------------------------------------------------------------------------------------------------------------------
2.4 Stock Purchase Agreement, dated as of January 28, 1999, Incorporated by reference to Exhibit
by and among Jay Fitzpatrick, Boris Frenkel, F. Spencer 2.2 of Registrant's Form 8-K dated
Pooley, Commercial Electronics Capital Partnership, January 28, 1999
L.P. and Commercial Electronics, L.L.C.
- -------------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Incorporated by reference to
Registrant's Definitive Proxy
Statement dated June 23, 1999
- -------------------------------------------------------------------------------------------------------------------------
3.2 Certificate of Amendment of Certificate of Incorporation Incorporated by reference to Exhibit
setting forth the terms of the "Senior Convertible Series 3.2 of Registrant's Form 8-K dated
A Preferred Stock," as filed with the Secretary of the January 28, 1999
State of the State of Connecticut on January 26, 1999.
- -------------------------------------------------------------------------------------------------------------------------
4.1 Certificate of Designations, Preferences and Rights of Filed herewith
Senior Convertible Series B Preferred Stock of E-Sync
Networks, Inc.
- -------------------------------------------------------------------------------------------------------------------------
4.2 Amended and Restated Registration Rights Agreement, Filed herewith
dated as of November 1, 1999, among Commercial
Electronics Capital Partnership, L.P., Commercial
Electronics, L.L.C., the New Purchasers listed therein,
and E-Sync Networks, Inc.
- -------------------------------------------------------------------------------------------------------------------------
10.1 Form of Employment Agreement between the Registrant Filed herewith
and David S. Teitelman
- -------------------------------------------------------------------------------------------------------------------------
10.2 Form of Employment Agreement between the Registrant Filed herewith
and Frank J. Connolly, Jr.
- -------------------------------------------------------------------------------------------------------------------------
10.3 Office Lease, dated as of March 25, 1999, between Filed herewith
Fairhaven Investors Limited Partnership and Wiltek, Inc.
- -------------------------------------------------------------------------------------------------------------------------
21 List of the Registrant's subsidiaries Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
23.1 Consent of Grant Thornton LLP Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
23.2 Consent of KPMG LLP Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
27 Financial Data Schedule Filed herewith
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF
SENIOR CONVERTIBLE SERIES B PREFERRED STOCK
OF
E-SYNC NETWORKS, INC.
* * *
E-Sync Networks, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the provisions
of Section 151 of Title 8 of the Delaware Code of 1953, said Board of Directors
adopted a resolution by the unanimous written consent of its members, filed with
the minutes of the Board, providing for the issuance of a new series of
preferred stock designated as "Senior Convertible Series B Preferred Stock",
which resolution is as follows:
RESOLVED that, pursuant to the authority vested in the Board of Directors
of E-Sync Networks, Inc., a Delaware corporation (the "Company") in accordance
with the provisions of the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), a series of the class of authorized Preferred
Stock, par value $0.01 per share, of the Company, is hereby created and that the
designation and number of shares thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations and restrictions thereof are as
follows:
Section 1. Designation and Number.
(a) The shares of such series shall be designated as "Senior Convertible
Series B Preferred Stock" (the "Series B Stock"). The number of shares initially
constituting the Series B Stock shall be 2,272,727, which number may be
decreased (but not increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not be decreased below the
number of then outstanding shares of Series B Stock.
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<PAGE> 2
(b) The Series B Stock shall, with respect to dividend rights and rights
upon liquidation, dissolution or winding up, rank pari passu with the Company's
Series A Convertible Preferred Stock (the "Series A Stock") and prior to all
other classes and series of capital stock of the Company now or hereafter
authorized (except as may be authorized pursuant to Section 3(b)) including,
without limitation, the Common Stock.
(c) Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Section 9.
Section 2. Dividends and Distributions.
In the event that the Company shall declare a dividend or make any other
distribution (including, without limitation, in cash, in capital stock (which
shall include, without limitation, any options, warrants or other rights to
acquire capital stock) of the Company or other property or assets) to holders of
Common Stock, then the Board of Directors shall declare, and the holder of each
share of Series B Stock shall be entitled to receive, a dividend or distribution
in an amount equal to the amount of such dividend or distribution received by a
holder of the number of shares of Common Stock for which such share of Series B
Stock is convertible on the record date for such dividend or distribution. Any
such amount shall be paid to the holders of shares of Series B Stock at the same
time such dividend or distribution is made to holders of Common Stock.
Section 3. Voting Rights.
In addition to any voting rights provided by law, the holders of shares of
Series B Stock shall have the following voting rights:
(a) So long as the Series B Stock is outstanding, each share of Series B
Stock shall entitle the holder thereof to vote, in person or by proxy, at a
special or annual meeting of stockholders, on each of the matters entitled to be
voted on by holders of Common Stock, voting together as a single class with
other shares entitled to vote thereon. With respect to any such vote, each share
of Series B Stock shall entitle the holder thereof to cast that number of votes
per share as is equal to the number of votes that such holder would be entitled
to cast had such holder converted its shares of Series B Stock into Common Stock
on the record date for determining the stockholders of the Company eligible to
vote on any such matters.
(b) Unless the consent or approval of a greater number of shares shall then
be required by law, the affirmative vote of the holders of at least a majority
of the outstanding shares of Series B Stock, voting
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<PAGE> 3
separately as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose, shall be necessary to (i)
authorize, increase the authorized number of shares of, or issue (including on
conversion or exchange of any convertible or exchangeable securities or by
reclassification), any shares of any class or classes of Senior Stock or Parity
Stock, (ii) authorize, adopt or approve an amendment to the Certificate of
Incorporation that would increase or decrease the par value of the shares of
Series B Stock, or alter or change the powers, preferences or special rights of
the shares of Series B Stock, other Parity Stock or Senior Stock, (iii) amend,
alter or repeal the Certificate of Incorporation so as to affect the shares of
Series B Stock adversely, including, without limitation, by granting any voting
right to any holder of notes, bonds, debentures or other debt obligations of the
Company, (iv) authorize or issue any security convertible into, exchangeable for
or evidencing the right to purchase or otherwise receive any shares of any class
or classes of Senior Stock or Parity Stock, or (v) effect an Extraordinary
Event.
Section 4. Certain Restrictions.
(a) Whenever the Company shall not have converted shares of Series B Stock
at a time required by Section 7, at such time and thereafter until all
conversion obligations provided in Section 7 that have come due shall have been
satisfied, the Company shall not: (A) declare or pay dividends, or make any
other distributions, on any shares of Junior Stock, or (B) declare or pay
dividends, or make any other distributions, on any shares of Parity Stock,
except dividends or distributions paid ratably on the Series B Stock and all
Parity Stock on which dividends are payable or in arrears, in proportion to the
total amounts to which the holders of all shares of the Series B Stock and such
Parity Stock are then entitled.
(b) Whenever the Company shall not have converted shares of Series B Stock
at a time required by Section 7, at such time and thereafter until all
conversion obligations provided in Section 7 that have come due shall have been
satisfied, the Company shall not redeem, purchase or otherwise acquire for
consideration, or require the conversion of, any shares of Junior Stock or
Parity Stock.
(c) The Company shall not permit any Subsidiary of the Company, or cause
any other Person, to purchase or otherwise acquire for consideration any shares
of capital stock of the Company unless the Company could, pursuant to Section
4(b), purchase such shares at such time and in such manner.
Section 5. Reacquired Shares.
Any shares of Series B Stock converted, exchanged, redeemed, purchased or
otherwise acquired by
3
<PAGE> 4
the Company or any of its Subsidiaries or other Affiliates in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares of Series B Stock shall upon their cancellation become
authorized but unissued shares of Series B Stock, no par value, of the Company
and, upon the filing of an appropriate certificate with the Secretary of State
of the State of Connecticut, may be reissued as part of another series of
preferred stock, no par value per share, of the Company subject to the
conditions or restrictions on issuance set forth herein, but in any event may
not be reissued as shares of Series B Stock or other Parity Stock unless all of
the shares of Series B Stock issued on the Issue Date shall have already been
redeemed, converted or exchanged.
Section 6. Liquidation, Dissolution or Winding Up.
(a) If the Company shall commence a voluntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any
other country, or consent to the entry of an order for relief in an involuntary
case under any such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Company or of any substantial part of its property, or make an assignment for
the benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Company shall be entered by a court having jurisdiction in the premises in
an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and on account of any
such event the Company shall liquidate, dissolve or wind up, or if the Company
shall otherwise liquidate, dissolve or wind up, no distribution shall be made
(i) to the holders of shares of Junior Stock unless, prior thereto, the holders
of shares of Series B Stock, subject to Section 7, shall have received the
Liquidation Preference, plus all accrued and unpaid dividends, to the date of
distribution, with respect to each share, or (ii) to the holders of shares of
Parity Stock, except distributions made ratably on the Series B Stock and all
other Parity Stock in proportion to the total amounts to which the holders of
all shares of the Series B Stock and other Parity Stock are entitled upon such
liquidation, dissolution or winding up.
(b) Neither the consolidation or merger of the Company with or into any
other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the
4
<PAGE> 5
Company shall be deemed to be a liquidation, dissolution or winding up of the
Company for purposes of this Section 6.
Section 7. Conversion.
(a) Any holder of Series B Stock shall have the right, at its option, at
any time and from time to time, to convert, subject to the terms and provisions
of this Section 7, any or all of such holder's shares of Series B Stock into
such number of fully paid and non-assessable shares of Common Stock as is equal,
subject to Section 7(g), to the product of the number of shares of Series B
Stock being so converted multiplied by the quotient of (i) Liquidation
Preference divided by the (ii) Conversion Price (as defined below) then in
effect. The "Conversion Price" shall be $4.40 per share, subject to adjustment
as set forth in Section 7(d). Such conversion right shall be exercised by the
surrender of the shares of Series B Stock to be converted (the "Shares") to the
Company at any time during usual business hours at its principal place of
business to be maintained by it, accompanied by written notice that the holder
elects to convert such Shares and specifying the name or names (with address) in
which a certificate or certificates for shares of Common Stock are to be issued
and (if so required by the Company) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Company duly executed by the
holder or its duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 7(k). All Shares surrendered for
conversion shall be delivered to the Company for cancellation and canceled by it
and no Shares shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein provided, of
any Shares for conversion pursuant to Section 7(a), the Company shall deliver to
or upon the written order of the holder of the Shares so surrendered a
certificate or certificates representing the number of fully paid and
non-assessable shares of Common Stock into which such Shares may be or have been
converted in accordance with the provisions of this Section 7. Subject to the
following provisions of this Section 7, such conversion shall be deemed to have
been made immediately prior to the close of business on the date that such
Shares shall have been surrendered in satisfactory form for conversion, and the
Person or Persons entitled to receive the Common Stock deliverable upon
conversion of such Shares shall be treated for all purposes as having become the
record holder or holders of such Common Stock at such appropriate time, and such
conversion shall be at the Conversion Price in effect at such time; provided,
however, that no surrender shall be effective to constitute
5
<PAGE> 6
the Person or Persons entitled to receive the Common Stock deliverable upon such
conversion as the record holder or holders of such Common Stock while the share
transfer books of the Company shall be closed (but not for any period in excess
of five days), but such surrender shall be effective to constitute the Person or
Persons entitled to receive such Common Stock as the record holder or holders
thereof for all purposes immediately prior to the close of business on the next
preceding day on which such share transfer books are open, and such conversion
shall be deemed to have been made at, and shall be made at the Conversion Price
in effect at, such time on such next preceding day. If the last day for the
exercise of the conversion right shall not be a Business Day, then such
conversion right may be exercised on the next preceding Business Day.
(c) Upon (i) the third anniversary of the Issue Date, each outstanding
share of Series B Stock, or (ii) if earlier, the transfer of any shares of
Series B Stock by an Initial Holder to any Person other than an Affiliate of
such Initial Holder, such shares of Series B Stock, shall automatically, with no
further action required to be taken by the Company or the holder thereof, be
converted into such number of fully paid and non-assessable shares of Common
Stock as is equal to the product of the number of shares of Series B Stock being
so converted, multiplied by the quotient of (i) the Liquidation Preference
divided by (ii) the Conversion Price then in effect. Immediately thereafter,
each holder of Series B Stock subject to such conversion, shall be deemed to be
the holder of record of the Common Stock issuable upon conversion of such
holder's Series B Stock, notwithstanding that the share register of the Company
shall then be closed or that certificates representing such Common Stock shall
not then be actually delivered to such Person. Upon notice from the Company,
each holder of Series B Stock so converted shall promptly surrender to the
Company, at any where the Company shall maintain a transfer agent for its Series
B Stock and Common Stock, certificates representing the shares so converted,
duly endorsed in blank or accompanied by proper instruments of transfer. On the
date of such automatic conversion, all rights with respect to the shares of
Series B Stock so converted, including the rights, if any, to receive notices
and vote, will terminate, except only the rights of holders thereof to (A)
receive certificates for the number of shares of Common Stock into which such
shares of Series B Stock have been converted, (B) be paid any declared but
unpaid dividends thereon and (C) exercise the rights to which they are entitled
as holders of Common Stock.
(d) The Conversion Price shall be subject to adjustment as follows:
(i) In case the Company shall at any time or from time to time (A) pay
a dividend
6
<PAGE> 7
or make any other distribution (other than a dividend or distribution paid
or made to holders of shares of Series B Stock in the manner provided in
Section 2) on the outstanding shares of any of its Common Stock in capital
stock (which, for purposes of this Section 7(d) shall include, without
limitation, any dividends or distributions in the form of options, warrants
or other rights to acquire capital stock) of the Company or any Subsidiary
or Affiliate thereof, (B) subdivide the outstanding shares of any of its
Common Stock into a larger number of shares, (C) combine the outstanding
shares of any of its Common Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of any of its
Common Stock, then, and in each such case, the Conversion Price in effect
immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Company) so that the holder of
any share of Series B Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other
securities of the Company that such holder would have owned or would have
been entitled to receive upon or by reason of any of the events described
above, had such share of Series B Stock been converted immediately prior to
the occurrence of such event. An adjustment made pursuant to this Section
7(d)(i) shall become effective retroactively (A) in the case of any such
dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of any of its
Common Stock entitled to receive such dividend or distribution or (B) in
the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes
effective.
(ii) In case the Company shall at any time or from time to time
distribute to any holder of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and the Common Stock is
not changed or exchanged) cash, evidences of indebtedness of the Company or
another issuer, securities of the Company or another issuer or other assets
(excluding (A) dividends or distributions paid or made to holders of shares
of Series B Stock in the manner provided in Section 2 and (B) dividends
payable in shares of Common Stock for which adjustment is made under
Section 7(d)(i)) or rights or warrants to subscribe for or purchase
securities of the Company (excluding those in respect of which adjustments
in the Conversion Price is made pursuant to Section 7(d)(i), then, and in
each such case, the Conversion Price then in effect shall be adjusted by
dividing the Conversion Price in effect immediately prior to the date of
such distribution by a fraction (x) the numerator of which shall be the
Current Market Price of the Common Stock on the record date
7
<PAGE> 8
referred to below and (y) the denominator of which shall be such Current
Market Price of the Common Stock less the then fair market value (as
determined in good faith by the Board of Directors of the Company, in the
case of any such distribution other than a distribution of cash, based on
an opinion of a nationally recognized investment banking firm unaffiliated
with either the Company or the holders of the Series B Stock, chosen by the
Company (which shall bear the expense thereof) and reasonably acceptable to
a majority of the holders of the Series B Stock, a certified resolution
with respect to which shall be mailed to the holders of the Series B Stock)
of the portion of the cash, evidences of indebtedness, securities or other
assets so distributed or of such subscription rights or warrants applicable
to one share of Common Stock (but such denominator not to be less than
one); provided, however, that no adjustment shall be made with respect to
any distribution of rights to purchase securities of the Company if the
holder of shares of Series B Stock would otherwise be entitled to receive
such rights upon conversion at any time of shares of Series B Stock into
Common Stock unless such rights are subsequently redeemed by the Company,
in which case such redemption shall be treated for purposes of this Section
7(d)(ii) as a dividend on the Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iii) In case the Company at any time or from time to time shall take
any action affecting its Common Stock which could have a dilutive effect on
the number of shares of Common Stock that may be issued upon conversion of
the Series B Stock, other than an action described in any of Section
7(d)(i), 7(d)(ii) or Section 7(h), or an action which would have the same
dilutive effect on the Series B Stock as on the Common Stock, then, and in
each such case, the Conversion Price shall be adjusted in such manner and
at such time as the Board of Directors of the Company in good faith
determines to be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
holders of the Series B Stock).
(iv) In the event that any convertible or exchangeable securities,
options, warrants or other rights, the issuance of which shall have given
rise to an adjustment pursuant to this Section 7(d) ("Convertible
Securities"), shall have expired or terminated without the exercise thereof
and/or if there shall have been an increase, with the passage of time or
otherwise, in the price payable upon the exercise or conversion thereof or
a decrease in the number of shares of Common Stock issuable upon the
exercise or
8
<PAGE> 9
conversion thereof, then the Conversion Price hereunder shall be readjusted (but
to no greater extent then originally adjusted) on the basis of (A) eliminating
from the computation of the Conversion Price as of the time of the issuance of
the Convertible Securities any shares of Common Stock corresponding to such
Convertible Securities as shall have expired or terminated, (B) treating the
additional shares of Common Stock, if any, actually issued or issuable pursuant
to the previous exercise of such Convertible Securities as having been issued
for the consideration actually received and receivable therefor and (C) treating
any of such Convertible Securities which remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at such time.
(e) If the Company shall take a record of the holders of any of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Price then in
effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Conversion Price, then, and in
each such case, the Company promptly shall deliver to each registered holder of
Series B Stock at least ten Business Days prior to effecting any of the
foregoing transactions a certificate, signed by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Company, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Price then in
effect following such adjustment.
(g) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any shares of Series B Stock. If more than one
share of Series B Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of the shares of
Series B Stock so surrendered. If the conversion of any share or shares of
Series B Stock results in a fraction, an amount equal to such fraction
multiplied by the Current Market Price of the Common Stock on the Business Day
preceding the day of conversion shall be paid to such holder in cash by the
Company.
(h) In case of any capital reorganization or reclassification or other
change of outstanding
9
<PAGE> 10
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value), or in case of any
consolidation or merger of the Company with or into another Person (other than a
consolidation or merger in which the Company is the resulting or surviving
Person and which does not result in any reclassification or change of
outstanding Common Stock), or in case of any sale or other disposition to
another Person of all or substantially all of the assets of the Company (any of
the foregoing, a "Transaction"), the Company, or such successor or purchasing
Person, as the case may be, shall execute and deliver to each holder of Series B
Stock at least ten Business Days prior to effecting any of the foregoing
Transactions a certificate that the holder of each share of Series B Stock then
outstanding shall have the right thereafter to convert such share of Series B
Stock into the kind and amount of shares of stock or other securities (of the
Company or another issuer) or property or cash receivable upon such Transaction
by a holder of the number of shares of Common Stock into which such share of
Series B Stock could have been converted immediately prior to such Transaction.
Such certificate shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
7. If, in the case of any such Transaction, the stock, other securities, cash or
property receivable thereupon by a holder of Common Stock includes shares of
stock or other securities of a Person other than the successor or purchasing
Person and other than the Company, which controls or is controlled by the
successor or purchasing Person or which, in connection with such Transaction,
issues stock, securities, other property or cash to holders of Common Stock,
then such certificate also shall be executed by such Person, and such Person
shall, in such certificate, specifically acknowledge the obligations of such
successor or purchasing Person and acknowledge its obligations to issue such
stock, securities, other property or cash to the holders of Series B Stock upon
conversion of the shares of Series B Stock as provided above. The provisions of
this Section 7(h) and any equivalent thereof in any such certificate similarly
shall apply to successive Transactions.
(i) In case at any time or from time to time:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock;
(B) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
10
<PAGE> 11
(C) there shall be any reclassification of the Common Stock; or
(D) there shall be an Extraordinary Event; then the Company shall
mail to each holder of shares of Series B Stock at such holder's
address as it appears on the transfer books of the Company, as
promptly as possible but in any event at least ten days prior to the
applicable date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be
determined, or (y) the date on which such reclassification or
Extraordinary Event is expected to become effective; provided that in
the case of any event to which Section 7(h) applies, the Company shall
give at least ten days' prior written notice as aforesaid. Such notice
also shall specify the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common
Stock for shares of stock or other securities or property or cash
deliverable upon such reclassification or Extraordinary Event.
(j) The Company shall at all times reserve and keep available for issuance
upon the conversion of the Series B Stock, such number of its authorized but
unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Series B Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized but unissued shares
of Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Series B Stock.
(k) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series B Stock shall be made without charge to the
converting holder of shares of Series B Stock for such certificates or for any
tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or in such names as may be directed by,
the holders of the shares of Series B Stock converted; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series B Stock converted,
and the Company shall not be required to issue or deliver such certificate
unless or until the Person or Persons requesting the issuance or delivery
thereof shall have paid to the Company the amount of such tax or shall have
established to the reasonable satisfaction of the Company that such tax has
11
<PAGE> 12
been paid.
Section 8. Certain Remedies.
Any registered holder of Series B Stock shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Certificate of
Amendment and to enforce specifically the terms and provisions of this
Certificate of Amendment in any court of the United States or any state thereof
having jurisdiction, this being in addition to any other remedy to which such
holder may be entitled at law or equity.
Section 9. Definitions.
For the purposes of this Certificate of Designations, Rights and
Preferences, the following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Common Stock" of the Company shall mean the Common Stock, no par value,
and any other common stock of the Company issued from time to time.
"Conversion Price" shall have the meaning given it in Section 7 hereof.
"Current Market Price" per share shall mean, on any date specified herein
for the determination thereof, (a) the average daily Market Price of the Common
Stock for those days during the period of 30 days, ending on such date, on which
the national securities exchanges were open for trading, and (b) if the Common
Stock is not then listed or admitted to trading on any national securities
exchange or quoted in the over-counter market, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder.
"Extraordinary Event" means (i) the voluntary or involuntary liquidation,
dissolution or winding up of the Company, (ii) the voluntary sale, conveyance,
exchange or transfer to another Person of all or substantially all of the assets
of the Company and its Subsidiaries or (iii) the merger or consolidation of the
Company with one or more other Persons.
"Fair Market Value" shall mean the amount which a willing buyer, under no
compulsion to buy,
12
<PAGE> 13
would pay a willing seller, under no compulsion to sell, in an arm's-length
transaction.
"Initial Holder" shall mean any Person to whom shares of Series B Stock are
initially issued.
"Issue Date" shall mean the first date on which shares of Series B Stock
are issued.
"Junior Stock" shall mean any capital stock of the Company ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Stock.
"Liquidation Preference" with respect to a share of Series B Stock shall
mean $4.40.
"Market Price" shall mean, per share of Common Stock, on any date specified
herein: (a) the closing price per share of the Common Stock on such date
published in such date is published in The Wall Street Journal, the average of
the closing bid and asked prices on such date, as officially reported on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading; or (b) if the Common Stock is not then listed or
admitted to trading on any national securities exchange but is designated as a
national market system security by the NASD, the last trading price of the
Common Stock on such date; or (c) if there shall have been no trading on such
date or if the Common Stock is not so designated, the average of the reported
closing bid and asked prices of the Common Stock, on such date as shown by
NASDAQ and reported by any member firm of the New York Stock Exchange selected
by the Company; or (d) if none of (a), (b) or (c) is applicable, the Fair Market
Value per share determined in good faith by the Board of Directors of the
Company based on an opinion of a nationally recognized investment banking firm
unaffiliated with either the Company or the holders of the Series B Stock,
chosen by the Company (who shall bear the expense thereof) and acceptable to the
holders of at least a majority in interest of the Series B Stock.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System.
"Parity Stock" shall mean any capital stock of the Company, including the
Series B Stock and the Series A Stock, ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Stock.
"Person" shall mean any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of
13
<PAGE> 14
such entity.
"Senior Stock" shall mean any capital stock of the Company ranking senior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Stock.
"Subsidiary" of any Person shall mean any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest, or rights to profits, is owned, directly or indirectly, by such
Person.
14
<PAGE> 15
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by John C. Maxwell, III, its Chairman and CEO, this 1st day of November,
1999.
E-SYNC NETWORKS, INC.
By: /s/ John C. Maxwell, III
__________________________
Chairman and CEO
-15-
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
COMMERCIAL ELECTRONICS CAPITAL PARTNERSHIP, L.P.,
COMMERCIAL ELECTRONICS, L.L.C.,
THE NEW PURCHASERS LISTED HEREIN
and
E-SYNC NETWORKS, INC.
-----------------------
November 1, 1999
-----------------------
<PAGE> 2
Table of Contents
<TABLE>
<C> <S> <C>
1. Registration on Request...................................................................... -1-
2. Incidental Registration...................................................................... -3-
3. Registration Procedures...................................................................... -4-
4. Underwritten Offerings....................................................................... -6-
5. Preparation; Reasonable Investigation........................................................ -7-
6. Rights of Requesting Holders................................................................. -7-
7. Registration Expenses........................................................................ -8-
8. Indemnification and Contribution............................................................. -8-
9. Registration Rights to Others................................................................-10-
10. Nominees for Beneficial Owners...............................................................-10-
11. Rule 144.....................................................................................-10-
12. Additional New Purchasers; Addition of the Merging Purchasers................................-10-
13. Definitions..................................................................................-10-
14. Miscellaneous................................................................................-12-
</TABLE>
<PAGE> 3
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of November 1, 1999, by and among COMMERCIAL ELECTRONICS CAPITAL
PARTNERSHIP, L.P., a Delaware limited partnership, COMMERCIAL ELECTRONICS,
L.L.C., a Delaware limited liability company, (collectively, the "Original
Purchasers"), the parties listed on Schedule I hereto and the parties added to
such Schedule subsequent to the date hereof pursuant to Section 12 below
(collectively, the "New Purchasers"), and the parties identified as Merging
Purchasers in Section 12 below and added subsequent to the date hereof pursuant
to such Section (the "Merging Purchasers" and together with the Original
Purchasers and the New Purchasers, the "Purchasers") and E-SYNC NETWORKS, INC.,
a Delaware Corporation (as successor to Wiltek, Inc., a Connecticut corporation)
(the "Company"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings given them in Section 13.
WHEREAS the Company and the Original Purchasers are parties to a
Registration Rights Agreement dated as of January 28, 1999 (the "Original
Agreement"); and
WHEREAS the Company and certain of the New Purchasers are parties to a
Subscription Agreement, dated as of the date hereof (the "Purchase Agreement"),
certain of the New Purchasers' obligations under which are conditioned upon the
execution and delivery of this Agreement; and
WHEREAS, the Company and the holders of the preference shares of E-Sync
Networks (UK) Ltd., an entity formed under the laws of England, and a wholly
owned subsidiary of the Company, are parties to an Exchange Agreement (the
"Exchange Agreement"), pursuant to which such preference shares may be exchanged
for the Company's Series B Senior Convertible Preferred Stock; and
WHEREAS, pursuant to the terms of the Exchange Agreement, upon the exchange
of shares contemplated therein, such shareholders are to be added to this
Agreement as New Purchasers; and
WHEREAS, the Company is party to an Agreement and Plan of Merger, dated as
of September 27, 1999 (the "Merger Agreement"), pursuant to which certain
parties will be acquiring capital stock of the Company and the closing of which
is conditioned upon, among other things, such parties becoming parties to this
Agreement; and
WHEREAS the Company and the Original Purchasers desire to amend and restate
the Original Agreement in the form of this Agreement to include the New
Purchasers and the Merging Purchasers as parties in accordance with the terms
herein, among other things;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Registration on Request.
(1) Request. Except as otherwise provided in this Section 1, at any
time and from time to time, upon the written request of (x) one or more
Initiating Holders or (y) one or more Merging Purchaser Initiating Holders
requesting that the Company effect a registration under the Securities Act
of all or any part of such Initiating Holders' or Merging Purchaser
Initiating Holders' Registrable Securities, and specifying the intended
method or methods of disposition thereof, the Company will promptly, but in
any event within ten (10) days after receipt of such written request, give
written notice of such requested registration to all holders of Registrable
Securities, and thereupon will use its best efforts to effect, as
reasonably expeditiously as practicable, the registration under the
Securities Act, including by means of a shelf registration pursuant to Rule
415 under the Securities Act if so requested in such request (but in the
case of a shelf registration only if the Company is then eligible to use
Form S-2 or S-3 (or any successor forms) for such a
<PAGE> 4
shelf registration), of:
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders or Merging Purchaser
Initiating Holders, for disposition in accordance with the intended
method or methods of disposition stated in such request,
(ii) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request
delivered to the Company within thirty (30) days after the giving of
such written notice by the Company (which request shall specify the
intended method or methods of disposition thereof), and
(iii) all other securities which the Company wishes to register,
whether for its own account or for the account of the holders thereof,
all to the extent necessary to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so
to be registered; provided that any holder of Registrable Securities to be
included in any such registration, by written notice to the Company within
ten (10) days after its receipt of a copy of a notice from the managing
underwriter delivered pursuant to Section 1(e), may withdraw such request
and, upon receipt of such notice of the withdrawal of such request from
holders comprising the Requisite Holders, the Company may elect not to
effect such registration.
(2) Number of Registrations. The Company shall not be required to
effect more than three (3) registrations pursuant to this Section 1 on
behalf of Initiating Holders and more than one (1) registration pursuant to
this Section 1 on behalf of Merging Purchaser Initiating Holders.
(3) Registration Statement Form. Registrations under this Section 1
shall be on such appropriate registration form of the Commission (i) as
shall be requested by the Requisite Holders (provided that the Company is
then eligible to use such form) and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or
methods of disposition specified in the request for their registration.
(4) Effective Registration Statement. A registration requested
pursuant to this Section 1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective,
(ii) if the registration does not remain effective for a period of at least
ninety (90) days (or, with respect to any registration statement filed
pursuant to Rule 415 under the Securities Act, for a period of at least one
(1) year) or, in either case if earlier, until all the Registrable
Securities requested to be registered in connection therewith were sold or
withdrawn by the participating Holders, (iii) if, after it has become
effective, such registration is subject to any stop order, injunction or
other order or requirement of the Commission or other governmental agency
or court for any reason not attributable to actions taken by the holders of
Registrable Securities), or (iv) if the conditions to closing specified in
the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied and no such closing occurs, other
than by reason of some act or omission by the holders of the Registrable
Securities that were to have been registered.
(5) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 1, no securities other than
Registrable Securities shall be included among the securities covered by
such registration unless holders of Registrable Securities requesting
registration thereof pursuant to Section 1, representing not less than 50%
of the Registrable Securities with respect to which registration has been
requested, shall have consented in writing to the inclusion of such other
securities.
(6) Postponement. The Company shall be entitled to postpone for a
reasonable period of time (but not exceeding sixty (60) days) the filing of
any registration statement otherwise required to be prepared and filed by
it pursuant to this Section 1 if the Company determines, in its reasonable
judgment, that such registration and offering would interfere with any
material financing, acquisition, corporate reorganization or other material
transaction involving the Company or any of its Affiliates and promptly
gives the holders of Registrable Securities requesting registration thereof
pursuant to this Section 1 written notice
-2-
<PAGE> 5
of such determination, containing a general statement of the reasons for
such postponement and an approximation of the anticipated delay. The
Company may not postpone a filing pursuant to this Section 1(f) more than
once in any twelve-month period. If the Company shall so postpone the
filing of a registration statement, holders of Registrable Securities
requesting registration thereof pursuant to Section 1, representing not
less than 15% of the Registrable Securities with respect to which
registration has been requested and constituting not less than 50% of the
Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within thirty (30)
days after receipt of the notice of postponement and, in the event of such
withdrawal, such request shall not be counted for purposes of the requests
for registration to which holders of Registrable Securities are entitled
pursuant to Section 1.
(7) Limitations on Registration on Request. Notwithstanding anything
in this Section 1 to the contrary, the Company shall not be required to
effect a registration pursuant to this Section 1 (i) prior to the first
anniversary of the date hereof or (ii) within the 12-month period occurring
immediately subsequent to the effectiveness (within the meaning of Section
1(d) hereof) of a registration statement filed pursuant to this Section 1;
provided, however, that the limitation set forth in clause (i) of this
sentence shall not apply to the holders of the Company's Series A Senior
Convertible Preferred Stock as Initiating Holders on or following January
28, 2000; provided further, however, that the limitation set forth in
clause (i) of this sentence shall not apply to Merging Purchaser Initiating
Holders on or following the six month anniversary of the date hereof
requesting a registration of no more than 50% of all Merging Purchaser
Registrable Securities then outstanding.
2. Incidental Registration.
(1) Incidental Rights. If the Company at any time proposes to
register, on any form which may be used for the registration of Registrable
Securities other than Form S-4 or Form S-8 (or any successor or similar
forms then in effect), any of its securities under the Securities Act
(other than pursuant to Section 1), whether or not pursuant to registration
rights granted to other holders of its securities and whether or not for
sale for its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities Act, it
will each such time give written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2; such notice to be given to all such holders at least twenty (20)
days prior to the filing of such proposed registration statement. Upon the
written request of any such holder (a "Requesting Holder") made within
fifteen (15) days after the giving of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such
holder and the intended method or methods of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders, to the extent necessary to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered. With respect
to an underwritten offering, prior to the effective date of any
registration statement filed in connection with a registration described in
this Section 2, promptly upon notification to the Company from the managing
underwriter of the price at which the Registrable Securities requested to
be registered pursuant to this Section 2 are to be sold, the Company shall
advise each Requesting Holder of such price, and if such price is below the
price which any Requesting Holder shall have indicated to be acceptable to
such Requesting Holder, such Requesting Holder shall then have the right to
withdraw its request to have its Registrable Securities included in such
registration statement. Notwithstanding anything stated in this Section to
the contrary, no holder of Merging Purchaser Registrable Securities may
include such securities in any registration made at the request of a
Merging Purchaser Initiating Holder prior to the first anniversary of the
date hereof if such inclusion would result in the registration of more than
50% of the Merging Purchaser Registrable Securities.
(2) Not Deemed a Demand Registration. No registration effected
pursuant to this Section 2 shall be deemed to have been effected pursuant
to Section 1.
(3) Holdback. If the Company previously shall have received a request
for registration pursuant to Section 1 or this Section 2, and if such
previous registration shall not have been withdrawn or abandoned, the
Company will not effect any registration of any of its securities under the
Securities Act, whether or not for sale for its own account, until a period
of ninety (90) days shall have elapsed from the effective date of such
previous registration.
-3-
<PAGE> 6
(4) Discontinuance. Notwithstanding anything to the contrary in this
Section 2, the Company shall have the right to discontinue any registration
under this Section 2 at any time prior to the effective date of such
registration, if the registration of other securities giving rise to such
registration under this Section 2 is discontinued; but no such
discontinuation shall preclude an immediate or subsequent request for
registration pursuant to Section 1 or 2.
3. Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 1 or Section 2, the Company will
promptly:
(1) prepare and (in any event within ninety (90) days after the end of
the period within which requests for registration may be given to the
Company) file with the Commission the requisite registration statement to
effect such registration and thereafter use its best reasonable efforts
promptly to cause such registration statement to become effective; provided
that the Company may discontinue any registration of its securities which
are not Registrable Securities at any time prior to the effective date of
the registration statement relating thereto;
(2) prepare and file with the Commission such amendments,
post-effective amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement until the earlier of (i)
such time as all of such Registrable Securities have either been disposed
of in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement or the sale thereof has
been abandoned by such sellers and (ii) ninety (90) days after the
effective date of such registration statement, except with respect to any
such registration statement filed pursuant to Rule 415 (or any successor
Rule) under the Securities Act, in which case such period shall be one
year;
(3) furnish as soon as available to each seller of Registrable
Securities covered by such registration statement such number of copies of
such drafts and final versions of such registration statement and of each
such amendment, post-effective amendment and supplement thereto (in each
case including all exhibits), such number of copies of such drafts and
final versions of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus), any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, such documents, if
any, incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller or such holder may
reasonably request;
(4) use its commercially reasonably efforts to register or qualify all
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each seller
thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains
in effect, and take any other action which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this clause (d) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(5) cooperate with the sellers of such Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which securities shall not bear any
restrictive legends indicating that the securities have not been registered
under the Securities Act and shall be in a form eligible for deposit with
The Depository Trust Company; and enable such Registrable Securities to be
in such denominations and registered in such names as such sellers may
request at least two (2) business days prior to any sale of Registrable
Securities;
(6) furnish to each seller of Registrable Securities upon request a
copy of (i) an opinion of counsel for the Company, dated the effective date
of such registration statement (or, if such registration involves an
underwritten public offering, dated the date of the closing under the
underwriting agreement), covering substantially the same matters with
respect to such registration statement (and the
-4-
<PAGE> 7
prospectus included therein) as are customarily covered in opinions of
issuer's counsel in underwritten public offerings of securities and (ii) a
"comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such registration statement, covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) and, with respect to events subsequent to the date of
such financial statements, as are customarily covered in accountants'
comfort letters delivered to the underwriters in underwritten public
offerings of securities and such other financial matters as the Requisite
Holders or the underwriters, as the case may be, may reasonably request,
subject to the delivery by such seller to such independent public
accountants of such documents as are reasonable and customary in
transactions of this nature;
(7) promptly notify each seller of such Registrable Securities, and
(if requested by any such seller) confirm such advice in writing, (i) when
the prospectus or any prospectus supplement or post-effective amendment has
been filed and, with respect to the registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness
of the registration statement or the initiation of any proceedings for that
purpose and (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose;
(8) promptly notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that,
or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made, and at the request of any such seller or holder promptly prepare and
furnish to such seller or holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers or prospective purchasers
of such securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(9) use its reasonable commercial efforts to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at the
earliest possible time;
(10) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen (18) months, beginning with
the first full calendar month after the effective date of such registration
statement, which earning statement shall satisfy the provisions of Section
11(a) of the Securities Act, and furnish to each such seller at least ten
(10) days prior to the filing thereof a copy of any amendment or supplement
to such registration statement or prospectus and shall not file any thereof
to which any such seller shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or the rules or regulations
thereunder;
(11) provide and cause to be maintained a transfer agent and a
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(12) cause all Registrable Securities covered by such registration
statement to be listed on each securities exchange or approved for
quotation on any inter-dealer quotation system on which similar securities
issued by the Company are then listed or quoted;
(13) makes its officers and employees available to participate in
presentations to potential purchasers of Registrable Securities;
-5-
<PAGE> 8
(14) cause its subsidiaries and affiliates to take all action
necessary or advisable to effect the registration of the Registrable
Securities contemplated hereby, including preparing and filing any required
financial information;
(15) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable registration statement; and
(16) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each holder of Registrable Securities which will be
included in such registration (i) to furnish the Company such information
relating to such holder as the Company may reasonably request and as is required
by applicable laws or regulations, and (ii) to provide the Company with written
confirmation that such holder will comply with applicable laws and regulations,
and provide the Company with such further information necessary for the Company
to abide by applicable laws and regulations, in such form as the Company may
reasonably request.
4. Underwritten Offerings.
(1) Requested Underwritten Offerings. If requested by the underwriters
for any underwritten offering of Registrable Securities pursuant to a
registration requested under Section 1, the Company will use its
commercially reasonable efforts to enter into a firm commitment
underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to the
underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in such
agreements, including, without limitation, indemnities to the effect and to
the extent provided in Section 8. The holders of Registrable Securities to
be distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such holders of Registrable Securities. Except as
set forth in this Agreement, no holder of Registrable Securities shall be
required (i) to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties
or agreements regarding such holder, such holder's Registrable Securities
and such holder's intended method of distribution and any other
representation required by law or (ii) to indemnify (or contribute with
respect to an indemnifiable claim) the Company or any underwriters of the
Registrable Securities, except as set forth in Section 8.
(2) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2, whether or not pursuant to registration rights
granted to other holders of its securities and whether or not for sale for
its own account, and such securities are to be distributed by or through
one or more underwriters, the Company will, if requested by any holder of
Registrable Securities as provided in Section 2 and subject to the
provisions of this Section 4(b), use its best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and
sold by such holder among the securities to be distributed by such
underwriters; provided that if the managing underwriter of such
underwritten offering shall advise the Company in writing (with a copy to
the holders of Registrable Securities requesting such registration) that,
in its opinion the total number of shares which the Company, the holders of
Registrable Securities and any other holders of securities of the Company
propose to be included in such registration is sufficiently large to
materially and adversely affect the success of such offering (such writing
to state the basis of such opinion and the approximate number of such
securities which may be included in such offering without such effect),
then after inclusion of the number of securities to be sold by the Company
for its own account and the number of securities to be included pursuant to
contractual demand registration rights (other than the contractual
registration rights set forth herein) in such registration, the amount of
securities to be offered for the accounts of holders of Registrable
Securities shall be reduced pro rata (in accordance with the number of
Registrable Securities requested to be included in such registration) to
the extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such managing
underwriter; provided that if securities are being offered for the account
of other Persons as well as the Company, such reduction shall not represent
a greater fraction of the
-6-
<PAGE> 9
number of securities intended to be offered by holders of Registrable
Securities than the fraction of similar reductions imposed on such other
Persons over the amount of securities they intended to offer. Any holder of
Registrable Securities to be included in such registration may withdraw its
request to have its securities so included by notice to the Company
promptly after receipt of a copy of a notice from the managing underwriter
pursuant to this Section 4(b). The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting
agreement between the Company and such underwriters and may, at their
option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such
holders of Registrable Securities. Except as set forth in this Agreement,
no holder of Registrable Securities shall be required (i) to make any
representations or warranties to or agreements with the Company or the
underwriters other than customary representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation
required by law or (ii) to indemnify (or contribute with respect to an
indemnifiable claim) the Company or any underwriters of the Registrable
Securities, except as set forth in Section 8, except to the extent that the
other holders of securities included in such registration statement (other
than holders of Registrable Securities) have agreed to make such
representations and warranties or to indemnify the Company in connection
with such registration.
(3) Holdback Agreements. Each holder of Registrable Securities agrees,
if so required by the managing underwriter, not to effect any public sale
or distribution of securities of the Company of the same class as the
securities included in such registration statement, during the seven (7)
days prior to the date on which any underwritten registration pursuant to
Section 1 or 2 has become effective and the ninety (90) days (or such
longer period as shall have been agreed to by all of the holders of
securities included in such registration statement other than the holders
of Registrable Securities) thereafter, except as part of such underwritten
registration or to the extent that such holder is prohibited by applicable
law from agreeing to withhold Registrable Securities from sale or is acting
in its capacity as a fiduciary or an investment adviser. The Company agrees
not to effect any public sale or distribution of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
securities during the seven (7) days prior to and the ninety (90) days
after any underwritten registration pursuant to Section 1 or 2 has become
effective, except as part of such underwritten registration.
(4) Selection of Underwriters. If a requested registration pursuant to
Section 1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Company, which selection
shall be subject to the approval of the Requisite Holders. If an incidental
registration pursuant to Section 2 involves one or more underwriters, the
underwriter or underwriters shall be selected by the Company.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered, and their underwriters, if any, and their respective counsel the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
6. Rights of Requesting Holders. If any registration statement refers to
any Requesting Holder by name or otherwise as the holder of any securities of
the Company, such holder shall have the right to require (a) the insertion
therein of language, in form and substance reasonably satisfactory to such
holder, to the effect that, if true, the holding by such holder of such
securities does not necessarily make such holder a "controlling person" of the
Company within the meaning of the Securities Act or (b) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act or any rules and regulations promulgated thereunder, the deletion of the
reference to such holder.
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<PAGE> 10
7. Registration Expenses. The Company will, whether or not any registration
pursuant to this Agreement shall become effective, pay all Registration
Expenses incident to its performance under or compliance with this
Agreement promptly as such Registration Expenses are incurred.
8. Indemnification and Contribution.
(1) The Company will, and hereby does, indemnify and hold harmless, in
the case of any registration statement filed pursuant to Section 1 or 2,
each seller of any Registrable Securities covered by such registration
statement and each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, and their respective directors, officers, partners, agents
and Affiliates, against any losses, claims, damages or liabilities, joint
or several, to which such seller or underwriter or any such director,
officer, partner, agent, Affiliate or controlling person may become subject
under the Securities Act or otherwise, including, without limitation, the
reasonable fees and expenses of legal counsel, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made
not misleading, and the Company will reimburse such seller or underwriter
and each such director, officer, partner, agent, Affiliate and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such seller or underwriter, as
the case may be, specifically stating that it is for use in the preparation
thereof; and provided, further, that the Company shall not be liable to any
Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may be
then supplemented or amended, to the Person asserting an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus
and such final prospectus was required to be delivered to such Person. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, partner, agent, Affiliate or controlling person and shall survive
the transfer of such securities by such seller.
(2) As a condition to including any Registrable Securities in any
registration statement, the Company shall have received an undertaking
satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 8(a)) the Company, and each director of
the Company, each officer of the Company and each other Person, if any, who
participates as an underwriter in the offering or sale of such securities
and each other Person who controls the Company or any such underwriter
within the meaning of the Securities Act, with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary
prospectus, contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by such seller specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement; provided,
however, that the liability of such indemnifying party under this Section
8(b) shall be limited to the amount of proceeds received by such
indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director,
officer or
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<PAGE> 11
controlling person and shall survive the transfer of such securities by
such seller.
(3) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 8(a) or (b), such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to
the latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 8, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party the indemnifying party
shall be entitled to participate in and, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the
defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation. In the event a bona fide conflict of interest
between the indemnified and indemnifying parties exists, the indemnifying
party hereunder shall only be responsible for the payment of reasonable
fees and expenses of a single counsel for the indemnified parties
hereunder. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No indemnifying party shall, without
the consent of the indemnified party, which consent shall not be
unreasonably withheld, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation or which requires
action other than the payment of money by the indemnifying party.
(4) Contribution. If the indemnification provided for in this Section
8 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 8(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu
of the amount paid or payable under Section 8(a) or (b), the indemnified
party and the indemnifying party under Section 8(a) or (b) shall contribute
to the aggregate losses, claims, damages and liabilities (including legal
or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative
fault of the Company and the prospective sellers of Registrable Securities
covered by the registration statement which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, as well as
any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and such prospective sellers from the offering of
the securities covered by such registration statement, provided, that for
purposes of clause (i) or (ii), the relative benefits received by the
prospective sellers shall be deemed not to exceed the amount of proceeds
received by such prospective sellers and no holder of Registrable
Securities shall be required to contribute any amount in excess of the
amount such holder would have been required to pay to an indemnified party
if the indemnity under clause (a) of this Section 8 was available. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. As
among sellers who are guilty of such fraudulent misrepresentation, such
sellers' obligations to contribute as provided in this Section 8(d) are
several in proportion to the relative value of their respective Registrable
Securities covered by such registration statement and not joint. In
addition, no Person shall be obligated to contribute hereunder any amounts
in payment for any settlement of any action or claim effected without such
Person's consent, which consent shall not be unreasonably withheld.
(5) Indemnification and contribution similar to that specified in the
preceding subdivisions of this Section 8 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities
with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority other than the Securities Act.
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<PAGE> 12
(6) An indemnifying party shall make payments of all amounts required
to be made pursuant to the foregoing provisions of this Section 8 to or for
the account of the indemnified party from time to time promptly upon
receipt of bills or invoices relating thereto or when otherwise due or
payable; provided that the indemnified party shall reimburse the
indemnifying party for any payments made with the stated purpose of
satisfying the requirements of this clause (f) which were not required to
be made by this Section 8.
9. Registration Rights to Others. The Company hereby represents to the
holders of Registrable Securities that the rights granted herein do not conflict
with the rights, if any, granted to any other holder of securities of the
Company. If the Company shall at any time provide to any holder of any
securities of the Company rights with respect to the registration of such
securities under the Securities Act, such rights shall not be in conflict with
any of the rights provided in this Agreement to the holders of Registrable
Securities. The Company shall provide to the holders of Registrable Securities
copies of any agreements which purport to grant rights with respect to the
registration of any of the Company's securities to any holder or prospective
holder thereof promptly upon executing the same.
10. Nominees for Beneficial Owners. For purposes of this Agreement, in the
event that any Registrable Securities are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof may, at its election, be treated as
the holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
11. Rule 144. So long as the Company shall be required to file reports
under the Exchange Act, the Company shall take all actions reasonably necessary
to enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the provisions of
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission,
including, without limitation, filing on a timely basis all reports required to
be filed pursuant to the Exchange Act. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
12. Additional New Purchasers; Addition of the Merging Purchasers. Without
the consent of any Original Purchasers or New Purchasers, at any time after the
date hereof the Company may (a) add additional New Purchasers in accordance with
the terms of the Purchase Agreement and the Exchange Agreement, provided that
such New Purchasers execute a counterpart to this Agreement and Schedule I
hereto is amended accordingly, and (b) add Dan Stechow and Kevin Marth as
Merging Purchasers in accordance with the terms of the Merger Agreement,
provided that such Merging Purchasers execute a counterpart to this Agreement.
Upon such execution, each of the additional New Purchasers and the Merging
Purchasers agree to be bound by and subject to the provisions of this Agreement
and the other Purchasers agree that such additional New Purchasers and the
Merging Purchasers shall be entitled to the rights and benefits incident hereto.
13. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
"Affiliate" means any Person controlling, controlled by or under common
control with the Person in question. As used herein, "control" means the
beneficial ownership of at least a majority of the equity interests of a Person
entitling the owner of such interests to direct the policies and operations of
such Person.
"Commission" means the Securities and Exchange Commission and any successor
federal agency having similar powers.
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<PAGE> 13
"Common Stock" means the Common Stock, no par value, of the Company,
together with any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, and all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference, but shall not mean the Preferred Stock.
"Company" shall have the meaning assigned such term in the introductory
paragraph of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Initiating Holders" means, (i) for the period beginning on the date hereof
and ending on the day preceding the first anniversary of the date hereof, any
holder or holders of the Company's Series A Senior Convertible Preferred Stock
or Common Stock issued or issuable upon conversion of such shares of Preferred
Stock holding individually or in the aggregate more than 50% of such shares then
outstanding (determined on an as-if converted basis), and (ii) for the period
beginning on the first anniversary of the date hereof, any holder or holders of
Registrable Securities holding individually or in the aggregate more than 50% of
the shares of Registrable Securities then outstanding.
"Merger Agreement" shall have the meaning assigned to such term in the
recitals of this Agreement.
"Merging Purchasers" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"Merging Purchaser Initiating Holders" means, as of any date of
determination, any holder or holders of Merging Purchaser Registrable Securities
holding individually or in the aggregate more than 50% of the shares of Merging
Purchaser Registrable Securities then outstanding.
"Merging Purchaser Registrable Securities" means shares of Common Stock (i)
described in clause (iii) of the definition of Registrable Securities or (ii)
issued or issuable on such securities (and only on such securities) by way of a
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or antidilution
protection or otherwise.
"New Purchasers" shall have the meaning assigned such term in the
introductory paragraph of this Agreement.
"Original Purchasers" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"Person" means an individual, a partnership, a limited liability company, a
joint venture, a corporation, a trust, an association, an organization, a
business, an unincorporated organization or a government or political
subdivision thereof or agency thereof or other entity of any kind.
"Preferred Stock" means the Company's Series A Senior Convertible Preferred
Stock and Series B Senior Convertible Preferred Stock, no par value.
"Purchase Agreement" shall have the meaning assigned to such term in the
recitals of this Agreement.
"Purchasers" shall have the meaning assigned such term in the introductory
paragraph of this Agreement.
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<PAGE> 14
"Registrable Securities" means any shares of Common Stock (i) sold to the
Original Purchasers pursuant to the Stock Purchase Agreement, (ii) issued or
issuable upon conversion of shares of Preferred Stock sold or issued to the
Original Purchasers or the New Purchasers pursuant to the Securities Purchase
Agreement, the Purchase Agreement or the Exchange Agreement, as applicable, or
upon exercise of the Warrants, (iii) issued to the Merging Purchasers pursuant
to the Merger Agreement, or (iv) issued or issuable with respect to any of the
securities referred to in clauses (i), (ii) or (iii) by way of a dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or antidilution protection or
otherwise. As to any particular Registrable Security, such security shall cease
to be a Registrable Security when (x) a registration statement with respect to
the sale of such security shall have become effective under the Securities Act
and the holder thereof shall have had the opportunity to dispose of such
security in accordance with such registration statement, (y) such security shall
have been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act, or (z) such security, once issued, shall have ceased to be
outstanding.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Sections 1 and 2, including, without
limitation, all registration and filing fees, all fees of national securities
exchanges or the National Association of Securities Dealers, Inc., all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters required by or
incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (excluding any
underwriting discounts or commissions with respect to the Registrable
Securities, which shall not be paid by the Company) and all of the first
$10,000, and 50% of the amount in excess of $10,000, of the reasonable fees and
expenses of one counsel to the selling holders of Registrable Securities
(selected by selling holders of Registrable Securities representing a majority
of the Registrable Securities covered by such registration); provided, however,
that in the event the Company shall, in accordance with Section 2(d), not
register any securities with respect to which it had given written notice of its
intention to so register to holders of Registrable Securities, all of the costs
of the type (and subject to any limitation to the extent) set forth in this
definition and incurred by Requesting Holders in connection with such
registration shall be deemed Registration Expenses.
"Requesting Holders" shall have the meaning assigned to such term in
Section 2 hereof.
"Requisite Holders" means with respect to any registration of Registrable
Securities by the Company pursuant to this Agreement, any holder or holders of a
majority of the Registrable Securities requested to be registered; provided,
however, that in the case of a demand by Merging Purchaser Initiating Holders
pursuant to Section 1(a) above, "Requisite Holders" means any holder or holders
of a majority of the Merging Purchaser Registrable Securities requested to be
registered.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated January 28, 1999 by and between the Company and the Original Purchasers.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated January
28, 1999 by and between the stockholders listed therein and the Company.
"Warrants" means the Warrants issued pursuant to the Securities Purchase
Agreement to purchase up to 1,500,000 shares of Common Stock.
14. Miscellaneous.
(1) Remedies. Each holder of Registrable Securities, in addition to
the rights provided herein and at law, including recovery of damages, will
be entitled to specific performance of its rights
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<PAGE> 15
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by the
Company of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would
be adequate.
(2) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in
a registration undertaken pursuant to the terms of this Agreement.
(3) Amendments and Waivers. Other than the addition of parties to this
agreement pursuant to Section 12, the provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of holders of a majority of the Registrable Securities.
(4) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, or air courier guaranteeing overnight delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 14(d); and
(ii) if to the Company, at E-Sync Networks, Inc., 542 Westport
Avenue, Norwalk, Connecticut 06853, Attention: President; or at such
other address, notice of which is given in accordance with the
provisions of this Section 14(d).
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five (5)
business days after being deposited in the mail, postage prepaid, if
mailed; and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
(5) Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and permitted assigns and, with
respect to the Purchasers, any subsequent holder of any Registrable
Securities, subject to the provisions respecting the minimum numbers of
percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein. This
Agreement may not be assigned by the Company without the prior written
consent of the holders of a majority of the Registrable Securities at the
time such consent is requested. The Purchasers (and not any other holder of
Registrable Securities or any other Person) shall be permitted, in
connection with the transfer or disposition of Registrable Securities, to
impose conditions or constraints on the ability of the transferee, as a
holder of Registrable Securities, to request a registration pursuant to
Section 1 and shall provide the Company with copies of such conditions or
constraints and the identity of such transferees.
(6) Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the number of shares
of Registrable Securities outstanding at the time such calculation is made,
assuming, if applicable, the exercise, conversion or exchange of the
Company's securities into Registrable Securities in accordance with the
terms of such securities.
(7) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Agreement.
(8) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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<PAGE> 16
(9) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(10) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(11) Certain Distributions. The Company shall not at any time make a
distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities
in such distribution as holders of Registrable Securities and any of the
securities so distributed are registered under the Securities Act, unless
the securities to be distributed to the holders of Registrable Securities
are also registered under the Securities Act.
(12) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein. There
are no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein and therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to
such subject matter.
* * * * *
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<PAGE> 17
IN WITNESS WHEREOF, each of the undersigned has executed this Registration
Rights Agreement as of the date first above written.
THE COMPANY:
E-SYNC NETWORKS, INC.
By: /s/ Frank J. Connolly, Jr.
___________________________________
Name: Frank J. Connolly, Jr.
Title: Chief Financial Officer
THE ORIGINAL PURCHASERS:
COMMERCIAL ELECTRONICS CAPITAL
PARTNERSHIP, L.P.
By Electronics Investments, L.L.C.
Its General Partner
By: /s/ Steven D. Zucker
___________________________________
Name: Steven D. Zucker
Its: Member
COMMERCIAL ELECTRONICS, L.L.C.
By Electronics Investments, L.L.C.
Its General Partner
By: /s/ Steven D. Zucker
___________________________________
Name: Steven D. Zucker
Its: Member
[Signature Page to the Registration Rights Agreement]
15
<PAGE> 18
THE NEW PURCHASERS:
_________________________________________
Phillipe and C. Feront Brawerman
Commercial Electronics, LLC
_________________________________________
Name:
Title:
SDJ Investments, LLC
_________________________________________
Name:
Title:
Graham Partners L.P.
_________________________________________
Name:
Title:
Allenwood Ventures, Inc.
_________________________________________
Name:
Title:
_________________________________________
Jeffrey P. Williams
_________________________________________
John Liu
_________________________________________
Peter C. Krause
_________________________________________
Timothy M. George
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<PAGE> 19
THE NEW PURCHASERS:
_________________________________________
Scott L. Bok
Socatean Partners
_________________________________________
Name:
Title:
CWPI, LLC
_________________________________________
Name:
Title:
Jackson Hole Investments Acquisitions L.P.
_________________________________________
Name:
Title:
_________________________________________
Michael C. Schulhof
_________________________________________
John C. Maxwell, III
THE MERGING PURCHASERS:
/s/ Dan Stechow
_________________________________________
Dan Stechow
/s/ Kevin Marth
_________________________________________
Kevin Marth
[Signature Page to the Registration Rights Agreement]
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<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1999, by and between WILTEK,
INC., a Connecticut corporation, with its principal offices located at 542
Westport Avenue, Norwalk CT 06851 (the "Company") and David S. Teitelman, an
individual, residing at 14 Clinton Street, Fairfield, Connecticut 06430 (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires that the Employee shall be employed by the
Company, and the Employee is desirous of such employment, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. Defining Terms. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Company" shall mean and include Wiltek, Inc., and its parents,
subsidiaries and affiliates and the respective successors and assigns of
any of them, whether now existing or hereafter arising: provided, however,
that references to the Company in Paragraphs 6, 7 and 9 of this Agreement
shall be limited solely to Wiltek, Inc.
(b) "Customer" shall mean any individual, firm, partnership,
corporation, company, joint venture or governmental or military unit or any
other entity or any parent, subsidiary or affiliate of any of them which is
negotiating or has a contract with the Company for the purchase or lease of
the Company's equipment, products or services or which has been solicited
by the Company with respect to such purchase or lease during the Employee's
employment with the Company.
(c) "Confidential Information" shall mean information concerning the
Company, its products, processes and services and its customers, suppliers,
contractors, agents, consultants and employees (herein-after referred to as
"Company Affiliates"), including, but not limited to, information relating
to research, development. inventions, manufacture, purchasing, accounting,
finances, costs, profit margins, patents, methods, programs, apparatus,
engineering, marketing, merchandising, selling, Customer lists, Customer
requirements and personnel, pricing, pricing methods and data processing
and any other materials or information, heretofore or hereafter during the
term of this Agreement, conceived, designed, created, used or developed by
or relating to the Company or any of the Company Affiliates; provided,
however, that Confidential Information shall not include any information
which may be in the public domain or come into the public domain not as a
result of a breach by the Employee of any of the terms and provisions of
this Agreement.
(d) "Proprietary Property" shall mean discoveries, concepts and ideas
and expressions thereof, whether or not subject to patent, copyright,
trademark, trade name or service mark protection, including, but not
limited to, software, services, processes, methods, formulae, techniques,
apparatus, designs and writings as well as improvements thereon, revisions
thereof and know-how related thereto, concerning any present or future
activities of the Company; provided, however, that Proprietary Property
shall not include anything which may be in the public domain or come into
the public domain not as a result of a breach by the Employee of any of the
terms and provisions of this Agreement.
(e) "Competing Product" shall mean any product, process or service of
any person or legal entity other than the Company, in existence or under
development, which, during the term of this Agreement, competes with or is
an alternative to any present or future product, process, or service of the
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Company whether or not actively marketed by the Company.
(f) "Competing Organization" shall mean any person or legal entity
engaged in, about to engage in or intending to engage in research on or
development, use, production, marketing, or selling of a Competing Product.
2. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, upon the terms and conditions set forth in this
Agreement.
3. Duties. The Employee shall be employed by the Company as President and
he shall perform such duties and render such services consistent therewith as
may from time to time be required of him by the Board of Directors of the
Company or the Chairman of the Company.
4. Extent of Service. During the term of his employment, the Employee
agrees that
(a) he will serve the Company faithfully, diligently and to the best
of his ability under the direction of the Chairman or the Board of
Directors of the Company;
(b) he will devote his best efforts and substantially his entire
working time, attention and energy to the performance of his duties
hereunder and to promoting and furthering the interests of the Company,
taking, however, from time to time, reasonable vacations consistent with
the performance of his obligations hereunder, and
(c) he will not, without the prior written approval of the Board of
Directors of the Company, which approval shall not be unreasonably
withheld, become an officer, director, employee or consultant of, or
otherwise become associated with or engaged in, any business other than
that of the Company, and he will do nothing inconsistent with his duties to
the Company.
5. Terms of Employment. The term of employment of the Employee under this
Agreement shall be for a period commencing on the date of this Agreement and
terminating twelve (12) months thereafter, unless sooner terminated pursuant to
Paragraph 9 of this Agreement (the "Term"), and for successive one-year Terms
thereafter; provided, however, that with respect to each such successive Term,
the Company and the Employee shall have mutually agreed, in writing, to basic
compensation for such successive Term. If the Company decides not to renew the
Employee's Employment Agreement, then the Employee shall be entitled to the
termination provisions provided for in Clause 9(b) of this Employment Agreement.
6. Basic Compensation. As basic compensation for the services to be
rendered hereunder by the Employee for the initial Term, the Company agrees to
pay to the Employee, and the Employee agrees to accept, a minimum salary at the
rate of $168,000 per annum. The salary payable to the Employee hereunder shall
be paid in equal semi-monthly installments during the Term, or in such other
manner as shall be mutually agreed upon by the parties hereto.
7. Other Benefits. The Employee shall be entitled to participate in any
retirement, disability, profit-sharing, medical or life insurance or other
similar plan or arrangement provided by the Company to its employees, or its
other executive employees. The Employee shall also receive benefits as stated
within the attached "Schedule of Benefits."
8. Disability. If Employee shall be disabled, he shall receive full
compensation (less any payments received from Worker's Compensation, Wiltek's
disability plans or other governmental payment for such disability) for all
periods of disability even if a period of disability extends beyond the Term;
provided, however, that the maximum number of consecutive days during which
disability occurs and for which Wiltek shall be obligated to pay such
compensation shall be one-hundred-and-eighty (180) days. Disability means the
inability of Employee to perform his duties hereunder on account of mental or
physical illness or physical incapacity.
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9. Termination.
(a) The employment of the Employee hereunder shall terminate in the
event of the death of the Employee and, at the option of the Company, upon
written notice to the Employee, (i) in the event that Base Salary payments
are terminated due to disability pursuant to Paragraph 8 of this Agreement,
or (ii) in the event that the Employee shall breach any of the terms and
provisions of this Agreement.
(b) In addition to the provisions of Paragraph 9(a) above, the Company
may also, in its sole discretion, elect to terminate, without cause, the
employment of the Employee hereunder by thirty (30) days prior written
notice to the Employee; provided, however, that if the Company shall so
terminate this Agreement pursuant to this Paragraph 9(b), the Company shall
pay the Employee guaranteed severance pay in accordance with the next
sentence, continue the benefits set forth in Item 4 of the attached
"Schedule of Benefits" for so long as the severance payments are being
made, will continue the benefit set forth in Item 1 thereof for the terms
thereof and will pay the bonuses set forth in Items 8 and 9 thereof per
their respective terms. During the twelve-month period following the
receipt of written notice by the Employee, the Company shall pay the
Employee guaranteed severance pay at a rate equal to the Employee's base
compensation immediately prior to such termination and such guaranteed
severance pay shall be paid to the Employee in the manner and at the time
or times that such base compensation would otherwise have been paid to the
Employee. Following the twelve-month guaranteed severance pay period, if
the Employee does not become employed, the Company shall pay the Employee
additional supplemental severance pay in accordance with the next sentence.
During the six-month period following the conclusion of Company payment to
the Employee of twelve months of guaranteed severance pay, the Company
shall pay the Employee additional supplemental severance pay at a rate
equal to the Employee's base compensation immediately prior to such
termination and such additional supplemental severance pay shall be paid to
the Employee in the manner and at the time or times that such base
compensation would otherwise have been paid to the Employee.
10. Representations and Warranties of the Employee as to Conflicts. The
Employee hereby represents and warrants to the Company that his employment by
the Company does not and will not violate any provision of law or fiduciary duty
by which he is bound and will not conflict with or result in a breach of any
agreement or instrument to which he is a party or by which he is bound, and the
Employee agrees that he will indemnify and hold harmless the Company, its
directors, officers and employees against any claims, damages, liabilities and
expenses (including attorneys' fees) which may be incurred, including amounts
paid in settlement, by any of them in connection with any claim based upon or
related to a breach of the Employee's representation and warranty set forth in
this Paragraph. In the event of any claim based upon or related to a breach of
the Employee's representation and warranty set forth in this Paragraph 10, the
Company will give prompt notice thereof, in writing, to the Employee and the
Employee shall have the right to defend such claim with counsel reasonably
satisfactory to the Company.
11. Proprietary Property. With respect to Proprietary Property made or
conceived by the Employee in the field of data communications, whether or not
during the hours of his employment or with the use of the Company's facilities,
materials or personnel, either individually or jointly with others during the
period of his employment by the Company, the Employee shall, without the payment
of royalty or any other considerations to him therefor:
(a) Inform the Company promptly and fully of such Proprietary Property
by a written report satisfactory to the Company;
(b) Apply, at the Company's requests and expense, for United States
and foreign letters patent, copyright, trademark or service mark, as the
case may be, either in the Employee's name or otherwise as the Company
shall direct;
(c) Assign to the Company all of his right, title and interest in such
Proprietary Property, and to applications for United States and/or foreign
letters patent, copyright, trademark and service mark and to any letters
patent, copyright, trademark and service mark which may be issued upon such
Proprietary Property;
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(d) Deliver promptly to the Company, without charge to the Company but
at its expense, such written instruments, and do such other acts, as may be
necessary, in the opinion of the Company, to obtain and maintain United
States and/or foreign letters patent, copyright, trademark or service mark
on the Proprietary Property and to vest the entire right, title and
interest thereto in the Company; and
(e) Grant to the Company, prior to assignment of the Employee's right,
title and interest to the Company in any Proprietary Property as required
above, the royalty-free right to use in its business, and to make, have
made, use and sell products, processes, services, writings and/or marks
based upon or related to Proprietary Property made or conceived by the
Employee.
12. Confidentiality.
(a) During the Term and at all times thereafter, the Employee will not
use Confidential Information for his own benefit or for the benefit of any
person or legal entity other than the Company nor will he disclose the same
to any other person or legal entity, except as required to conduct the
business of the Company in the ordinary course.
(b) Except with the prior written approval of the Company or except as
required to conduct the business of the Company in the ordinary course, the
Employee will not, at any time, directly or indirectly, use, disseminate,
disclose, lecture upon or publish articles concerning any Confidential
Information.
(c) Upon the termination of his employment with the Company, all
documents, records, notebooks and similar repositories of or containing
Confidential Information, including any copies thereof, then in the
Employee's possession, or under his control, whether prepared by him or
others, will be left with or immediately returned to the Company by the
Employee.
13. Non-Compete. The Employee agrees that, during the term of his
employment with the Company and also for one year following the Employee's
termination or departure from the Company he will not, without the written
approval of the Company, directly or indirectly, under any circumstances
whatsoever, own, manage, operate, engage in, control or participate in the
ownership, management, operation or control of, or be connected in any manner
with, whether as an individual, partner, stockholder, director, officer,
principal, agent, employee or consultant, or in any other relation or capacity
whatsoever, any Competing Organization, and will not in any such manner compete
with the Company or solicit or call on any Customer of the Company, wherever
located, which was a Customer of the Company at any time during the period one
(1 year prior to the termination of the Employee's employment with the Company
for the purpose of inducing such Customer to purchase or lease a Competing
Product. Notwithstanding the foregoing, nothing contained in this Paragraph 13
shall restrict the Employee from making any investment in any company whose
stock is listed on a national securities exchange or actively traded in the
over-the-counter market, so long as such investment does not give him the right
to control or influence the policy decisions of any such business or enterprise
which is or might be in competition with any business of the Company.
14. Non-Interference. The Employee will not, for a period of one (1) year
following the termination of the Employee's employment by the Company, directly
or indirectly, employ, hire, solicit or, in any manner, encourage any employee
of the Company to leave the employ of the Company.
15. Injunctive Relief. In addition to any other rights or remedies
available to the Company as a result of the breach of the Employee's obligations
hereunder, the Company shall be entitled to enforcement of such obligations by
an injunction or a decree of specific performance from a court with appropriate
jurisdiction and in the event that the Company is successful in any suit or
proceeding brought or instituted by the Company to enforce any of the provisions
of this Agreement or on account of any damages sustained by the Company by
reason of the violation by the Employee of any of the terms and/or provisions of
this Agreement to be performed by the Employee, the Employee agrees to pay to
the Company all attorneys' fees reasonably incurred by the Company.
16. Withholding. The Employee hereby agrees that he will make such
arrangements as the Company may deem necessary to discharge any obligations of
the Company to withhold Federal, state or local
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taxes imposed upon the Company in respect of this Agreement.
17. Severability. The provisions of this Agreement shall be severable and
if any part of any provision shall be held invalid or unenforceable or any
separate covenant contained in any provision is held to be unduly restrictive
and void by a final decision of any court or other tribunal of competent
jurisdiction, such part, covenant or provision shall be construed to give it
maximum lawful validity and the remaining provisions of this Agreement shall
nonetheless remain in full force and effect.
18. Entire Agreement. This Agreement and the attached "Schedule of
Benefits" contains the entire agreement of the parties relative to the subject
matter hereof, superseding and terminating all prior agreements or
understandings, whether oral or written, between the parties hereto relative to
the subject matter hereof, and this Agreement may not be extended, amended,
modified or supplemented without the written consent of the parties hereto.
19. Waivers. Any waiver of the performance of the terms or provisions of
this Agreement shall be effective only if in writing and signed by the party
against whom such waiver is to be enforced. The failure of either party to
exercise any of his or its rights under this Agreement or to require the
performance of any term or provision of this Agreement, or the waiver by either
party of any breach of this Agreement, shall not prevent a subsequent exercise
or enforcement of such rights or be deemed a waiver of any subsequent breach of
the same or any other term or provision of this Agreement.
20. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, to the respective address of the parties hereto as set forth
above or to such other address as either party may designate to the other party
in the manner provided herein for giving notice.
21. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, successors and legal
representatives of the Employee, and shall inure to the benefit of and be
binding upon the Company and any successor to the business of the Company
pursuant to a merger or acquisition of all or substantially all of its assets,
but the obligations of the Employee may not be delegated and the Employee may
not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement, or any of his rights hereunder (whether by operation of law or
otherwise), except as expressly permitted by this Agreement, and any such
attempted delegation or disposition shall be null and void and without effect.
22. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Connecticut.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WILTEK, INC.
By:/s/ J.W. Fitzpatrick
------------------------------
Chairman of the Board
By:/s/ David S. Teitelman
------------------------------
David S. Teitelman
President & CEO
WITNESS:
/s/ Cindy L. Hampton
- ----------------------------
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SCHEDULE OF BENEFITS
1. Company Car. Company obligation is direct payment of, or reimbursement to
the Employee, for all lease payments, tax payments, insurance payments,
gasoline payments, service payments, repair payments, maintenance payments.
This benefit will continue for two (2) months after termination.
2. Complete Annual Physical Examination. Company obligation is reimbursement
to the Employee for the cost of any fees or charges not covered under the
Company's standard health insurance plan. This benefit is eliminated upon
termination.
3. Disability Policy. Company obligation is reimbursement to the Employee for
the cost of the Employee maintaining a long-term disability insurance
policy providing up to 70% of Annual Minimum Base Salary. This benefit is
eliminated upon termination.
4. Company Standard Benefits. Health, major medical, dental, eye care,
orthodontia, life insurance, short- term disability, long-term disability,
401K contribution, in addition to individual benefits provided within this
section ("Schedule of Benefits") to the Employee.
5. Annual Minimum Base Salary. $168,000.
6. Guaranteed Severance Pay. Twelve (12) months of Annual Minimum Base Salary.
7. Supplemental Severance Pay. If employment not found by Employee following
Guaranteed Severance Pay Period, an additional six (6) months of Annual
Minimum Base Salary.
8. Consulting Division Sale Bonus. Ten percent (10%) of the selling price of
the consulting division paid by the Company and allocated by the Employee
to himself, other officers and other employees. The Company's obligation
remains until the latter of December 31, 1999 or three (3) months after
termination. The Company shall make full payment within five (5) business
days of consulting division selling transaction.
9. Revenue Bonus. If Wiltek reports fiscal year 1999 revenue (excluding any
revenue for business's acquired after January 1, 1999) of at least
$6,800,000 then a cash bonus of .60% of total fiscal year 1999 revenue
$7,000,000 then a cash bonus of .64% of total fiscal year 1999 revenue
$7,200,000 then a cash bonus of .68% of total fiscal year 1999 revenue
$7,400,000 then a cash bonus of .72% of total fiscal year 1999 revenue
$7,600,000 then a cash bonus of .76% of total fiscal year 1999 revenue
$7,800,000 then a cash bonus of .80% of total fiscal year 1999 revenue
$8,000,000 then a cash bonus of .84% of total fiscal year 1999 revenue
$8,200,000 then a cash bonus of .88% of total fiscal year 1999 revenue
$8,400,000 then a cash bonus of .92% of total fiscal year 1999 revenue
$8,600,000 then a cash bonus of .96% of total fiscal year 1999 revenue
$8,800,000 then a cash bonus of 1.00% of total fiscal year 1999 revenue
The Company shall make full cash bonus payment to Employee within 60 days
(December 30, 1999) of close of fiscal year 1999. In the event of termination
any bonus accumulated as of the date of termination will be payable by the
Company to the Employee within 30 days of termination.
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IN WITNESS WHEREOF, the parties have executed this Schedule of Benefits as
of the date first above written.
WILTEK, INC.
By:/s/ J.W. Fitzpatrick
------------------------------
Chairman of the Board
By:/s/ David S. Teitelman
------------------------------
David S. Teitelman
President & CEO
WITNESS:
/s/ Cindy L. Hampton
- ---------------------------
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of October, 1999, by and between E-SYNC
NETWORKS, INC. (FORMERLY WILTEK, INC.), a Connecticut corporation, with its
principal offices located at 35 Nutmeg Drive, Trumbull, Connecticut 06611 (the
"Company") and Frank J. Connolly, Jr. an individual, residing at 45 Fara Drive,
Stamford, Connecticut, 06905 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires that the Employee shall be employed by the
Company, and the Employee is desirous of such employment, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Defining Terms. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Company" shall mean and include E-Sync Networks, Inc. (formerly
Wiltek, Inc.), and of its parents, subsidiaries and affiliates and the
respective successors and assigns of any of them, whether now existing
or hereafter arising: provided, however, that references to the
Company in Paragraphs 6, 7 and 9 of this Agreement shall be limited
solely to E- Sync Networks, Inc. (formerly Wiltek, Inc.)
(b) "Customer" shall mean any individual, firm, partnership, corporation,
company, joint venture or governmental or military unit or any other
entity or any parent, subsidiary or affiliate of any of them which is
negotiating or has a contract with the Company for the purchase or
lease of the Company's equipment, products or services or which has
been solicited by the Company with respect to such purchase or lease
during the Employee's employment with the Company.
(c) "Confidential Information" shall mean non-public information
concerning the Company, its products, processes and services and its
customers, suppliers, contractors, agents, consultants and employees
(herein-after referred to as "Company Affiliates"), including, but not
limited to, information relating to research, development, inventions,
manufacture, purchasing, accounting, finances, costs, profit margins,
patents, methods, programs, apparatus, engineering, marketing,
merchandising, selling, Customer lists, Customer requirements and
personnel, pricing, pricing methods and data processing and any other
materials or information, heretofore or hereafter during the term of
this Agreement, conceived, designed, created, used or developed by or
relating to the Company or any of the Company Affiliates.
(d) "Proprietary Property" shall mean discoveries, concepts and ideas and
expressions thereof, whether or not subject to patent, copyright,
trademark, trade name or service mark protection, including, but not
limited to, software, services, processes, methods, formulae,
techniques, apparatus, designs and writings as well as improvements
thereon, revisions thereof and know-how related thereto, belonging to
the Company.
(e) "Competing Product" shall mean any product, process or service of any
person or legal entity other than the Company, in existence or under
development, which, during the term of this Agreement, competes with
or is an alternative to any present or future product, process, or
service of the Company whether or not actively marketed by the
Company.
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(f) "Competing Organization" shall mean any person or legal entity engaged
in, about to engage in or intending to engage in research on or
development, use, production, marketing, or selling of a Competing
Product.
2. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, upon the terms and conditions set forth in
this Agreement.
3. Duties. The Employee shall be employed by the Company as Chief Financial
Officer and he shall perform such duties and render such services
consistent therewith as may from time to time be required of him by the CEO
of the Company.
4. Extent of Service. During the term of his employment, the Employee agrees
that (a) he will serve the Company faithfully, diligently and to the best
of his ability under the direction of the CEO of the Company; (b) he will
devote his best efforts and substantially his entire working time,
attention and energy to the performance of his duties hereunder and to
promoting and furthering the interests of the Company, taking, however,
from time to time, reasonable vacations consistent with the performance of
his obligations hereunder, and (c) he will not, without the prior written
approval of the CEO of the Company, which approval shall not be
unreasonably withheld, become an officer, director, employee or consultant
of, or otherwise become associated with or engaged in, any business other
than that of the Company, and he will do nothing inconsistent with his
duties to the Company.
5. Terms of Employment. The term of employment of the Employee under this
Agreement shall be for a period commencing on the date of this Agreement
and terminating on the 31st day of the month of December in the year 2000,
unless sooner terminated pursuant to Paragraph 9 of this Agreement (the
"Term"), and shall continue upon renewal of this Agreement for successive
one- year Terms thereafter unless sooner terminated pursuant to Paragraph 9
of this Agreement. With respect to each such successive Term, the Company
and the Employee shall mutually agree, in writing, to basic compensation
for such successive Term. If the Company decides not to renew this
Agreement, then the Employee shall be entitled severance pay pursuant to
Clause 9(b) of this Agreement.
6. Base Salary. As basic compensation for the services to be rendered
hereunder by the Employee for the initial Term ("Base Salary"), the Company
agrees to pay to the Employee, and the Employee agrees to accept, a minimum
salary at the rate of $200,000 per annum. The salary payable to the
Employee hereunder shall be paid in equal semi-monthly installments during
the Term, or in such other manner as shall be mutually agreed upon by the
parties hereto.
7. Other Benefits. The Employee shall be entitled to participate in any
retirement, disability, profit sharing, medical or life insurance or other
similar plan or arrangement provided by the Company to its employees, or
its other executive employees. The Employee shall also receive benefits as
stated within the attached "Schedule of Benefits."
8. Disability. If Employee shall be disabled, he shall receive full
compensation (less any payments received from Worker's Compensation, E-Sync
Network's (formerly Wiltek's) disability plans or other governmental
payment for such disability) for all periods of disability even if a period
of disability extends beyond the Term; provided, however, that the maximum
number of consecutive days during which disability occurs and for which
E-Sync Networks (formerly Wiltek) shall be obligated to pay such
compensation shall be ninety (90) days. Disability means the inability of
Employee to perform his duties hereunder on account of mental or physical
illness or physical incapacity.
9. Termination.
(a) The employment of the Employee hereunder shall terminate immediately
(i) upon the
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death of the Employee and, (ii) upon written notice to the Employee,
at the option of the Company, in the event that the Employee breaches
any of the terms and conditions of this Agreement.
(b) In addition to the provisions of Paragraph 9(a) above, the Company may
also, in its sole discretion, elect to terminate, without cause, the
employment of the Employee hereunder by thirty (30) days prior written
notice to the Employee; provided, however, that if the Company shall
so terminate this Agreement pursuant to this Paragraph 9(b), the
Company shall (i) pay the Employee severance pay in accordance with
the next sentence, (ii) continue the benefits set forth in Item 2 of
the attached "Schedule of Benefits" for so long as the severance
payments are being made, and (iii) continue the benefit set forth in
Item 1 of the attached Schedule of Benefits for two (2) months after
termination. During the six-month period following termination of the
employment of the Employee hereunder, the Company shall pay the
Employee guaranteed severance pay at a rate equal to the Employee's
base compensation immediately prior to such termination. Such
guaranteed severance pay shall be paid to the Employee in the manner
and at the time or times that such base compensation would otherwise
have been paid to the Employee. If the Employee is not employed upon
the expiration of the six-month guaranteed severance pay period, the
Company shall pay the Employee no additional supplemental severance
pay.
10. Representations and Warranties of the Employee as to Conflicts. The
Employee hereby represents and warrants to the Company that his employment
by the Company does not and will not violate any provision of law or
fiduciary duty by which he is bound and will not conflict with or result in
a breach of any agreement or instrument to which he is a party or by which
he is bound, and the Employee agrees that he will indemnify and hold
harmless the Company, its directors, officers and employees against any
claims, damages, liabilities and expenses (including attorneys' fees) which
may be incurred, including amounts paid in settlement, by any of them in
connection with any claim based upon or related to a breach of the
Employee's representation and warranty set forth in this Paragraph. In the
event of any claim based upon or related to a breach of the Employee's
representation and warranty set forth in this Paragraph 10, the Company
will give prompt notice thereof, in writing, to the Employee and the
Employee shall have the right to defend such claim with counsel reasonably
satisfactory to the Company.
11. Proprietary Property. With respect to Proprietary Property made or
conceived by the Employee in the field of data communications, whether or
not during the hours of his employment or with the use of the Company's
facilities, materials or personnel, either individually or jointly with
others during the period of his employment by the Company, the Employee
shall, without the payment of royalty or any other considerations to him
therefor:
(a) Inform the Company promptly and fully of such Proprietary Property by
a written report satisfactory to the Company;
(b) Apply, at the Company's requests and expense, for United States and
foreign letters patent, copyright, trademark or service mark, as the
case may be, either in the Employee's name or otherwise as the Company
shall direct;
(c) Assign to the Company all of his right, title and interest in such
Proprietary Property, and to applications for United States and/or
foreign letters patent, copyright, trademark and service mark and to
any letters patent, copyright, trademark and service mark which may be
issued upon such Proprietary Property;
(d) Deliver promptly to the Company, without charge to the Company but at
its expense, such written instruments, and do such other acts, as may
be necessary, in the opinion of the Company, to obtain and maintain
United States and/or foreign letters patent, copyright, trademark or
service mark on the Proprietary Property and to vest the entire
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right, title and interest thereto in the Company; and
(d) Grant to the Company, prior to assignment of the Employee's right
title and interest to the Company in any Proprietary Property as
required above, the royalty-free right to use in its business, and to
make, have made, use and sell products, processes, services, writings
and/or marks based upon or related to Proprietary Property made or
conceived by the Employee.
12. Confidentiality.
(a) During the Term and at all times thereafter, the Employee will not use
Confidential Information for his own benefit or for the benefit of any
person or legal entity other than the Company nor will he disclose the
same to any other person or legal entity, except as required to
conduct the business of the Company in the ordinary course.
(b) Except with the prior written approval of the Company or except as
required to conduct the business of the Company in the ordinary
course, the Employee will not, at any time, directly or indirectly,
use, disseminate, disclose, lecture upon or publish articles
concerning any Confidential Information.
(c) Upon the termination of his employment with the Company, all
documents, records, notebooks and similar repositories of or
containing Confidential Information, including any copies thereof,
then in the Employee's possession, or under his control, whether
prepared by him or others, will be left with or immediately returned
to the Company by the Employee.
13. Non-Compete. The Employee agrees that, during the term of his employment
with the Company and also for one year following the Employee's termination
or departure from the Company, he will not, without the written approval of
the Company, directly or indirectly, under any circumstances whatsoever,
own, manage, operate, engage in, control or participate in the ownership,
management, operation or control of, or be connected in any manner with,
whether as an individual, partner, stockholder, director, officer,
principal, agent, employee or consultant, or in any other relation or
capacity whatsoever, any Competing Organization, and will not in any such
manner compete with the Company or solicit or call on any Customer of the
Company, wherever located, which was a Customer of the Company at any time
during the period one (1) year prior to the termination of the Employee's
employment with the Company for the purpose of inducing such Customer to
purchase or lease a Competing Product. Notwithstanding the foregoing,
nothing contained in this Paragraph 13 shall restrict the Employee from
making any investment in any company whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market, so
long as such investment does not give him the right to control or influence
the policy decisions of any such business or enterprise which is or might
be in competition with any business of the Company.
14. Non-Interference. The Employee will not, for a period of one (1) year
following the termination of the Employee's employment by the Company,
directly or indirectly, employ, hire, solicit or, in any manner, encourage
any employee of the Company to leave the employ of the Company.
15. Injunctive Relief. In addition to any other rights or remedies available to
the Company as a result of the breach of the Employee's obligations
hereunder, the Company shall be entitled to enforcement of such obligations
by an injunction or a decree of specific performance from a court with
appropriate jurisdiction and in the event that the Company is successful in
any suit or proceeding brought or instituted by the Company to enforce any
of the provisions of this Agreement or on account of any damages sustained
by the Company by reason of the violation by the Employee of any of the
terms and/or provisions of this Agreement to be performed by the Employee,
the Employee agrees to pay to the Company all attorneys' fees reasonably
incurred by the Company.
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<PAGE> 5
16. Withholding. The Employee hereby agrees that he will make such arrangements
as the Company may deem necessary to discharge any obligations of the
Company to withhold Federal, state or local taxes imposed upon the Company
in respect of this Agreement.
17. Severability. The provisions of this Agreement shall be severable and if
any part of any provision shall be held invalid or unenforceable or any
separate covenant contained in any provision is held to be unduly
restrictive and void by a final decision of any court or other tribunal of
competent jurisdiction, such part, covenant or provision shall be construed
to give it maximum lawful validity and the remaining provisions of this
Agreement shall nonetheless remain in full force and effect.
18. Entire Agreement. This Agreement and the attached "Schedule of Benefits"
contains the entire agreement of the parties relative to the subject matter
hereof, superseding and terminating all prior agreements or understandings,
whether oral or written, between the parties hereto relative to the subject
matter hereof, and this Agreement may not be extended, amended, modified or
supplemented without the written consent of the parties hereto.
19. Waivers. Any waiver of the performance of the terms or provisions of this
Agreement shall be effective only if in writing and signed by the party
against whom such waiver is to be enforced. The failure of either party to
exercise any of his or its rights under this Agreement or to require the
performance of any term or provision of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent a
subsequent exercise or enforcement of such rights or be deemed a waiver of
any subsequent breach of the same or any other term or provision of this
Agreement.
20. Notices. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed given when personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, to the respective address of the parties hereto as set forth
above or to such other address as either party may designate to the other
party in the manner provided herein for giving notice.
21. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, successors and legal
representatives of the Employee, and shall inure to the benefit of and be
binding upon the Company and any successor to the business of the Company
pursuant to a merger or acquisition of all or substantially all of its
assets, but the obligations of the Employee may not be delegated and the
Employee may not assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Agreement, or any of his rights hereunder
(whether by operation of law or otherwise), except as expressly permitted
by this Agreement, and any such attempted delegation or disposition shall
be null and void and without effect.
22. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Connecticut.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
E-SYNC NETWORKS, INC.
(FORMERLY WILTEK, INC.)
By: /s/ John C. Maxwell, III
______________________________
CEO & Chairman of the Board
By: /s/ Frank J. Connolly, Jr.
______________________________
Frank J. Connolly, Jr.
Chief Financial Officer
WITNESS:
/s/ Cindy L. Hampton
________________________________
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<PAGE> 7
SCHEDULE OF BENEFITS
1. Company Car. Company obligation is direct payment of, or reimbursement to
the Employee, for all lease payments, tax payments, insurance payments,
gasoline payments, service payments, repair payments, maintenance payments.
The Company will contribute a maximum of $600 towards monthly lease and
property tax payments. This benefit will continue for two (2) months after
termination.
2. Company Standard Benefits. Health, major medical, dental, orthodontia, eye
care, life insurance, short-term disability, long-term disability, 401K
contribution, in addition to individual benefits provided within this
section ("Schedule of Benefits") to the Employee. All company standard
benefits will continue during the severance period(s) with the exception of
short and long-term disability benefits.
3. Annual Minimum Base Salary. $200,000.
4. Bonus: On an annual basis the E-Sync Networks (formerly Wiltek) Board of
Directors will review all Officer compensation including a bonus program
which, will be based upon attainment of Company objectives. Based on
attainment of objectives you will be eligible for a $25,000 pro-rated
annual bonus.
5. Guaranteed Severance Pay. Six (6) months of Annual Minimum Base Salary.
6. Company Stock Options: Upon approval by the E-Sync Networks (formerly
Wiltek) Board of Directors Compensation Committee, 80,000 options,
representing approximately 2% of the outstanding common stock, will be
granted to the employee. In accordance with Board approval, the employee
will be issued 20,000 fully vested options upon actual start date. The
remaining 60,000 stock options will vest in increments over a three (3)
year period, to be determined by the Board of Directors. Options will
provide for accelerated vesting in the event of certain "Change of Control"
transactions. The Employee's stock option price will be set at the market
value on the Employee's actual start date with the Company.
IN WITNESS WHEREOF, the parties have executed this Schedule of Benefits as of
the date first above written.
E-SYNC NETWORKS, INC.
(FORMERLY WILTEK, INC.)
By: /s/ John C. Maxwell, III
______________________________
CEO & Chairman of the Board
By: /s/ Frank J. Connolly, Jr.
______________________________
Frank J. Connolly, Jr.
Chief Financial Officer
WITNESS:
/s/ Cindy L. Hampton
____________________________
7
<PAGE> 1
EXHIBIT 10.3
OFFICE LEASE
This Office Lease, dated, for reference purposes only, as of March 25, 1999
is between FAIRHAVEN INVESTORS LIMITED PARTNERSHIP, a Pennsylvania limited
partnership (the "LANDLORD") and WILTEK, INC., a Connecticut corporation (the
"TENANT").
1. BASIC LEASE PROVISIONS
1.01 PROJECT. The land and improvements known as 35 Nutmeg Drive, in
Trumbull, Connecticut and described in Section 2.01.
1.02 BUILDING. The office building located at the Project and described in
Section 2.01.
1.03 PREMISES. 20,555 rentable square feet in area on the first (1st) floor
of the Building as described in Section 2.01.
1.04 USE. General, executive and administrative office use (and ancillary
uses directly related thereto that are permitted by zoning regulations) subject
to Section 7.
1.05 TERM. The period commencing on the "COMMENCEMENT DATE", as defined in
Section 3 and ending on December 31, 2014.
1.06 ANNUAL BASE RENT. The amounts set forth in the table below, payable on
the first (1st) day of each month as provided in Section 4.01:
<TABLE>
<CAPTION>
PER RENTABLE MONTHLY
PERIOD SQUARE FOOT ANNUAL RENT BASE RENT
------ ------------ ----------- ---------
<S> <C> <C> <C>
Lease Year 1-5 $13.00 $267,215.00 $22,267.92
Lease Year 6-10 $15.00 $308,325.00 $25,693.75
Lease Year 10-15 $17.00 $349,435.00 $29,119.58
</TABLE>
1.07 SECURITY DEPOSIT. As provided in Section 4.06.
1.08 TENANT SHARE OF TAXES AND OPERATING EXPENSES. 10.54% as defined in
Section 5.
1.09 LISTING BROKER. David A. Mack Properties, LLC.
2. PREMISES, PARKING AND COMMON AREAS
2.01 PREMISES. Landlord owns the real estate and improvements known as 35
Nutmeg Drive in Trumbull, Connecticut, which is located on land (the "LAND")
more particularly described in Exhibit A hereto. The Premises are a portion of
the Building identified in Section 1.02 (the "BUILDING"). Landlord, for and in
consideration of the rents herein reserved and of the covenants, conditions and
agreements herein contained, hereby leases to Tenant and Tenant accepts from
Landlord, the Premises shown on the plan attached hereto as Exhibit B (the
"PREMISES"), including rights to the Common Areas as herein specified. The term
"PROJECT" includes the Premises, the Building, the Common Areas (defined in
Section 2.03), the Land and all improvements thereon and thereunder. No rights
to light or air over any real estate, whether belonging to Landlord or any other
party are granted to Tenant by this Lease.
2.02 PARKING. Tenant shall have the right to park in the Building's
uncovered parking facilities in common with other tenants of the Building upon
such terms and conditions as reasonably
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established by Landlord at any time during the term of this Lease, but such
right shall be limited to four (4) non-exclusive tenant spaces for each 1,000
rentable square feet (or portion thereof) demised hereunder. Tenant agrees not
to overburden the parking facilities and agrees to cooperate with Landlord and
other tenants in the use of the parking facilities. Landlord reserves the right
in its absolute discretion to determine whether the parking facilities are
becoming overburdened and to allocate and assign parking spaces among Tenant and
other tenants, and to reconfigure the parking area and modify existing ingress
to and egress from the parking area as Landlord shall deem appropriate. Landlord
may designate parking spaces in the Common Areas for the handicapped visitors to
the Project and other tenants.
2.03 COMMON AREAS. The term "COMMON AREAS" is defined as all areas and
facilities outside the Premises and within the exterior boundary line of the
Project that are provided and designated by Landlord from time to time for the
general non-exclusive use of Landlord, Tenant, and other tenants of the Project
and their invitees. As used in this Lease, the term "invitees" means the
employees, visitors, suppliers, shippers, and customers of Landlord, Tenant, and
other tenants of the Project. The Common Areas include, but are not limited to,
the common entrances, lobbies, corridors, stairways and stairwells, public rest
rooms, cafeteria, fitness center, elevators, escalators, parking areas to the
extent not otherwise prohibited by this Lease, loading and unloading areas,
trash areas, roadways, sidewalks, parkways, ramps, driveways, landscaped areas,
walking paths and decorative walls. Landlord hereby grants to Tenant during the
term of this Lease, a license to use, in common with the others entitled to such
use, the Common Areas as they from time to time exist, subject to the rights,
powers and privileges herein reserved to Landlord.
2.04 COMMON AREAS - RULES AND REGULATIONS. Tenant agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit C (the "RULES
AND REGULATIONS") with respect to the Building and the Project, and to cause its
invitees to so abide and conform. Landlord or such other person(s) as Landlord
may appoint shall have the exclusive control and management of the Common Areas
and shall have the right, from time to time, to modify, amend (in a commercially
reasonable manner), and enforce the Rules and Regulations. Landlord shall not be
responsible to Tenant for the noncompliance with the Rules and Regulations by
other tenants of the Project or their invitees, but Landlord shall not enforce
the Rules and Regulations against Tenant in a discriminatory manner. In the
event of a conflict between the provisions of this Lease and the Rules and
Regulations, the provisions of this Lease shall control and the conflicting
portion of Rule and Regulation shall be deemed amended accordingly as to Tenant
only.
2.05 COMMON AREAS - CHANGES. Landlord shall have the right, in Landlord's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and the
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped
areas, and walkways; provided, however, Landlord shall at all times provide
the parking facilities required by applicable laws; and provided further
that any such changes shall not impede Tenant's access to the Premises nor
reduce the services to be provided to the Premises pursuant to Section
6.01.
(b) To close temporarily or permanently any of the Common Areas so
long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the present or
future boundaries of the Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Project or any portion
thereof;
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<PAGE> 3
(f) To do and perform such other acts and make such other changes in,
to, or with respect to the Common Areas and the other portions of the
Project as Landlord may, in the exercise of sound business judgment, deem
to be appropriate;
The use of the Common Areas shall be subject to such reasonable
regulations and changes therein as Landlord shall make from time to time,
including (but not by way of limitation) the right to close from time to
time, if necessary, all or any portion of the Common Areas to such extent
as may be legally sufficient, in the opinion of Landlord's counsel, to
prevent a dedication thereof or the accrual of rights of any person or of
the public therein; provided, however, Landlord shall do so at such times
and in such manner as shall minimize any disruption to Tenant to the extent
reasonably possible.
3. TERM
3.01 LEASE TERM.
(a) The Premises are leased for a term to commence on the date
Landlord delivers possession of the Premises to Tenant for the purpose of
constructing its "LEASEHOLD IMPROVEMENTS" (as defined in Section 3.03) (the
"COMMENCEMENT DATE") and shall end on December 31, 2014 (the "EXPIRATION
DATE") unless sooner terminated as herein provided (the "TERM"). Landlord
agrees that it shall deliver possession of the Premises to Tenant in
vacant, "as is" condition on or before April 1, 1999.
(b) The first "LEASE YEAR" shall begin on the Commencement Date and
shall end on the last day of the twelfth (12th) full calendar month
following the Rent Commencement Date. Each Lease Year thereafter shall
consist of twelve (12) consecutive calendar months following the end of the
immediately preceding Lease Year except that the final Lease Year shall end
on the Expiration Date.
3.02 RENT COMMENCEMENT DATE. Tenant shall complete the Leasehold
Improvements in accordance with the "APPROVED PLANS" (as defined in Section
3.03) as soon as practicable and take possession of the Premises promptly
upon completion of the Leasehold Improvements. Tenant's obligation to pay
Annual Base Rent, the Additional Rent payable under Section 5 hereof, and
the Electric Expense shall commence on January 1, 2000 (hereinafter
referred to as the "RENT COMMENCEMENT DATE").
3.03 TENANT'S LEASEHOLD IMPROVEMENTS.
(a) Condition of the Premises and the Building. Tenant has inspected
the Premises and the Building and accepts them in their "as is" condition.
Notwithstanding the foregoing, Landlord represents that, to its knowledge,
the Building electrical, mechanical, HVAC, plumbing and sprinkler systems
are in good working order and have been brought to and are serving the
Premises. Notwithstanding the prohibition on the construction of
"ALTERATIONS" in Section 8.03 hereof, Landlord consents to Tenant's
construction of leasehold improvements and installations to prepare the
Premises for Tenant's initial occupancy (the "LEASEHOLD IMPROVEMENTS")
subject to the terms and conditions of this Section 3. Construction of the
Leasehold Improvements shall be at Tenant's sole cost and expense, subject
to Landlord's obligation to pay the "CONSTRUCTION ALLOWANCE" (as defined in
subsection (f) below) to Tenant upon Tenant's compliance with the terms and
conditions of this Section 3. Tenant shall promptly commence construction
of the Leasehold Improvements and shall proceed with diligence and dispatch
to complete the same, subject to the terms and conditions of this Section
3.
(b) Preparation of Tenant's Plans; Landlord Approval. Tenant's
architect ("TENANT'S ARCHITECT"), Tenant's general contractor ("TENANT'S
CONTRACTOR") and Tenant's sub- contractors and suppliers for the Leasehold
Improvements shall be subject to Landlord's prior written approval, which
shall not be unreasonably withheld. Tenant's Architect, Tenant's Contractor
and the sub- contractors and suppliers on Tenant's bid list shall be
reputable and experienced in Class A office building design and
construction. Promptly following the date of execution of this Lease,
Tenant shall submit the detailed architectural, mechanical, electrical and
engineering plans, drawings and specifications for the Leasehold
Improvements (the "TENANT'S PLANS") to Landlord or Landlord's consultant
("LANDLORD'S CONSULTANT") for approval. Tenant's Plans shall comply with
the requirements of all federal, state and local codes and
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<PAGE> 4
ordinances and the rules, regulations and requirements of any governmental
authority having jurisdiction over the Leasehold Improvements and the
Building (the "GOVERNMENTAL REQUIREMENTS"). The architectural plans shall
be signed and sealed by Tenant's Architect, who shall be licensed in the
State of Connecticut. The electrical circuitry, heating or mechanical plans
shall be signed and sealed by an engineer licensed in the State of
Connecticut that has been approved by Landlord. Landlord shall review all
of Tenant's Plans within ten (10) business days following their submission
and shall notify Tenant of Landlord's approval or disapproval within said
time period. Any disapproval shall state the reason therefor and shall not
be unreasonable. In the event Landlord disapproves any such Tenant's Plans,
Tenant shall promptly resubmit the same and Landlord shall approve such
Tenant's Plans or disapprove them setting forth its reasons for such
disapproval within ten (10) business days after its receipt of the
resubmitted plans or specifications. Tenant shall pay Landlord's
reasonable, out-of-pocket administrative expenses for its review of
Tenant's Plans for each set of plans delivered to Landlord or Landlord's
Consultant after review of the first set of Tenant's Plans. Tenant shall
not proceed with the Leasehold Improvements until it obtains Landlord's
written approval and the approvals of all applicable governmental
authorities as to Tenant's Plans (the "APPROVED PLANS"). Tenant shall build
the Leasehold Improvements in accordance with the Approved Plans and any
changes shall require resubmission of detailed plans and drawings
describing such changes to Landlord and shall require Landlord's prior
approval. Tenant agrees that any review or approval by Landlord of any
plans and/or specifications with respect to Leasehold Improvements and any
Alterations is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant with respect to the
adequacy, correctness or efficiency thereof or their compliance with
Governmental Requirements.
(c) Delivery of Final Plans; Warranties. Tenant will promptly, upon
the completion of the Leasehold Improvements, deliver to Landlord
"as-built" plans drawings thereof and, at such time, shall warrant to
Landlord that such Leasehold Improvements have been completed in a good and
workmanlike manner in compliance with the Approved Plans and all
Governmental Requirements. Tenant shall deliver to Landlord all written
warranties and guaranties received by Tenant from its contractors,
subcontractors and suppliers relating to the materials, workmanship
fixtures and equipment installed in the Premises as part of the Leasehold
Improvements, and provide Landlord with an assignment of such warranty
rights as shall be reasonably requested by Landlord.
(d) Permits; Legal Compliance. Tenant, at its expense, shall obtain
(and furnish true and complete copies to Landlord of) all necessary
governmental permits and certificates for the commencement and prosecution
of the Leasehold Improvements and for final approval thereof upon
completion. Tenant shall cause the Leasehold Improvements to be performed
in compliance therewith, with all applicable laws and requirements of
public authorities, with all applicable requirements of insurance bodies
and with the Approved Plans. It shall be the responsibility of Tenant to:
(i) submit, at its sole cost and expense, all Tenant's Plans to any
governmental authority requiring the same; and (ii) to secure and pay for
all permits or governmental approvals necessary to construct, use and
occupy the Leasehold Improvements, subject to the Construction Allowance.
(e) Lien Waivers. Prior to Tenant's commencing any work construction
activity at the Premises, Tenant shall provide Landlord with a written list
of all subcontractors and materialmen and Tenant shall provide Landlord
with lien waivers (in form and substance satisfactory to Landlord) for the
benefit of Landlord and its mortgage lenders from Tenant's Architect and
Tenant's Contractor. Prior to any payment to any subcontractor or material
supplier, Tenant shall provide Landlord with lien waivers (in form and
substance satisfactory to Lender) for the benefit of Landlord and its
mortgage lenders from Tenant's subcontractors and material suppliers.
Tenant shall pay all debts incurred, and shall satisfy or bond all liens of
contractors, subcontractors, mechanics, laborers, and materialmen in
respect to construction, alteration and repair in and on the Premises and
Tenant hereby indemnifies Landlord against all costs and charges, including
legal fees, resulting from any claims arising from Tenant's failure to do
so. Tenant shall have no authority to create any liens for labor or
material on or against Landlord's interest in the Project, and all persons
contracting with Tenant for work on or in the Premises shall look to Tenant
and to Tenant's interest only to secure the payment of any bill or account
for work done or material furnished. If any mechanic's, laborer's, or
materialmen's lien shall at any time be filed against the Project by reason
of any act or omission of Tenant, Tenant shall cause the same to be
discharged by payment, deposit, bond or
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<PAGE> 5
order of a court of competent jurisdiction as provided by Section 8.04
hereof.
(f) Tenant's Construction Allowance. Tenant shall construct the
Leasehold Improvements at its sole cost and expense in accordance with the
Approved Plans. Tenant shall receive from Landlord an allowance (the
"CONSTRUCTION ALLOWANCE") of up to, but not exceeding, $450,000, which
Construction Allowance shall be used solely to contribute toward payment of
Tenant's relocation expenses and the cost of the labor and materials to
construct the Leasehold Improvements in accordance with the Approved Plans,
and related permit and license fees and consulting costs (the "WORK COST").
Tenant shall also receive from Landlord an allowance (the "PLANNING
ALLOWANCE") of up to, but not exceeding $1.25 per rentable square foot of
space leased hereby, which Planning Allowance shall be used solely to
contribute toward payment of Tenant's architectural, engineering and space
planning services needed to prepare the Approved Plans. Tenant agrees to
use Landlord's architect, Antinozzi Associates, or another architect
selected by Tenant and approved by Landlord (which approval shall not be
unreasonably withheld), to prepare Tenant's space plan for the Premises.
Landlord hereby approves CORE Group P.C. as Tenant's Architect. Tenant
shall provide Landlord with information as reasonably requested by Landlord
to substantiate the complete Work Cost following acceptance of construction
bids for the Leasehold Improvements, including a certified budget
reasonably acceptable to Landlord (the "CONSTRUCTION BUDGET") and shall
provide Landlord with any changes thereto within two (2) days following any
such change (such approved costs and expenses, the "CONSTRUCTION
EXPENSES"). Landlord shall pay the Planning Allowance to Tenant in not more
than three (3) disbursements within twenty (20) days following Tenant's
delivery to Landlord of invoices (and any other reasonable supporting
information requested by Landlord) for expenses permitted to be paid under
the Planning Allowance. The Construction Allowance shall be disbursed as
described in subsection (g) below.
(g) Payment of Construction Allowance. The Construction Allowance
shall be payable by Landlord to Tenant on a progress payment basis (but not
more frequently than monthly) in an amount equal to "LANDLORD'S SHARE"
(defined below) of the Construction Expenses within twenty (20) days after
Tenant has delivered to Landlord evidence of the completion of the
Leasehold Improvements (or any portion thereof) pursuant to the Approved
Plans. Prior to Landlord's payment of the full amount of the Construction
Allowance, Landlord and Tenant agree that both shall make payment of their
respective obligations for the Construction Expenses on an equal basis;
after Landlord's disbursement of the Construction Allowance, Tenant shall
be financially responsible for all remaining Construction Expenses for its
Leasehold Improvements. In no event shall Landlord be responsible for any
sums in excess of the Construction Allowance. In connection with each
request for payment, Tenant shall submit to Landlord a detailed requisition
form (reasonably satisfactory to Landlord) broken down by categories
identified in the Construction Budget and signed by Tenant's Architect and
Tenant's construction manager together with:
(i) either a complete itemization and description of all design
and construction costs for which reimbursement is sought by any
contractor, subcontractor or vendor, together with a schedule of
invoices received describing invoice date and amount; or completed
copies of AIA Document G-702 and G-703, if AIA contract documentation
is utilized for contractor payments;
(ii) a written instrument signed by Tenant's Architect and
Tenant's construction manager certifying and representing that based
on on-site observations, with knowledge that Landlord is relying upon
the same: (A) that the data comprising the requisition and all
materials and work represented by the requisition has been completed
or delivered in accordance with the requirements and standards
contained in the Approved Plans and Construction Budget, and the
vendors, contractors, and suppliers supplying services, work or
materials to the Premises are entitled to be paid in the amount
requested in the requisition; (B) such Leasehold Improvements have
been constructed in accordance with the Approved Plans and the
requirements of applicable law; (C) that the lien waivers submitted as
part of the requisition represent lien waivers from Tenant's
Architect, all contractors, subcontractors and materialmen who have
supplied materials or performed work for which reimbursement is
sought; and (D) with respect to the final disbursement of the
Construction Allowance, the certificate of occupancy or a temporary
certificate of occupancy accompanying the requisition is an original
certificate as issued by the Building Department of the Town of
Trumbull for the Leasehold Improvements;
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(iii) evidence reasonably satisfactory to Landlord that Tenant
has paid the balance of Construction Expenses with respect to the
preceding month's requisition for payment; and
(iv) such other reasonable requirements as may be customarily
used by institutional construction lenders in their construction loan
administration for projects of similar value and scope.
Landlord shall not be obligated to pay any portion of the Construction
Allowance to Tenant if Tenant is in default of any of its obligations under
this Lease, notwithstanding any provision to the contrary contained herein
or Tenant has not paid its share of the Construction Expenses with respect
to the immediately preceding requisition request. "Landlord's Share" shall
be equal to 50% of the Construction Expenses for which Tenant shall have
submitted a requisition request subject to the terms and conditions of this
subsection (g), but, in no event, shall Landlord be required to pay more
than the Construction Allowance. If Landlord fails to pay Tenant when due
the Landlord's Share of any Construction Expenses for which Tenant shall
have submitted a requisition request (accompanied by the necessary
supporting documentation as provided above), Tenant shall have the right to
pursue its legal remedies for such failure, but shall not have any right to
cancel this Lease. If Tenant pursues court action against Landlord and
obtains a final money judgment by a court of competent jurisdiction against
Landlord due to Landlord's failure to pay such sum, Tenant may set-off the
amount of such money judgment against its future Annual Base Rent
obligations under this Lease unless Landlord satisfies the money judgment
within fifteen (15) days following entry of such money judgment by such
court.
(h) Access to Premises for Construction. Landlord will permit Tenant
and Tenant's agents, contractors and suppliers to enter the Premises after
the Commencement Date so that Tenant may construct the Leasehold
Improvements following: (i) Tenant's execution of this Lease, (ii) payment
in full of the Security Deposit, (iii) Tenant's delivery of all applicable
insurance certificates required by this Lease, (iv) Landlord's approval of
Tenant's Architect (if different from Landlord's designated architect) and
Tenant's Contractor, and (v) Landlord's receipt of the Approved Plans. Such
entry shall be upon the condition that Tenant and its agents, contractors
and suppliers shall work in harmony with Landlord and its employees,
agents, contractors and suppliers and will not interfere with: (A) the
work, or use and enjoyment of any other tenants or occupants in the
remainder of the Building, (B) the business operations of such other
tenants or occupants, or (C) Landlord's Rules and Regulations. Until such
time as Tenant shall secure a certificate of occupancy for the Leasehold
Improvements, Tenant and its architects, engineers, space planners,
contractors and subcontractors shall have access to the Premises solely in
connection with the Leasehold Improvements. Any entry by Tenant or its
agents, architects, engineers, space planners, contractors, subcontractors,
materialmen and any other party given access to the Premises in connection
with the Leasehold Improvements ("TENANT'S AGENTS AND CONSULTANTS") shall
be at the sole risk of such party and without liability to Landlord, its
agents, employees, officers, directors, principals, partners, shareholders
and affiliates. Tenant acknowledges that the Building may be occupied by
other tenants or may be under construction by Landlord or other tenants.
Tenant agrees to keep the Common Areas clean and free at all times of any
obstructions, supplies, equipment and materials brought into the building
by Tenant or Tenant's Agents or Consultants; comply with Landlord's Rules
and Regulations applicable to Tenant's construction activities and the
activities of Tenant's Agents and Consultants; and comply with Landlord's
directions and requirements concerning the use and the time of use of the
means of ingress to, and egress from, the Building (and the Building
elevators) with respect to Tenant's construction activities at the
Building. Tenant may perform its Leasehold Improvements and initial move-in
during "Normal Business Hours" (as defined in Section 6.01); provided,
however, that such activities shall be co- ordinated with Landlord and
subject to Landlord's reasonable requirements to prevent disturbance of the
business operations of other Building tenants and result in minimal
interference to the Building's operations. To the extent there exists and
Tenant uses a freight elevator in connection therewith, such usage shall be
without charge.
(i) Compliance with Warranty Requirements. With respect to any work by
Tenant (including the Leasehold Improvements) at the Premises that will
affect the roof or any Building component that is under warranty, Tenant
shall review the warranty requirements and use the contractor
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providing the warranty (or a contractor permitted by the terms of the
warranty). In connection with any such work, Tenant shall comply with all
warranty requirements to prevent the warranty (or any portion of such
coverage) from being diminished or invalidated. Tenant shall not begin any
such work until Tenant shall have complied with the foregoing requirements.
3.04 CONFIRMATORY AMENDMENTS. When the Commencement Date and Expiration
Date hereof have been determined in accordance with the provisions set forth in
this Lease, the parties hereto shall execute a document in recordable form,
setting forth said dates and said document shall be deemed a supplement to and
part of this Lease.
4. RENT AND SECURITY
4.01 ANNUAL BASE RENT. Beginning with the Rent Commencement Date and
continuing throughout the Term, Tenant shall pay to or upon the order of
Landlord an annual rental as set forth in Section 1.06 (the "ANNUAL BASE RENT")
on or before the first day of each calendar month in advance. All payments of
rent shall be made without demand, deduction, counterclaim, set-off, discount or
abatement in lawful money of the United States of America, except as otherwise
provided in this Lease. If the Rent Commencement Date should occur on a day
other than the first day of a calendar month, or the Expiration Date should
occur on a day other than the last day of a calendar month, then the monthly
installment of Annual Base Rent for such fractional month shall be prorated upon
a daily basis based upon a thirty (30) day month.
4.02 ADDITIONAL RENT. Tenant shall pay to Landlord all charges and other
amounts required under this Lease and the same shall constitute additional rent
hereunder (herein called "ADDITIONAL RENT"), including, without limitation, any
sums due resulting from the provisions of Sections 5 and 6 hereof. All such
amounts and charges shall be payable to Landlord at the place where the Annual
Base Rent is payable. Landlord shall have the same remedies for a default in the
payment of Additional Rent as for a default in the payment of Annual Base Rent.
The capitalized term "RENT", as used in this Lease, shall mean the Annual Base
Rent plus the Additional Rent payable under Sections 5 and 6.
4.03 PLACE OF PAYMENT. The Annual Base Rent and all other sums payable to
Landlord under this Lease shall be paid to Landlord at c/o Davis Management
Corp., 187 Danbury Road, Wilton, Connecticut 06897, or at such other place as
Landlord shall designate in writing to Tenant from time to time.
4.04 TERMS OF PAYMENT. Tenant shall pay to Landlord all Annual Base Rent as
provided in Section 4.01 above and Tenant shall pay all Additional Rent payable
under Sections 5 and 6 on the terms provided therein. Except as provided in this
Section 4 and as may otherwise be expressly provided by the terms of this Lease,
Tenant shall pay to Landlord, within fifteen (15) days after delivery by
Landlord to Tenant of bills or statements therefor: (a) sums equal to all
expenditures made and monetary obligations incurred by Landlord under this Lease
for Tenant's account including, without limitation, expenditures made and
obligations incurred in connection with the remedying by Landlord any of
Tenant's defaults pursuant to the provisions of this Lease; (b) sums equal to
all expenditures made and monetary obligations incurred by Landlord, including,
without limitation, expenditures and obligations incurred for reasonable counsel
fees, in collecting or attempting to collect the Rent or any other sum of money
accruing under this Lease or in enforcing or attempting to enforce any rights of
Landlord under this Lease or pursuant to law; and (c) all other liabilities,
losses, expenses and damages accruing from Tenant to Landlord under the
provisions of this Lease.
4.05 LATE CHARGES; INTEREST.
(a) Tenant hereby acknowledges that late payment by Tenant to Landlord
of any Rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage covering the Project. If Tenant shall
fail to pay any Rent within seven (7) days after the date
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same is due and payable, then, without any requirement for notice to
Tenant, Tenant shall pay to Landlord a late charge equal to five percent
(5%) of the overdue amount but not to exceed the maximum late charge
permitted by applicable law. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur
by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted thereunder.
(b) Any amount not paid by Tenant to Landlord within five (5) days
following the date when due shall bear interest from the date due at the
lesser of (a) twelve percent (12%), or (b) the maximum rate then allowable
by law, except that interest shall not be payable on any late charge.
Payment of interest shall not excuse or cure any default by Tenant. If the
delinquent amount is subject to a late charge hereunder, then such
delinquent amount shall bear interest from the thirtieth (30th) day
following its due date.
4.06 SECURITY DEPOSIT.
(a) Upon execution of this Lease, Tenant shall deliver to Landlord a
security deposit in the amount of $250,000.00, (such amount, or such lesser
amount as may be permitted by this Section 4.06(e), the "SECURITY DEPOSIT")
for the faithful performance of all terms, covenants and conditions of this
Lease in the form of an unconditional, irrevocable letter of credit that
shall: (i) be issued for the benefit of Landlord by a banking institution
whose identity and creditworthiness shall be subject to Landlord's
reasonable approval, (ii) be effective on the Commencement Date and have a
term of not less than one (1) year following the Commencement Date and
containing automatic year-to-year renewal provisions subject to the Letter
of Credit issuer's right to notify Landlord in writing by certified or
registered mail of non-renewal at least thirty (30) days prior to the
expiration of the Letter of Credit, (iii) be in the form attached hereto as
Exhibit F or in such form as shall be acceptable to Landlord, (iv) provide
for the amount thereof to be available to the Landlord in multiple drawings
conditioned only upon presentation of a sight draft accompanied by the
signed statement of Landlord to the effect that Tenant is in default under
the terms of this Lease and shall otherwise be in accordance with the
conditions for drawing stated in Exhibit F hereto, and (v) be transferable
by Landlord to its successors or assigns (a "LETTER OF CREDIT").
(b) Within fifteen (15) days following receipt of a non-renewal notice
from the Letter of Credit issuer (such date, the "RE-DELIVERY DEADLINE"),
Tenant shall deliver to Landlord either: (i) a substitute Letter of Credit
that satisfies the requirements for a Letter of Credit stated in this
Section 4.06(a), or (ii) the Security Deposit in the form of cash (but a
cash Security Deposit will only be permitted after the third (3rd) Lease
Year). If Tenant fails to timely deliver the substitute Letter of Credit or
cash Security Deposit, Landlord shall have the right to draw the Letter of
Credit and receive the proceeds as a cash Security Deposit. Tenant agrees
that its failure to furnish Landlord with the required Security Deposit
either in the form of a substitute Letter of Credit or as cash in
compliance with the requirements for the initial Letter of Credit prior to
the Re-Delivery Deadline shall not be subject to any rights of notice or
cure under this Lease.
(c) Tenant agrees that Landlord may, without waiving any of Landlord's
other rights and remedies under this Lease upon the occurrence of any of
the Events of Default described in Article 13 hereof, apply the Security
Deposit to remedy any failure by Tenant to repair or maintain the Premises
or to perform any other terms, covenants or conditions contained herein.
Should Landlord use any portion of the Security Deposit to cure any Event
of Default by Tenant hereunder, Tenant shall forthwith replenish the
Security Deposit to the original amount. Upon the occurrence of any of the
Events of Default described in Article 13 hereof, the Security Deposit
shall become due and payable to Landlord to the extent required to
compensate Landlord for damages incurred, or to reimburse Landlord as
provided herein, in connection with any such Event of Default.
(d) In the event of a sale or leasing of the Building, Landlord shall
have the right to transfer the balance of the Security Deposit to the new
owner or to tenant. Upon any such transfer, Landlord shall thereupon be
released by Tenant from all liability for the return of the Security
Deposit; and Tenant agrees to look to the new landlord for the return of
such Security Deposit. If Tenant is not in
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default hereunder at the end of the Term, Landlord will, within thirty (30)
days after the expiration or earlier termination of the Lease, return the
Security Deposit, or so much as has not been applied by Landlord with all
accrued interest, to Tenant or the last permitted assignee of Tenant's
interest hereunder at the expiration of the Term.
(e) The Security Deposit shall be subject to reduction from the
initial Security Deposit of $250,000.00 to the amounts stated as the
"Minimum Required Security Deposit Balance" indicated in the table below
effective on the first day of the Lease Year identified below provided that
no Event of Default has occurred and is continuing:
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<TABLE>
<CAPTION>
MINIMUM REQUIRED SECURITY
LEASE YEAR DEPOSIT BALANCE
---------- -------------------------
<S> <C>
1-2 $250,000.00
3 $125,000.00
4-5 $ 66,803.76
6-15 $ 25,693.75
</TABLE>
5. ADDITIONAL RENT FOR REAL ESTATE TAXES
AND OPERATING EXPENSES
5.01 NET LEASE. This Lease is what is commonly called a "net lease," it
being understood that Landlord shall receive the rent set forth as Annual Base
Rent free and clear of any and all impositions, taxes, real estate taxes,
utilities, liens, charges or expenses of any nature whatsoever in connection
with the ownership, maintenance, repair and operation of the Premises, except as
specifically provided hereunder.
5.02 DEFINITIONS. The following terms shall have the meanings provided
below:
"TAXES": means all taxes, assessments and charges of every kind and
nature levied, assessed or imposed at any time by any governmental
authority upon or against the Project or any improvements, fixtures and
equipment of Landlord used in the operation thereof whether such taxes and
assessments are general or special, ordinary or extraordinary, foreseen or
unforeseen. Taxes shall include, without limitation, all general real
property taxes and general and special assessments, charges, fees or
assessments for all governmental services or purported benefits to the
Project, service payments in lieu of taxes, all business privilege taxes,
and any tax, fee or excise on the act of entering into this Lease or any
other lease of space in the Building, or on the use or occupancy of the
Building or any part thereof, or on the rent payable under any lease or in
connection with the business of renting space under any lease or in
connection with the business of renting space in the Building, that are now
or hereafter levied or assessed against Landlord by the United States of
America, the State of Connecticut, or any political subdivision, public
corporation, district or other political or public entity, and the legal
fees, experts' and other witnesses' fees, costs and disbursements incurred
in connection with proceedings to contest, determine or reduce Taxes. Taxes
shall also include any other tax, fee or other excise, however described,
that may be levied or assessed as a substitute for, or as an addition to,
in whole or in part, any other Taxes (including, without limitation, any
municipal income tax) and any license fees, tax measured or imposed upon
rents, or other tax or charge upon Landlord's business of leasing the
Building, whether or not now customary or in the contemplation of the
parties on the date of this Lease.
Taxes shall not include: (i) penalties or interest for late payment of
Taxes; and (ii) estate, succession, franchise and inheritance taxes, and federal
and state income taxes, unless due to a change in the method of taxation such
tax is levied or assessed against Landlord as a substitute for, or as an
addition to, in whole or in part, any other Tax that would constitute a Tax.
"TAX YEAR": means the period of twelve (12) months commencing on July
1st of each year or such other twelve (12) month period as may hereafter be
duly adopted as the fiscal year for real estate tax purposes for the Town
of Trumbull or other applicable governmental authority. The first Tax Year
for purposes of this Lease shall be the period July 1, 1999 to June 30,
2000. Each Tax Year thereafter shall consist of twelve (12) consecutive
calendar months following the end of the immediately preceding Tax Year.
"OPERATING EXPENSES": means all costs and expenses (including any
sales or other taxes thereon) paid or incurred on behalf of Landlord
(whether directly or through independent contractors) in the exercise of
its reasonable discretion, for:
(a) The ownership, management, operation, repair, maintenance, and
replacement, in a neat, clean, safe, good order, and condition, of the Project
as a first class office project, including but not limited
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to, the following:
(i) The Common Areas, including their surfaces, coverings, decorative
items, carpets, drapes, and window coverings, and including parking areas,
entry area, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, walking trails,
striping, bumpers, irrigation systems, lighting facilities, building
exteriors and roofs, fences, and gates;
(ii) All heating, ventilating, air conditioning, plumbing, electrical,
mechanical, septic and sewer systems, life safety equipment,
telecommunications, elevators and escalators, tenant directories, fire
detection systems, security system, emergency generator, sprinkler systems,
and other equipment used in common by, or for the benefit of, occupants of
the Building;
(b) Cleaning, janitorial, window washing, trash and waste disposal, snow
and ice removal, exterior and interior landscaping, pest extermination and
security services;
(c) Utility Expenses (excluding electricity supplied to the Premises and
billed to Tenant pursuant to Section 5.04 and electricity used by other tenants
of the Building within their leased space and billed directly to such tenants)
and other publicly mandated services to the Project;
(d) The operation and maintenance of the cafeteria and fitness center,
including, without limitation, the cost of insurance, utilities, repairs, and
payment of any insurance deductible amounts payable by Landlord;
(e) The premiums for fire, extended coverage, loss of rents, boiler,
machinery, sprinkler, public liability, property damage, earthquake, flood,
boiler and machinery and all other insurance relative to the Project and the
operation and maintenance thereof plus the cost of the deductible payments made
by Landlord in connection with a casualty;
(f) Salaries, wages, compensation, out-of-pocket expenses, fringe and union
benefits and labor costs (including the amount of any taxes, social security
taxes, unemployment insurance contributions, insurance, retirement, medical,
workers' compensation and other employee benefits) of janitors, janitresses,
engineers and other employees of Landlord, and any employees (below the
executive level) of Landlord's property management agent;
(g) All supplies, tools, materials, equipment and maintenance and service
contracts in connection therewith; telephone, stationery, office supplies and
other office costs of administration allocable to the Project; consulting fees,
legal fees and accounting fees and other expenses of maintaining and auditing
Project accounting records and preparing Landlord's Statements;
(h) Replacing, repairing and/or adding improvements in order to comply with
laws or governmental orders which have an effective date, or which are enacted
or promulgated after the date of this Lease, or the requirements of Landlord's
insurer, and any repairs or removals necessitated thereby, amortized over their
useful life as determined consistent with typical commercial office buildings in
Fairfield County (including interest at the rate of 12% per annum or such higher
rate as may have been paid by Landlord on funds borrowed for the purpose of
constructing such capital improvements);
(i) Replacing, repairing and/or adding any equipment, device, or capital
improvement to reduce (or avoid an increase in) operation or maintenance
expenses with respect to the Project, amortized over its useful life as
determined consistent with typical commercial office buildings in Fairfield
County (including interest on the unamortized balance as stated above in
subsection (h);
(j) Association fees and dues with respect to associations of owners of
first class office buildings located in Fairfield County, Connecticut reasonably
apportioned to the buildings owned by Landlord and its affiliates;
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(k) Any other expenses of any other kind whatsoever reasonably incurred in
managing, operating, maintaining, and repairing all or any part of the Project,
including any other service to be provided by Landlord that is elsewhere in this
Lease stated to be an "Operating Expense";
Operating Expenses shall also include a fee for management services whether
rendered by Landlord (or an affiliate) or a third-party property manager in an
amount not to exceed five percent (5%) of Rent (including the Electric Expense
pursuant to Section 5.04).
Operating Expenses shall not include: (i) utility expenses that are
separately metered for any individual tenant in the Building; (ii) any expense
for which Landlord is entitled to be reimbursed by a specific tenant or other
third party by reason of a special agreement or requirement of the occupancy of
the Building by such tenant; (iii) expenses for services provided by Landlord
for the exclusive benefit of a given tenant or tenants for which Landlord is
entitled to be directly reimbursed by such tenant or tenants; (iv) all costs,
fees and disbursements relating to activities for the solicitation, negotiation,
execution and enforcement of leases for space in the Building (including but not
limited to brokerage commissions or attorneys' fees therefor); (v) the costs of
alterations to, or the decorating or the redecorating of, space in the Building
leased to other tenants; (vi) the costs of selling, syndicating, financing or
mortgaging any of Landlord's interest in the Project; (vii) depreciation,
interest and principal payments on mortgages and other debt costs, if any;
(viii) repairs or other work needed because of fire or other casualty to the
extent of insurance proceeds received by Landlord.; (ix) executives' salaries
and other benefits above the grade of Building manager; (x) capital
expenditures, except as expressly provided above; (xi) overhead and profit
increment paid to affiliates of Landlord for services to the extent that such
costs exceed the costs of such services were they not rendered by an affiliate;
(xii) rental and other payments under any ground or underlying lease; (xiii)
costs to comply with Laws in effect as of the date of this Lease and mandate any
compliance action prior to the date of this Lease; (xiv) costs of removing any
Hazardous Materials in the Building; and (xv) Landlord's general corporate
overhead and general and administrative expenses.
"UTILITY EXPENSES": means all expenses paid or incurred on behalf of
Landlord for utility or utility services for the Project, including, but
not limited to, water, sewer, electric, gas, steam, fuel oil and chilled
water, together with any taxes on said costs.
"PROJECT EXPENSES": means the Taxes and Operating Expenses.
"TENANT'S PROPORTIONATE SHARE": Tenant's Proportionate Share shall be
a fraction, the numerator of which shall be the rentable area of the
Premises and the denominator of which shall be the rentable area of the
office portion of the Building. On the Commencement Date the Tenant's
Proportionate Share is ten and fifty-four hundredths percent (10.54%). The
Tenant's Proportionate Share shall be recalculated from time to time in the
event that there shall be a change in the rentable area of either the
Premises or the Building.
"LANDLORD'S STATEMENT": means an instrument containing a computation
of any Additional Rent due pursuant to the provisions of this Section 5.
5.03 PAYMENT OF ADDITIONAL RENT. Tenant shall pay Tenant's Proportionate
Share of Project Expenses monthly in advance beginning on the Rent Commencement
Date and continuing on the first day of each calendar month throughout the Term.
Landlord may require that Tenant pay Tenant's Proportionate Share of Project
Expenses based on Landlord's reasonable written estimate thereof delivered to
Tenant from time to time, and upon Tenant's receipt of any such notice from
Landlord, the amount of such monthly installment payments shall change
consistent with Landlord's written estimate. Within a reasonable time after the
end of each calendar year, Landlord shall furnish to Tenant a notice as to
whether the estimated payments paid by Tenant were more or less than actual
Project Expenses. Within fifteen (15) days following delivery of a Landlord's
Statement, Tenant shall pay to Landlord the amount of any underpayment of
Project Expenses. In the event that Tenant's payments exceed its liability for
Project Expenses, any such overpayment shall be credited against the monthly
installments of Rent that are next due and payable by Tenant under this Section.
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5.04 PAYMENT OF ELECTRIC EXPENSE.
(a) Tenant shall pay for the full cost (the "ELECTRIC EXPENSE") of the
electric energy consumed within the Premises as Additional Rent. The
Electric Expense shall be reasonably determined by Landlord from time to
time based upon the survey report of a third party engineering consultant
which shall take into consideration Tenant's electricity consumption,
actual hours of operation, the equipment and machinery in the Premises and
the rentable area of the Premises and the actual rate of payment
established by the utility company for such service. The Electric Expense
is initially established at the rate of $1.50 per rentable square foot of
the Premises for calendar year 1999. The Electric Expense shall increase
based upon the increases in rate charged by the utility company to the
Landlord and, at Landlord's election, by re- survey by Landlord's
consultant. The Electric Expense payable in respect of the Premises shall
constitute Additional Rent under this Lease (but shall not be included as
an Operating Expense), and shall be due and payable monthly in advance
beginning on the Commencement Date and continuing on the first day of each
calendar month during the Term. Any Electric Expense by any such meter
shall be payable within fifteen (15) days following Landlord's delivery of
its invoice to Tenant for the Electric Expense. The Additional Rent payable
under this subsection (a) does not include the Electric Expense associated
with "Tenant's Special Equipment" (as defined below). Tenant may, at its
own cost and expense, retain its own independent electrical consultant to
survey its electric usage. If Tenant's survey indicates a reasonable basis
for disputing Landlord's Electric Expense charge, then Tenant shall provide
Landlord with a copy of its survey and any relevant information requested
by Landlord. If the parties cannot agree on a satisfactory resolution of
the dispute within thirty (30) days, then both parties agree to engage in a
mediation or arbitration process in which an independent electrical
engineer mutually agreeable to both parties resolves the dispute. Landlord
and Tenant agree that the Electric Expense payable under Section 5.04(a)
shall be equitably adjusted by an appropriate deduction for the amount of
rentable square feet in Tenant's data center because such area is subject
to payment of Electric Expense based upon the "check" meter pursuant to
Section 5.04(b) below.
(b) Tenant shall install a "check" meter at its expense as part of the
Leasehold Improvements, to measure Tenant's consumption of all electricity
used by Tenant in connection with its use and operation of its data center,
including, without limitation, emergency generator, computer systems and
supplemental HVAC as described in Exhibit E (the "TENANT'S SPECIAL
EQUIPMENT") and all related lighting and power within the data center.
Tenant shall pay for its electric usage based upon the electric power
consumption evidenced by Landlord's reading of the "check" meter and the
then prevailing utility rate established by the electric utility company
providing such power to the Premises. The Electric Expense payable in
respect of Tenant's Special Equipment shall constitute Additional Rent
under this Lease, and shall be due and payable within fifteen (15) days
following Landlord's delivery of its invoice to Tenant for such Electric
Expense.
5.05 LANDLORD'S STATEMENTS AND TENANT'S INSPECTION RIGHTS.
(a) Landlord's Statements shall be rendered to Tenant, but Landlord's
failure to render Landlord's Statement with respect to any Tax Year or
calendar year or Landlord's delay in rendering said Landlord's Statement
beyond a date specified herein shall not prejudice Landlord's right to
render a Landlord's Statement with respect to that or any subsequent Tax
Year or calendar year, except that Tenant shall not be obligated to pay any
item of Additional Rent which is billed for the first time more than
twenty-four (24) months after the end of the applicable annual period for
which such Additional Rent is payable. The obligations of Landlord and
Tenant under the provisions of this Section with respect to any Additional
Rent incurred during the Term shall survive the expiration or any sooner
termination of the Term. If Landlord fails to give Tenant a statement of
projected Operating Expenses prior to the commencement of any calendar
year, Tenant shall continue to pay Operating Expenses in accordance with
the previous statement, until Tenant receives a new statement from
Landlord.
(b) During the ninety (90) day period after receipt of any Landlord's
Statement, Tenant may commence to inspect and audit Landlord's records
relevant to the cost and expense items reflected in such Landlord's
Statement at a reasonable time mutually agreeable to Landlord and Tenant
during Landlord's usual business hours. Each Landlord's Statement shall be
conclusive and binding upon
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Tenant unless within ninety (90) days after receipt of such Landlord's
Statement Tenant shall notify Landlord that it disputes the correctness of
Landlord's Statement, specifying the respects in which Landlord's Statement
is claimed to be incorrect. Pending the determination of such dispute as
hereinafter provided, Tenant shall pay Additional Rent in accordance with
the applicable Landlord's Statement, and such payment shall be without
prejudice to Tenant's position. In the event Tenant disputes the
computation set forth on Landlord's Statement, Tenant shall have the right
to retain an independent certified public accountant, at Tenant's sole cost
and expense, to inspect the records of the material reflected on such
Landlord's Statement. If Tenant prevails in any dispute concerning the
accuracy of any Landlord's Statement and Tenant has paid Additional Rent
with respect thereto in excess of the amount that was actually due and
payable for the period in question, Tenant shall be entitled to a credit
against Additional Rent thereafter payable in the amount of Tenant's
overpayment of Additional Rent resulting from compliance with Landlord's
Statement or, if no further Additional Rent is to come due pursuant to the
terms of this Lease, then Landlord shall refund such overpayment to Tenant,
which obligation shall survive the expiration of this Lease.
(c) In the event that Tenant disputes the inclusion or amounts of any
item or items of Operating Expenses, and such dispute is not settled by
agreement between Landlord and Tenant within thirty (30) days after notice
has been delivered to Landlord, the dispute as to whether such item, items
or amounts have been properly included in any such Landlord's Statement
shall be determined by a firm of independent certified public accountants
(the "Accountants"), which firm shall be mutually acceptable to Landlord
and Tenant. The Accountants, Landlord, and Tenant all shall be entitled to
review all records relating to the disputed items, and the parties shall be
granted a hearing before the Accountants prior to the rendering of a
determination by the Accountants. The determination of any such matter by
the Accountants shall be final and binding upon both Landlord and Tenant
and the expenses involved in such determination shall be borne by the party
against whom the decision is rendered by the Accountants; provided, that if
more than one item is disputed and the decision shall be against each party
in respect of any item or items so disputed, the expenses shall be
apportioned according to the number of items decided against each party.
Notwithstanding the foregoing, Landlord and Tenant agree that any "Big
Five" firm of independent certified public accountants shall be acceptable
to both parties.
(d) As a condition to Landlord providing Tenant with access to its
records, Tenant agrees that all such information shall be treated
confidentially and will not be disclosed by Tenant or any directors,
officers, employees, affiliates, agents, advisors or representatives, and
Tenant shall be responsible for the compliance of such parties with this
confidentiality agreement, except that Tenant may disclose such information
to its attorneys, accountants and other professional consultants and as may
be required by law. Tenant agrees to sign a confidentiality agreement to
such effect and obtain a similar agreement from such other persons
identified in the preceding sentence.
(e) Any delay or failure of Landlord in billing any Additional Rent as
provided herein shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such rent adjustments hereunder.
5.06 ADDITIONAL RENT ADJUSTMENTS. If the Term shall expire on a date other
than December 31st, any Additional Rent for the Lease Year in which the
expiration date shall occur shall be apportioned (based upon the immediately
preceding 12 month period) in that percentage which the number of days in the
period from January 1st of such Lease Year to such date of expiration, both
inclusive, shall bear to the total number of days in the calendar year in which
such expiration occur
5.07 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment,
and all other personal property of Tenant contained in the Premises or
elsewhere. If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay to Landlord the taxes attributable to
Tenant within fifteen (15) days after receipt of a written statement setting
forth the taxes applicable to Tenant's property.
6. SERVICES AND UTILITIES
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6.01 SERVICES. Landlord shall provide the following services to the
Building and Premises (subject to Tenant's reimbursement and payment obligations
therefor in accordance with the operation of Section 5 hereof):
(a) Janitor services in and about the Premises in accordance with the
cleaning specifications set forth in Exhibit D, Saturdays, Sundays and
union and state and federal government holidays (the "HOLIDAYS") excepted.
Tenant shall not provide any janitor service without Landlord's written
consent. If Landlord's consent is given, such janitor services shall be
subject to Landlord's supervision and control, but shall be performed at
Tenant's sole cost and responsibility.
(b) Heat and air-conditioning as required to maintain comfortable
temperature (excluding specialized temperature and humidity control for
computers, printers and other equipment) daily from 8:00 a.m. to 6:00 p.m.
Monday through Friday, Saturdays from 8:00 a.m. to 12:00 noon ("NORMAL
BUSINESS HOURS"), the remainder of Saturdays, Sundays and Holidays
excepted, consistent with such service typical of comparable buildings in
Fairfield County. Overtime HVAC and other services shall be available as
provided in Section 6.02 hereof.
(c) Electric current only, in amounts required for normal lighting by
building standard lighting overhead fixtures and for Tenant's normal
business operations, including without limitation, personal computers,
copiers, facsimile machines and other ordinary business equipment, and
Tenant's Special Equipment, subject, however, to Section 6.03 and
Landlord's approval of Tenant's final electrical plan for the Premises (but
specifically excluding electric current surge protection).
(d) Hot and cold running water for cleaning, drinking, lavatory and
toilet purposes drawn through fixtures installed by Landlord or by Tenant
with Landlord's written consent. Tenant shall pay, at rates fixed by
Landlord as Additional Rent, for water used for any purpose other than
drinking, lavatory or toilet purposes. If Tenant's water use increases
beyond customary office user levels, Landlord shall have the right to
install a water meter at Tenant's expense and to charge Tenant as
Additional Rent for its water consumption in the Premises in accordance
with readings from such meter.
(e) Window washing of all windows in the Premises both inside and out,
weather permitting at intervals established by Landlord pursuant to the
cleaning specifications set forth in Exhibit D hereto.
(f) Maintenance of the Common Areas so that they are clean and free
from accumulations of snow, debris, filth, rubbish and garbage.
(g) Access by Tenant to the Premises and the use of designated
elevator service by Tenant 24 hours per day, seven (7) days per week, 52
weeks per year, subject to the operation of Landlord's computerized access
system at Building entrances and the Rules and Regulations.
6.02 ADDITIONAL SERVICES. Landlord shall impose reasonable charges and may
establish reasonable rules and regulations for the following: (a) the use of any
heating, air-conditioning, ventilation, or other utility services or equipment
by Tenant at any time other than during the hours set forth in Section 6.01(b)
above ("OVERTIME HVAC"); (b) the usage of any additional or unusual janitorial
services required because of any non-building standard improvements in the
Premises, the carelessness of Tenant, the nature of Tenant's business (including
the operation of Tenant's business other than during the hours set forth in
Section 6.01(b); and (c) the removal of any refuse and rubbish from the Premises
except for discarded material placed in wastepaper baskets and left for emptying
as an incident to Landlord's normal cleaning of the Premises in accordance with
Exhibit D. The expense charged by Landlord to Tenant for any Overtime HVAC shall
be based on Landlord's actual cost for such utility services as charged to
Landlord by the utility companies providing such services, which is currently
$35.00 per hour. This amount shall constitute Additional Rent and shall be
payable by Tenant within fifteen (15) days following Landlord's delivery of
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its invoice to Tenant for such charges.
6.03 EXCESSIVE CURRENT.
(a) Tenant shall comply with the conditions of occupancy and connected
electrical load reasonably established by Landlord (based upon comparable
first-class office buildings in Fairfield County) for the Building and the
rules, regulations, terms and conditions applicable to the service
equipment, wiring and requirements of the utility servicing the Building,
as well as the Rules and Regulations of Landlord. Tenant covenants that at
no time shall the use of electrical energy in the Premises exceed the
capacity of the existing feeders or writing installations then serving the
Premises. Tenant shall not use utilities or other services in excess of the
services described above in Section 6.01 or in a manner which exceeds or
interferes with any Building systems or Landlord's ability to provide
services to other tenants in the Building. Except as may be permitted by
Section 8.03, Tenant shall not, without Landlord's prior consent in each
instance, (i) connect air conditioning equipment, computers, (excluding
personal computers and printers and office copiers and facsimile machines),
major appliances (excluding coffee makers, microwave ovens and other
similar food preparation appliances) or heavy duty equipment ("HIGH USAGE
EQUIPMENT") to the Building's electrical or mechanical system; or (ii) make
or perform any alteration to wiring installations or other electrical
facilities in or serving the Premises or any additions to the electrical
fixtures, business machines, office equipment or other appliances in the
Premises which utilize electric energy.
(b) Landlord may survey Tenant's use of services from time to time.
Tenant shall pay Landlord all costs arising out of any excess use or other
connection of High Usage Equipment, including the cost of all repairs and
alterations to the Building's mechanical and electrical systems (including
the installation of meters) and the cost of additional electricity made
available to Tenant, if any. Such costs shall constitute Additional Rent
and Tenant shall pay such amount within five (5) days of Landlord's demand
therefor and as periodically billed to Tenant thereafter.
6.04 UTILITY ADDITIONS. Landlord reserves the right to install new or
additional utility facilities throughout the Building and Common Areas for the
benefit of Landlord or Tenant, or any other tenant of the Building, including,
but not by way of limitation, such utilities as plumbing, electrical systems,
communication systems, and fire protection and detection systems, so long as
such installations do not unreasonably interfere with Tenant's use of the
Premises.
6.05 LANDLORD'S ACCESS.
(a) Landlord and Landlord's agents and representatives shall have the
right to enter the Premises at all reasonable times upon twenty-four (24)
hours prior notice to Tenant (except in emergencies when no notice shall be
required): (i) to supply any service to be provided by Landlord to Tenant
under this Lease, (ii) to show the Premises to "LANDLORD'S MORTGAGEE" (as
defined in Section 14.01) and to prospective purchasers, lenders and
tenants, and (iii) to alter, improve or repair the Premises and any portion
of the Building. Landlord may at any time place on or about the Premises,
the Building, or the Project "For Sale" signs and Landlord may at any time
during the last twelve (12) months of the term place on or about the
Premises "For Lease" signs. All activities of Landlord pursuant to Section
6.05 shall be without abatement of Rent and Landlord shall not have any
liability to Tenant for the same. For the purpose of any alterations or
repairs, Landlord may erect, use and maintain scaffolding, pipes, conduits
and other necessary structures in and through the Premises where reasonably
required by the character of the work to be performed, provided that the
entrance to the Premises shall not be blocked thereby, and the business of
Tenant shall not be subject to any unreasonable interference or
interruption.
(b) If any excavation, substructure or other construction work is made
adjacent to, upon or within the Building, or any part thereof, Tenant shall
afford to any and all persons causing or authorized to cause such
excavation, substructure or construction work license to enter upon the
Premises for the purpose of doing such work as such persons shall deem
necessary to preserve the Building or any portions thereof from injury or
damage and to support the same by proper foundations, braces and supports
without any claim for damages or indemnity or abatement of any rentals, or
of a constructive or actual
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eviction of Tenant.
(c) Landlord shall have the right to retain keys to the Premises and
unlock all doors in or upon the Premises other than files, vaults, and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forcible or
unlawful entry or detainer of the Premises or an eviction. Tenant waives
any charges for damages or injuries or interference with Tenant's property
or business in connection therewith, provided that Landlord takes
reasonable steps to safeguard Tenant's property.
6.06 INTERRUPTION OF SERVICES. There shall be no abatement of Rent and
Landlord shall not be liable in any respect whatsoever for the inadequacy,
stoppage, interruption, or discontinuance of any utility or service due to riot,
strike, labor dispute, breakdown, accident, repair, or other cause or due to
cooperation with governmental request or directions. The foregoing
notwithstanding, in the event of any interruption or stoppage of any essential
utility service which Landlord is required to provide, and such interruption or
stoppage is for more than ten (10) consecutive days after written notice by
Tenant to Landlord, is of a nature which prevents Tenant from using the Premises
for the conduct of its business, is not rendered necessary by the negligence or
misconduct of Tenant or any Tenant Parties, and is within Landlord's reasonable
control, then the Rent shall be abated at the rate of one (1) day for each day
of interruption and stoppage after the tenth (10th) consecutive day after notice
by Tenant to Landlord of such interruption or stoppage until such service is
restored.
6.07 EASEMENTS. Landlord reserves the right, from time to time, to grant
easements and rights, make dedications, agree to restrictions and record maps
affecting the Project as Landlord may deem necessary or desirable, so long as
such easements, rights, dedications, restrictions, and maps do not unreasonably
interfere with the use of the Premises by Tenant; and this Lease shall be
subordinate to such instruments. Tenant shall sign any of the aforementioned
documents upon request of Landlord and failure to do so shall constitute a
material default of this Lease by Tenant without the need for further notice to
Tenant. The obstruction of Tenant's view, air, or light by any structure erected
in the vicinity of the Building, whether by Landlord or third parties, shall in
no way affect this Lease or impose any liability upon Landlord.
7. CONDUCT OF BUSINESS BY TENANT
7.01 PERMITTED USE. The Premises shall be used and occupied for the use
specified in Section 1.04 only. Tenant shall not use or occupy, or permit the
use or occupancy of, the Premises or any part thereof in any illegal manner, or
in any manner that, in Landlord's reasonable judgment, would adversely affect or
interfere with any services required to be furnished by Landlord to Tenant or to
any other tenant or occupant of the Building, or with the proper and economical
rendition of any such service, or with the use and enjoyment of any part of the
Building by any other tenant or occupant. Tenant agrees that it will not exceed
the maximum floor bearing capacity for the Premises.
7.02 SIGNAGE. Landlord shall provide building standard signage identifying
Tenant by name in the main Building lobby directory and on each floor occupied
by the Tenant under this Lease. Tenant has no right to any signage, monuments,
graphics or advertising on the exterior of the Premises or any other location in
or at the Project. Landlord shall have the absolute and exclusive right to
approve or disapprove the content, design, size and location of any and all
proposed signage and monuments proposed to be erected and/or maintained at the
Premises or Project by Tenant.
7.03 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS.
(a) Tenant shall, at Tenant's expense, comply with all applicable
statutes, laws, ordinances, rules, regulations and orders (the "LAWS") and
with all covenants and restrictions of record and requirements of any
insurance underwriters or rating bureaus now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy
from that now existing, during the Term, relating in any manner to the
Premises and the occupation and use by Tenant of the Premises. Tenant shall
conduct its business in a lawful manner and shall not use or permit the use
of the Premises or the Common Areas in
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any manner that will tend to create waste or a nuisance or shall tend to
disturb other occupants of the Project. Tenant will obtain and maintain in
full force and effect any and all licenses and permits necessary for its
use. Tenant shall not be required to make any structural Alterations in or
to the Premises in order to comply with the foregoing, unless such
Alterations shall be necessitated or occasioned, in whole or in part: (i)
by the use or occupancy or manner of use, occupancy or operation of the
Premises by Tenant, or (ii) by reason of a breach of any of Tenant's
covenants, warranties, or agreements hereunder, or (iii) by the acts,
omissions or negligence of Tenant, or any of its officers, employees,
contractors, agents, invitees, licensees or subtenants (the "TENANT
PARTIES"). Any work or installation made or performed by or on behalf of
Tenant pursuant to the provisions of this Section shall be made in
conformity with, and subject to the provisions of Sections 8.02, 8.03 and
8.04.
(b) Tenant shall not take or permit any action that would cause the
Premises or Building to become an "establishment". Tenant hereby grants
Landlord the right to inspect the Premises on not less than twenty-four
(24) hours notice to Tenant (except in the event of an emergency in which
case Landlord will use reasonable efforts commensurate with the nature of
the emergency condition to give Tenant prior notice), throughout the Term
of this Lease, to determine that Tenant is in compliance with applicable
laws and Tenant agrees to provide Landlord with all information necessary
to ascertain that Tenant is in compliance with applicable laws. Tenant
shall cooperate with Landlord in satisfying any legal requirements imposed
upon Landlord relating to Tenant's operations and, upon Landlord's written
request, shall furnish complete information to Landlord with regard to its
operations. If, as a result of Tenant's breach of its agreements in this
Section 7, the Premises or the Building becomes an establishment and
Landlord is unable to file a "Form I" or "Form II" upon a transfer of the
Premises or the Building, Tenant shall sign either a "Form III" or "Form
IV" as appropriate, as the certifying party. Landlord shall also have all
of its rights and remedies at law and in equity with respect to such
breach. The terms "establishment", "Form I", "Form II", "Form III" and
"Form IV" and "certifying party" are defined in C.G.S.A. Section 22a-134.
(c) Landlord shall comply with all Laws in effect from time to time
during the Term that shall impose any duty on Landlord with respect to the
Common Areas (but subject to the use of any available exemptions and
exclusions), and excluding any matters that arise from the acts or
omissions of Tenant or other tenants of the Building or that are Tenant's
responsibility pursuant to the provisions of this Section 7 or the
responsibility of other tenants of the Building.
7.04 AMERICANS WITH DISABILITIES ACT.
(a) Landlord covenants and agrees that Landlord's Work and all
alterations, improvements, and additions to the Premises constructed by
Landlord pursuant to the terms and provisions of this Lease shall be
constructed in accordance with the Americans with Disabilities Act (the
"ACT"), such that Landlord's Work and all such alterations, improvements,
and additions to the Premises constructed by Landlord will be in compliance
with the Act. Landlord is responsible for complying with the Act with
respect to the elevators and lavatories located in the Common Areas of the
Building.
(b) Tenant covenants and agrees that all alterations, improvements,
and additions to the Premises constructed by Tenant, whether prior to or
after the date Tenant takes possession of the Premises, shall be
constructed in accordance with the Act. In the event that, subsequent to
the date Tenant takes possession of the Premises, Tenant (or Landlord on
Tenant's behalf) performs any alterations, improvements, and additions to
the Premises, whether by virtue of expansion, extension, or otherwise,
Tenant agrees to and shall be responsible for all cost and expense incurred
in connection with any alterations, improvements, and additions necessary
to ensure compliance with the Act. It is the intent of this Section that
any additional alterations, improvements, or additions required by the Act
with regard to the Premises after the date Tenant takes possession of the
Premises, whether resulting from amendments to the Act or otherwise, shall
be the sole responsibility of Tenant.
(c) Tenant covenants and agrees to and does hereby indemnify, defend,
and hold Landlord harmless from and against all liability (including,
without limitation, attorneys' fees and court costs) that Landlord may
actually sustain by reason of Tenant's breach of its obligations under this
Section.
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In the event that Tenant fails to comply with its obligations under this
Section for a period of fifteen (15) days after written notice from
Landlord to Tenant specifying the action required to be taken (or such
longer period, but not in excess of forty-five (45) days if Tenant is
diligently and continuously pursuing such corrective action), Landlord
shall have the right, but not the obligation, to enter into the Premises
and perform such action on behalf of Tenant. In such event, Landlord shall
not be liable for and Tenant hereby waives any and all claims against
Landlord arising out of any damage or injury to the Premises or any
property situated therein and Landlord shall have no liability to Tenant
for any interruption of Tenant's operations conducted in or about the
Premises. Any and all costs and expenses incurred by Landlord in performing
such action on behalf of Tenant shall be reimbursed by Tenant to Landlord
upon demand and the failure to do so shall, at the option of Landlord,
constitute a default under this Lease.
7.05 HAZARDOUS MATERIALS.
(a) "HAZARDOUS MATERIALS" shall mean asbestos, urea formaldehyde,
petroleum, petroleum products, fuel oil, waste oil, explosives, radioactive
materials, medical waste, pollutants, ignitable materials, corrosive
materials, including, without limitation, "hazardous materials", "hazardous
wastes", "hazardous substances", and "toxic substances", as such terms are
defined in the "ENVIRONMENTAL LAWS", and any other element, compound,
mixture, solution or substance which may pose a present or potential hazard
to human health or the environment or that are contained on any list which
is adopted by the United States Environmental Agency ("EPA"), the State of
Connecticut or any political subdivision thereof.
(b) "ENVIRONMENTAL LAWS" shall mean and include any Federal, State, or
local statute, law, ordinance, code, rule, regulation, order, or decree (i)
regulating or relating to protection of human health or the environment
concerning the "DISPOSAL" (as hereinafter defined) of any Hazardous
Materials, or (ii) regulating or imposing liability or standards of conduct
concerning the Disposal of any Hazardous Materials, as now or at any time
hereafter in effect including, without limitation, Title 22a "Environmental
Protection" of the Connecticut General Statutes, including, but not limited
to, Sections 22a-448 through 22a-457 of the Connecticut General Statutes
(the "SUPERLIEN STATUTE"), the Federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C.ss.9601 et
seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C.ss.9601 et
seq., the Federal Toxic Substances Control Act, 15 U.S.C.ss.2601 et seq.,
the Federal Resource Conservation and Recovery Act as amended, 42
U.S.C.ss.6901 et seq., the Federal Hazardous Materials Transportation Act,
49 U.S.C.ss.1801 et seq., the Federal Clean Air Act, 42 U.S.C.ss.4701 et
seq., the Federal Water Pollution Control Act, 33 U.S.C.ss.1251 et seq.,
and all laws, statutes, rules, ordinances, and all rules and regulations of
the EPA, or any other state or federal department, board, or agency, or any
other agency or governmental board or entity having jurisdiction over the
Project, as any of the foregoing have been, or are hereafter created,
amended, supplemented, reauthorized, superseded and replaced from time to
time. "DISPOSAL" shall mean any actual or alleged presence, spill, release,
transportation, migration, generation, treatment, processing, storage use
or disposal of Hazardous Materials on, in, under, above or emanating from
any portion of the Project by any person or entity or other source.
(c) Tenant shall not cause or permit any Hazardous Materials to be
brought upon, stored, used, generated, released, or disposed of, in, above,
on or under the Premises or the Project, without the prior written consent
of Landlord, which consent may be granted or withheld in Landlord's sole
discretion. Landlord, upon prior written notice, will permit Tenant to
store and use reasonable quantities of commercial, office-related products
which may contain Hazardous Materials provided that such products are
customarily used in the ordinary course of the business operations by
office tenants, Tenant obtains and maintains any necessary permits therefor
from the applicable governmental authorities, and Tenant stores, handles,
uses and disposes of such products in compliance with all applicable
Environmental Laws and the terms and conditions of this Lease and the Rules
and Regulations.
(d) If Tenant breaches any of its obligations set forth in this
Section 7, or if the presence of Hazardous Materials at the Premises,
Building or Project which is caused or permitted by Tenant results in
contamination of the Premises, Building, or any other part of the Project,
or if contamination of the Premises, Building, or Project by Hazardous
Materials otherwise occurs for which
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Tenant or any Tenant Parties are responsible, then Tenant shall indemnify,
defend with counsel reasonably acceptable to Landlord, and hold Landlord
and any mortgagee of the Building fully harmless, from and against any and
all liability, loss, suits, claims, actions, causes of action, remediation
orders, proceedings, demands, costs, penalties, damages, fines and
expenses, including, without limitation, diminution in value of the
Building or Project, damages for the loss or restriction on use of rentable
or usable space or floor area in or of any amenity of the Building or
Project, damages arising from any adverse impact on leasing space in the
Building or Project, sums paid in settlement of claims, attorneys' fees,
consultants' fees, laboratory fees and clean-up costs, and the costs and
expenses of investigating and defending any claims or proceedings,
resulting from, or attributable to: (i) the presence of any Hazardous
Materials on the Premises or the Project arising from the action, inaction
or negligence of Tenant or any Tenant Parties, or arising out the
generation, storage, treatment, handling, transportation, disposal or
release by Tenant of any Hazardous Materials at or near the Premises or the
Project, and (ii) any violation(s) by Tenant of any Environmental Law, and
(iii) default of any of its agreements under Section 7 of this Lease. This
indemnification of Landlord by Tenant shall survive expiration or
termination of this Lease and includes, without limitation, costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state, or
local governmental agency or political subdivision because of Hazardous
Materials present in, on, or under the Premises or the Project.
(e) Without limiting the foregoing or Landlord's rights under Section
13.03, if the presence of any Hazardous Materials which is caused or
permitted by Tenant or any Tenant Parties, results in any contamination of
the Premises, Building, or Project, at Landlord's written direction, Tenant
shall promptly take all actions, at its sole expense, as are necessary to
return the Premises, Building, and Project to the condition existing prior
to the introduction of any such Hazardous Materials; provided that
Landlord's approval of such actions shall first be obtained. Tenant shall
promptly notify Landlord of any such contamination.
(f) Landlord represents that, to its knowledge, on the date hereof,
the Premises does not contain any friable asbestos nor any
asbestos-containing materials. If any friable asbestos is found in the
Premises during the performance by Tenant of its Leasehold Improvements,
which was not introduced into the Premises by Tenant or Tenant Parties,
Landlord, at its sole cost and expense, shall remove such asbestos and
repair any damage caused by such removal.
7.06 TENANT'S FAILURE TO MAINTAIN. If Landlord gives Tenant written notice
of the necessity of any repairs or replacements required to be made under
Section 8.02 and Tenant fails to commence diligently to cure the same within
twenty (20) days thereafter (except that no notice will be required in case of
any emergency repair or replacement necessary to prevent substantial damage or
deterioration), Landlord, at its option and in addition to any other remedies,
may proceed to make such repairs or replacements and the expenses incurred by
Landlord in connection therewith plus 10% thereof for Landlord's supervision,
shall be due and payable from Tenant in accordance with Section 4.04 hereof, as
Additional Rent; provided, that Landlord's making any such repairs or
replacements shall not be deemed a waiver of Tenant's default in failing to make
the same.
8. MAINTENANCE, REPAIRS, ALTERATIONS AND ADDITIONS
8.01 MAINTENANCE AND REPAIR - LANDLORD'S OBLIGATIONS. Landlord will
maintain in good repair, subject to reasonable wear and use: (a) the Common
Areas, (b) the roof, foundation, exterior and load-bearing walls (including
exterior windows and doors), the structural floor slabs and all other structural
elements of the Building, and (c) the plumbing, heating, ventilating, air
conditioning, elevator, electrical and other Building mechanical systems. The
cost of this maintenance and repair shall be included in Operating Expenses and
shall be subject to reimbursement under Section 5 hereof. Maintenance and repair
expenses caused by Tenant's negligence or willful misconduct or breach of this
Lease shall be paid directly to Landlord by Tenant in accordance with Section
4.04 hereof, and shall not constitute an Operating Expense. Landlord shall not
be liable for and there shall be no abatement of any Rent with respect to any
injury to or interference with Tenant's business arising from any repairs,
maintenance, alteration or improvement in or to any portion of the Project,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein, except as provided in Section 6.06.
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8.02 MAINTENANCE AND REPAIR - TENANT'S OBLIGATIONS.
(a) During the Term, Tenant shall take good care of the Premises and
fixtures therein and maintain them in good order, condition, and repair
equal to the original work, ordinary and reasonable wear excepted, and
shall suffer no waste. During the Term, Tenant shall maintain at its own
expense in good order, condition, and repair to the reasonable satisfaction
of Landlord any plumbing facilities and electrical fixtures and devices
(including replacement of all lamps, starters and ballasts) located within
the Premises. Upon surrender of the Premises to Landlord, Tenant shall
deliver the Premises to Landlord, broom clean, in as good order, condition,
and repair, as they were upon delivery of possession to Tenant, ordinary
and reasonable wear excepted. Without limiting the foregoing, Landlord may
require that any such maintenance and repairs be performed by Landlord at
Tenant's expense.
(b) Tenant shall repair, at its cost, all deteriorations or damages to
the Project occasioned by its negligent acts or omissions or willful
misconduct. If Tenant does not make such repairs to the Building within
twenty (20) days following notice from Landlord, Landlord may, but need
not, make such repairs, and Tenant shall pay the cost thereof as provided
in Section 7.06 hereof. All repairs and replacements made by or on behalf
of Tenant shall be made and performed in accordance with the "CONSTRUCTION
STANDARDS", as defined in Section 8.03 (b) and the provisions of Section
8.03(c).
8.03 ALTERATIONS.
(a) Subject to the provisions of Section 3.03, Tenant shall not make
or permit any improvements, installations, alterations or additions
("ALTERATIONS") in or to the Premises, the Building or the Project;
provided, however, Tenant may, with Landlord's advance written consent,
which consent shall not be unreasonably withheld, make Alterations to the
Premises that do not involve or affect either structural portions of the
Premises or the Building or any of the Building's HVAC, mechanical,
electrical, plumbing or other systems or equipment (the "BUILDING
SYSTEMS"). If, on or before the date Landlord approves Tenant's Plans for
Alterations, Landlord notifies Tenant that Landlord is reserving the right
to require Tenant to remove those Alterations that exceed or are different
than the customary standard types of Alterations for general, executive and
administrative business offices, then Landlord, prior to the Expiration
Date, may require Tenant to remove such specified Alterations and to repair
in a good and workmanlike manner any damage caused by such removal.
(b) All Alterations (except the Leasehold Improvements which are
addressed in Section 3) permitted by Landlord and made by or on behalf of
Tenant shall be made and performed: (a) at Tenant's cost and expense and at
such time and in such manner as Landlord may designate, insured by a lien
and completion bond in an amount reasonably satisfactory to Landlord, (b)
by contractors or mechanics approved by Landlord (which approval shall not
be unreasonably withheld), who shall carry liability insurance of a type
and in such amounts as Landlord shall reasonably require, naming Landlord
and Tenant as additional insureds, (c) in a good and workmanlike manner,
(d) so that same shall be at least equal in quality, value, and utility to
the original work or installation, (e) in accordance with the Rules and
Regulations for the Building adopted by Landlord from time to time and in
accordance with all applicable laws and regulations of governmental
authorities having jurisdiction over the Project, and (f) pursuant to
plans, drawings and specifications (the "TENANT'S PLANS") which have been
reviewed and approved by Landlord prior to the commencement of the
Alterations and approved by, and filed with, all applicable governmental
authorities, and subject to all other terms and conditions of this Lease,
including, but not limited to, Section 7.04 (collectively the "CONSTRUCTION
STANDARDS"). Tenant may make Alterations which are merely decorative or
cosmetic, including painting, carpeting and wall covering, upon prior
notice to Landlord (but without Landlord's prior consent).
(c) Before commencing any such work, Tenant shall obtain all required
building permits and governmental approvals and provide copies thereof to
Landlord together with certificates of insurance evidencing all required
insurance coverages. Tenant shall comply with all of the conditions of any
such permits and approvals and shall submit to Landlord a final certificate
of occupancy upon completion of any Alterations, together with final
as-built plans and specifications. Tenant shall pay, when
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due, all claims for labor and materials furnished to, or for, Tenant for
use in the Premises. Tenant shall have no right to enter upon, or alter in
any way, the roof of the Building without the prior written consent of
Landlord.
(d) All Alterations made by Tenant shall become upon installation the
property of Landlord and remain upon and be surrendered with the Premises
at the expiration of the Lease term, unless Landlord requires their removal
pursuant to Section 8.06. Any trade fixtures installed and paid for by
Tenant may be removed by Tenant during the term of this Lease and shall
upon demand by Landlord be removed upon expiration of the Term. Tenant
shall in all events promptly repair any damage caused by removal of trade
fixtures. Following the completion of the Leasehold Improvements, Tenant
shall have the right to depreciate that portion of the cost of the
Leasehold Improvements paid by Tenant in excess of the Construction
Allowance paid by Landlord. At Landlord's request, Tenant shall provide
Landlord with its depreciation schedule and related information at least
thirty (30) days prior to Tenant filing the same with any taxing
authorities.
(e) Tenant, at its sole cost and expense and in compliance with the
terms of this Lease, may install Tenant's Special Equipment, as described
in Exhibit E hereto, subject to Landlord's review and approval of the plans
and specifications and proposed locations therefor and any electrical lines
or wiring needed to operate such equipment. Landlord agrees that its
approval shall not be unreasonably withheld. All work associated with such
installations shall be performed by Tenant. Tenant shall: (i) pay Landlord
any fees and costs incurred by Landlord relating to Tenant's installation
of such equipment as Additional Rent pursuant to Section 4.04 hereof; (ii)
maintain, service and repair all such equipment, wiring and appurtenances
pursuant to the terms of this Lease; and (iii) obtain all required permits
and approvals and keep such equipment and the areas in which the same are
located in compliance with all applicable laws, at its cost and expense.
8.04 NO LIENS.
(a) Tenant shall keep the Premises, Building and Project free from any
liens or encumbrances arising out of any work performed, material furnished
or obligations incurred by or for Tenant or any person or entity claiming
through or under Tenant. Prior to Tenant performing any construction or
other work on or about the Premises for which a lien could be filed against
the Premises or the Building or the Project, Tenant shall obtain
satisfactory lien waiver agreements with each contractor who is to perform
such work or furnish any material. Any claim to, or lien upon, the Premises
or the Building or the Project arising from any act or omission of Tenant
shall accrue only against the leasehold estate of Tenant and shall be
subject and subordinate to the paramount title and rights of Landlord in
and to the Premises, Building and the Project.
(b) If any mechanics' or other lien shall be filed against the
Premises, the Building or the Project purporting to be for labor or
material furnished or to be furnished at the request of the Tenant, then
Tenant shall at its expense cause such lien to be discharged of record by
payment, bond or otherwise, within thirty (30) days after the filing
thereof. If Tenant shall fail to cause such lien to be discharged of record
within such thirty (30) day period, in addition to any other remedy
available to it for such a default, Landlord may cause such lien to be
discharged by payment, bond or otherwise, without investigation as to the
validity thereof or as to any offsets or defenses thereto, and Tenant
shall, upon demand, reimburse Landlord for all amounts paid and costs
incurred including attorneys' fees, in having such lien discharged of
record.
8.05 TENANT'S PROPERTY. Any trade fixtures, furnishings, equipment and
personal property placed in the Premises that are removable without damage to
the Building or the Premises, whether the property of Tenant or leased by
Tenant, are herein sometimes called "TENANT'S PROPERTY". Any of Tenant's
Property remaining at the Premises at the expiration of the Term shall be
removed by Tenant at Tenant's cost and expense, and Tenant shall, at its cost
and expense, repair any damage to the Premises or the Building caused by such
removal. Any of Tenant's Property not removed from the Premises prior to the
Expiration Date shall, at Landlord's option, become the property of Landlord or
Landlord may remove such Tenant's Property, and Tenant shall pay to Landlord,
Landlord's cost of removal and of any
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repairs in connection therewith in accordance with Section 4.04 hereof.
8.06 OWNERSHIP AND REMOVAL. All appurtenances, additions, fixtures (other
than trade fixtures) and improvements attached to or installed in or upon the
Premises, whether placed there by Tenant or by Landlord, shall be Landlord's
property and shall remain upon the Premises at the termination of this Lease by
lapse of time or otherwise without compensation or allowance or credit to
Tenant. Landlord may require, in its discretion, the removal by Tenant of any
property which has been attached to or installed in the Premises (excluding the
Leasehold Improvements), which items must be so removed by Tenant. On or before
the Expiration Date, or the sooner date of termination of this Lease, Tenant
shall pay to Landlord the cost of repairs of any damage to the Premises or
Building and losses caused by the removal of such property.
8.07 SURRENDER. Upon the expiration or sooner termination of the Term,
Tenant will quietly and peacefully surrender to Landlord the Premises in as good
condition as when Tenant took possession, ordinary wear and tear excepted, and
otherwise as is required in Section 8. In addition, at such time Tenant shall
remove all Hazardous Materials stored, or disposed of, or generated by Tenant in
its use or operation of the Premises and all equipment and materials
contaminated or affected by such Hazardous Materials in conformity with the
Environmental Laws. Tenant shall surrender the Premises to Landlord at the end
of the Term hereof, without notice of any kind, and Tenant waives all right to
any such notice as may be provided under any laws now or hereafter in effect in
Connecticut.
8.08 HOLDOVER TENANCY. Tenant acknowledges that if it fails to deliver
possession of the Premises to Landlord upon the expiration or sooner termination
of this Lease, Landlord shall incur substantial economic loss. In the event that
Tenant shall hold the Premises, or any part thereof, after the expiration of the
Term without the prior written consent of the Landlord, such holding shall
constitute and be construed as a tenancy at will only at a daily rental equal to
150% of the greater of (a) the daily Annual Base Rent payable during the last
month of the Term, or (b) the daily rate for the then fair market rental rate of
the Premises, plus 100% of the daily rate of Additional Rent and other sums due
under this Lease during the last month of the Lease Term. In addition to such
increased rental payment and any other liabilities to Landlord accruing
therefrom, Tenant shall indemnify and hold Landlord harmless from loss or
liability resulting from such failure, including, without limiting the
generality of the foregoing, both direct and consequential liabilities and
damages of Landlord arising from claims made by any succeeding tenant arising
due to such failure if Tenant holds the Premises, or any part thereof, after the
expiration of the Term without the prior written consent of Landlord or holds
the Premises, or any part thereof, after the expiration of the Term with
Landlord's consent, and fails to deliver possession of the Premises in full to
Landlord within thirty (30) days following Landlord's written notice to Tenant
that Landlord requires the Premises (or any portion thereof) for a prospective
tenant. Nothing contained herein shall be construed as Landlord's consent for
Tenant's holdover.
9. INSURANCE
9.01 TENANT'S INSURANCE. Tenant shall, at Tenant's own expense, obtain and
keep in force with companies acceptable to Landlord during the Term: (a) a
policy of Comprehensive General Liability Insurance with Broad Form General
Liability Endorsement, or equivalent, insuring against liability for bodily
injury and property damage, including contractual liability, in the amount of
not less than $5,000,000 maximum combined single limit against liability arising
out of the use, occupancy or maintenance of the Premises; (b) "all risk"
property insurance, including standard fire and extended coverage insurance,
with vandalism and malicious mischief, sprinkler leakage and earthquake
endorsements in amounts necessary to provide the full replacement cost, as the
same may exist from time to time, for Tenant's Property, trade fixtures,
machinery, equipment, furniture, furnishings and any Alterations in which Tenant
has an insurable property interest, including, without limitation, vandalism and
malicious mischief and sprinkler leakage coverage, and "all risk" Builder's Risk
insurance, completed value, non-reporting form at any time that Tenant has
commenced construction of any leasehold improvements or any Alterations, and at
any time any other construction activities are underway at the Premises; (c)
Workers' Compensation Insurance in statutory limits as required by applicable
state and federal law with limits of not less than $1,000,000 for bodily injury
by accident and $1,000,000 for bodily
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injury by disease; and (d) any other insurance reasonably required by Landlord
or Landlord's Mortgagee. Such limits shall be for any greater amounts as may be
reasonably determined by Landlord.
9.02 DELIVERY OF POLICIES.
(a) The insurance described in Section 9.01 shall be provided by
companies and in form, substance and amounts (where not above stated)
satisfactory to Landlord and to Landlord's Mortgagee by companies rated
A-/VII or better by Best's Key Rating Guide who are admitted carriers in
the State of Connecticut. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days
prior written notice to Landlord. Such insurance shall specifically include
the liability assumed under this Lease by Tenant (provided that the amount
of such insurance shall not be construed to limit the liability of Tenant
hereunder), and shall provide that it is primary insurance, and not excess
over or contributory with any other valid, existing and applicable
insurance in force for or on behalf of Landlord. With respect to Tenant's
Comprehensive General Liability Insurance, Landlord shall be named as an
additional insured (together with its asset manager, property manager and
Landlord's Mortgagees of which Tenant shall be notified) with respect to
its liability relative to this Lease and the Building.
(b) Tenant shall deliver to Landlord certificates evidencing the
existence and amounts of the insurance policies required under Section 9 on
or before the Commencement Date. The certificates must include a copy of
the endorsement naming the additional insureds required under this Section
9.02. Tenant shall, at least thirty (30) days prior to the expiration of
each policy, furnish Landlord with a copy of the certificate evidencing the
renewal thereof. In the event Tenant shall fail to procure such insurance,
or to deliver such certificates, Landlord may, at its option, procure same
for the account of Tenant, and the cost thereof shall be paid to Landlord
as Additional Rent within ten (10) days after delivery to Tenant of bills
therefor. Tenant's compliance with the provisions of this Section 9 shall
in no way limit Tenant's liability under any of the other provisions of
this Lease.
9.03 INCREASED INSURANCE RISK. Tenant shall not do or permit anything to be
done, or keep or permit anything to be kept in the Premises, which would: (a) be
in violation of any governmental law, regulation or requirement, (b) invalidate
or be in conflict with the provision of any fire or other insurance policies
covering the Building or any property located therein, (c) result in a refusal
by fire insurance companies of good standing to insure the Building or any such
property in amounts required by Landlord's Mortgagee (as hereinafter defined) or
reasonably satisfactory to Landlord, (d) subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business
operation being conducted in the Premises, or (e) cause any increase in the fire
insurance rates applicable to the Project or property located therein at the
beginning of the Term or at any time thereafter. Tenant, at Tenant's expense,
shall comply with all rules, orders, regulations or requirements of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
with any similar body that shall hereafter perform the function of such
Association.
In the event that any use of the Premises by Tenant (in violation of
Tenant's agreements under this Lease) increases such cost of insurance, Landlord
shall give Tenant written notice of such increase and Tenant shall pay such
increased cost to Landlord in accordance with Section 4.04(b) hereof. Acceptance
of such payment shall not be construed as a consent by Landlord to Tenant's such
use, or limit Landlord's further remedies under this Lease.
9.04 LANDLORD'S INSURANCE. Landlord shall obtain and keep in force during
the Term the following insurance coverage (together with such other coverages as
Landlord may reasonably elect to carry with companies rated A-/VII or better by
Best's Key Rating Guide:
(a) Commercial General Liability Insurance with a Broad Form
Comprehensive General Liability endorsement, plus coverage against such
other risks as Landlord deems advisable from time to time, in such amounts
as Landlord deems advisable from time to time insuring Landlord against
liability arising out of the ownership, use, occupancy or maintenance of
the Project;
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(b) a policy or policies of insurance covering loss or damage to the
Project improvements, excluding Tenant's Property and Tenant's Alterations,
fixtures, merchandise, trade fixtures, furnishings, equipment and personal
property, in such amounts as Landlord deems appropriate from time to time
providing protection against all perils included within the classification
of fire, extended coverage and such other perils as Landlord deems
advisable from time to time or may be required by Landlord's Mortgagee.
Such insurance may include earthquake, flood, and boiler and machinery
insurance. In addition, Landlord may obtain and keep in force, during the
Term, rental value insurance, with loss payable to Landlord, which
insurance may also cover Operating Expenses.
Tenant will not be named in any such policies carried by Landlord and shall
have no right to any proceeds therefrom. The policies required by Section 9.04
shall contain such deductibles as Landlord or the Landlord's Mortgagee may
determine. In the event that the Premises shall suffer an insured loss, the
deductible amounts under the applicable insurance policies shall be deemed an
Operating Expense.
9.05 WAIVER OF CLAIMS.
(a) Landlord and Tenant each hereby release and relieve the other (and
Landlord's asset manager and property manager) and waive their entire right
of recovery against the other (and Landlord's asset manager and property
manager) for direct or consequential loss or damage occurring to the
Premises, Building or the Project, or any of Landlord's or Tenant's
Property contained therein regardless of the cause of such loss or damage
to the extent that the loss or damage is covered by the injured party's
property insurance or the property insurance the injured party is required
to carry under this Lease, whichever is greater (without regard to any
deductible provision in any policy). This waiver does not apply to claims
caused by a party's willful misconduct. This waiver also applies to each
party's directors, officers, managers, members, employees, shareholders,
and agents.
(b) Each party will assure that its insurance permits waiver of
liability and contains a waiver of subrogation. Each party shall secure an
appropriate clause in, or an endorsement to, each insurance policy obtained
by or required to be obtained by Landlord or Tenant, as the case may be,
under this Lease, pursuant to which the insurance company: (i) waives any
right of subrogation against Landlord or Tenant as the same may be
applicable, or (ii) permits Landlord or Tenant, prior to any loss to agree
to waive any claim it might have against the other without invalidating the
coverage under the insurance policy. If, at any time, the insurance carrier
of either party refuses to write (and no other insurance carrier licensed
in Connecticut will write) insurance policies which consent to or permit
such release of liability, then such party shall notify the other party and
upon the giving of such notice, this Section shall be void and of no
effect.
9.06 LIMITATION ON LANDLORD'S LIABILITY. Tenant hereby agrees that Landlord
shall not be liable to Tenant for any loss or damage to Tenant, or its business
(including any loss of income therefrom) or for loss of or damage to the goods,
merchandise or other property of Tenant or any Tenant Parties, or any other
person in or about the Premises or Project nor shall Landlord be liable for
injury to the person of Tenant or any Tenant Parties, whether such damage or
injury is caused by or results from theft, fire, steam, electricity, gas, water,
or rain, or from the breakage, leakage, obstruction, or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Project, or from other
source or place, or from new construction or the repair, alteration, or
improvement of any part of the Project, or of the equipment, fixtures, or
appurtenances applicable thereto, and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant, occupant, or user of the Project, nor from the failure of Landlord to
enforce the provisions of any other lease of any other tenant of the Project.
9.07 INDEMNITIES. Subject to Section 9.05, Tenant agrees to protect,
indemnify, defend and save harmless Landlord (and its mortgagees), from and
against any and all loss, cost, liability, damage and expense including, without
limitation, claims, demands, penalties, causes of action, costs and expenses and
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attorneys' fees imposed upon and incurred by or asserted against Landlord from
any cause arising from, or related to, the following: (a) Tenant's default in
its observance or performance of any of the terms, covenants or conditions of
this Lease, (b) the use, condition of the Premises, or occupancy or manner of
use or occupancy of the Premises by Tenant or of any Tenant Parties, (c) any
acts, omissions or negligence of Tenant or any Tenant Parties, in, on or about
the Premises or the Project, either prior to, during, or after the expiration
of, the Term including, without limitation, any acts, omissions or negligence in
the making or performing of any Alterations in or to the Premises, or (d) for
personal injury, including without limitation, bodily injury, death or property
damage, occasioned by any use, occupancy, condition, occurrence, omission or
negligence referred to in the preceding clauses. In case any action, suit or
proceeding is brought against Landlord by reason of any such occurrence, Tenant
will, at Tenant's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted or defended by counsel reasonably approved by
Landlord.
Subject to Section 9.05, Landlord agrees to protect, indemnify and save
harmless Tenant from and against any and all loss, cost, liability, damage and
expense including, without limitation, claims, demands, penalties, causes of
action, costs and expenses and attorneys' fees imposed upon and incurred by or
asserted against Tenant that result from the conduct of Landlord or its
employees, agents or contractors (the "LANDLORD PARTIES") at the Common Areas,
including, without limitation, those relating to the following: (a) for personal
injury, death or property damage arising from the negligence or willful
misconduct of Landlord or any Landlord Parties, or (b) Landlord's default in its
observance or performance of any of the terms, covenants or conditions of this
Lease. In case any action, suit or proceeding is brought against Tenant by
reason of any such occurrence, Landlord will, at Landlord's expense, resist and
defend such action, suit or proceeding or cause the same to be resisted or
defended by counsel reasonably approved by Tenant.
10. CASUALTY
10.01 DAMAGE OR DESTRUCTION. Tenant shall give prompt notice to Landlord of
any damage by fire or other casualty (a "CASUALTY") to the Premises or any
portion thereof. In the event that the Premises, or any part thereof, or access
thereto, shall be so damaged or destroyed by a Casualty that the Tenant shall
not have reasonably convenient access to the Premises or any portion of the
Premises shall thereby be otherwise rendered unfit for use and occupancy by the
Tenant for the purposes set forth in Section 7.01, and if in the judgment of
Landlord's architect or engineer, the damage or destruction may be repaired
within two hundred ten (210) days after the elapse of the Notice Period, then
the Landlord shall so notify the Tenant within sixty (60) days after the
occurrence of the damage or destruction (the "NOTICE PERIOD") and shall repair
such damage or destruction (except damage or destruction to Tenant's Property or
Tenant's Alterations) with reasonable diligence. In the event that the Landlord
shall not complete such repairs within two hundred ten (210) days after the
elapse of the Notice Period, then the Tenant shall have the right to terminate
the term of this lease by giving written notice of such termination to the
Landlord within twenty (20) days after the end of such two hundred ten (210) day
period; provided, however, that in the event that the completion of repairs
shall be delayed by causes beyond the Landlord's control, including those events
described in Section 16.13 hereof, the time for completion shall be extended by
the period of such delay (not to exceed an additional ninety (90) days). If in
the judgment of Landlord' architect or engineer, the Premises, or means of
access thereto, cannot be repaired within two hundred ten (210) days after the
elapse of the Notice Period or the Landlord does not deliver the Tenant notice
of its decision to repair such damage within sixty (60) days after the
occurrence of the Casualty, then either party shall have the right to terminate
the Term by giving written notice of such termination to the other party within
the period of sixty (60) to seventy-five (75) days after the occurrence of the
Casualty. If neither party gives such notice of intention to terminate this
Lease, then the Landlord shall repair the damage or destruction with reasonable
diligence and Tenant shall be deemed to have waived its termination rights with
respect to the Casualty.
10.02 ABATEMENT OF RENT. Rent shall not be abated or suspended if,
following any Casualty, Tenant shall continue to have reasonably convenient
access to the Premises and the Premises are not rendered unfit for use and
occupancy. If Tenant shall not have reasonably convenient access to the Premises
or any portion of the Premises shall be otherwise rendered unfit for use and
occupancy by the
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Tenant for the purposes set forth in Section 7.01 by reason of such Casualty,
then Rent shall be equitably suspended or abated relative to the portion of the
Premises that cannot be used by Tenant for any of its business operations,
effective as of the date of the Casualty until Landlord has (a) substantially
completed the repair of the Premises and the means of access thereto, and (b)
has delivered at least ten (10) business days' notice thereof to Tenant.
10.03 EVENTS OF TERMINATION. In addition to the foregoing termination
rights provided in Section 10.01 hereof, in the event of a Casualty, the
following termination rights shall apply:
(a) If more than 25% of the gross rentable area of the Premises shall
be wholly or substantially damaged or destroyed by Casualty at any time
during the last six (6) months of the Term, either Landlord or Tenant may
terminate this Lease by delivery of written notice of such termination to
the other party within thirty (30) days after the occurrence of such
damage.
(b) Notwithstanding the provisions of this Section 10, if, prior to or
during the Term the Building shall be so damaged by Casualty that, in
Landlord's reasonable estimate, the cost to repair the damage will be more
than 25% of the replacement value of the Building immediately prior to the
occurrence of the Casualty (whether or not the Premises shall have been
damaged or rendered untenantable), then, in any of such events, Landlord,
at Landlord's option, and with the written consent of Landlord's Mortgagee,
may give to Tenant, within ninety (90) days after such Casualty, a thirty
(30) days' notice of the termination of this Lease and, in the event such
notice is given, this Lease and the Term shall terminate upon the
expiration of such thirty (30) days with the same effect as if such date
were the Expiration Date; and the Rent shall be apportioned as of such date
and any prepaid portion of Rent for any period after such date shall be
refunded by Landlord to Tenant within thirty (30) days following the
Expiration Date.
10.04 INSURANCE PROCEEDS UPON TERMINATION. If this Lease is terminated
pursuant to any right granted or reserved to Landlord under this Section, all
insurance proceeds payable with respect to the damage giving rise to such right
of termination shall be paid to Landlord, and Tenant shall have no claim
therefor. No damages, compensation or claim shall be payable by the Landlord to
Tenant, or any other person, by reason of inconvenience, loss of business or
annoyance arising from any damage or destruction, or any repair thereof, as is
referred to in this Section 10.
10.05 SCOPE OF LANDLORD'S REPAIRS. In the event Landlord elects or shall be
obligated to repair or restore any damage or destruction as aforesaid, the scope
of work shall be limited to the original basic building and interior work that
constitute the Leasehold Improvements, and Landlord shall have no obligation to
restore or replace Tenant's Property or Tenant's Alterations.
11. CONDEMNATION
11.01 ENTIRE CONDEMNATION. If the whole of the Premises or Building shall
be taken by condemnation or right of eminent domain or sold under the threat of
the exercise of said right (all of which are herein called "CONDEMNATION"), this
Lease and the term and estate hereby granted shall automatically terminate as of
the date of the vesting of title in the condemning authority.
11.02 PARTIAL CONDEMNATION.
(a) In the event that only a part of the Premises shall be taken by
Condemnation and Tenant shall have reasonable, convenient access to and
from the Premises, the Term shall expire as to that portion of the Premises
condemned effective as of the date of the vesting of title in the
condemning authority, and this Lease shall continue in full force and
effect as to the part of the Premises not so taken.
(b) In the event that a part of the Project shall be subject to
Condemnation (whether or not the Premises are affected), Landlord may, at
its option, terminate this Lease as of the date of such vesting of title,
by notifying Tenant in writing of such termination within ninety (90) days
following the date on which Landlord shall have received notice of the
vesting of title in the condemning authority if in
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Landlord's reasonable opinion: (i) a substantial alteration or
reconstruction of the Premises, Building or Project shall be necessary or
appropriate, or (ii) the portion of the Premises, Building or Project so
condemned has the effect of rendering the remainder uneconomic to maintain.
(c) If Landlord does not elect to terminate this Lease, as aforesaid,
this Lease shall be unaffected by such Condemnation, except as provided in
Section 11.03. In the event that only a part of the Premises shall be so
taken and this Lease shall not be terminated as hereinbefore provided,
Landlord shall, upon receipt of the award in Condemnation, make all
necessary repairs to the structural portions of the Premises so as to
constitute the remaining Premises a complete architectural unit to the
extent practicable, but Landlord shall not be required to spend for such
work an amount in excess of the amount received by Landlord as damages for
the part of the Premises so taken. "Amount received by Landlord" shall mean
that part of the award in condemnation which is free and clear to Landlord
of any collection by mortgagees and after payment of all costs involved in
collection, including but not limited to attorney's fees. Tenant, at is own
cost and expense shall, restore all exterior signs, trade fixtures,
equipment, furniture, furnishings and other installations of personalty of
Tenant which are not taken to as near its former condition as the
circumstances will permit. In the event of a partial taking, all provisions
of this Lease shall remain in full force and effect. Landlord's obligations
in this Section 11.02 to repair the Premises are subject to Mortgagee
making the condemnation award proceeds available to Landlord to accomplish
the repairs described herein.
11.03 PRORATION. In the event of a partial Condemnation or other
Condemnation that does not result in a termination of this Lease as to the
entire Premises, then the Rent and Tenant's Proportionate Share shall be reduced
in the proportion that the floor area of the Premises taken bears to the total
floor area of the Premises.
11.04 TEMPORARY TAKING. If there is a taking of the Premises for temporary
use arising out of a temporary emergency or other temporary situation, this
Lease shall continue in full force and effect, and Tenant shall continue to
comply with Tenant's obligations under this Lease, except to the extent
compliance shall be rendered impossible or impracticable by reason of the
taking, and Tenant shall be entitled to the award for its interest.
11.05 CONDEMNATION AWARDS. Except as provided in Section 11.04, Landlord
shall be entitled to the entire award in any Condemnation proceeding or other
proceeding for taking for public or quasi-public use, including, without
limitation, any award made for the value of the leasehold estate created by this
Lease. No award for any partial or entire taking shall be apportioned, and
Tenant hereby assigns to Landlord any award that may be made in such
Condemnation or other taking, together with any and all rights of Tenant now or
hereafter arising in or to same or any part thereof. Tenant's assignment to
Landlord does not include any award made to Tenant specifically for its
relocation expenses or the taking of Tenant's Property provided that such award
does not diminish or reduce the amount of the award payable to Landlord.
12. ASSIGNMENT AND SUBLETTING
12.01 LANDLORD'S CONSENT REQUIRED. Except as may be expressly provided in
this Section 12, Tenant shall not sell, assign, mortgage, pledge, hypothecate,
encumber or otherwise transfer this Lease or any interest therein (each of which
actions is hereafter referred to as a "TRANSFER"), and shall not sublet the
Premises or any part thereof, without the prior written consent of Landlord in
each instance, which consent shall not be unreasonably withheld, and any attempt
to do so without such consent shall be voidable at Landlord's election.
12.02 RESTRICTION ON TRANSFER. Landlord and Tenant hereby acknowledge that
Landlord's disapproval of any proposed Transfer or sublease pursuant to this
Lease shall be deemed reasonably withheld if based upon any reasonable factor,
including, without limitation, any or all of the following factors: (a) the use
of the Premises by the proposed assignee, sublessee or other transferee (the
"TRANSFEREE") (i) is not permitted by the use provisions in Section 7.01 hereof,
or (ii) violates any exclusive use granted by Landlord to another tenant in the
Building; (b) the Transfer or sublease would
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likely result in an increase in the use of the parking areas or other Common
Areas by the employees or visitors of the proposed Transferee, and/or
significantly increase the demand upon utilities and services to be provided by
Landlord to the Premises; (c) the Transferee does not have the financial
capability to fulfill the obligations imposed by the Transfer or sublease, or
with respect to an assignment, the Transferee has a net worth less than Tenant's
net worth on the date hereof or a net worth of less than Tenant's net worth on
the date of the proposed Transfer (if Tenant's net worth is greater on such date
than on the date hereof); (d) the proposed Transferee is an existing tenant of
the Project or is negotiating with Landlord (or has negotiated with Landlord in
the preceding six (6) months) for space in the Project, provided that Landlord
then has comparable leasable space available; (e) the Transferee is a real
estate developer or landlord or is acting directly or indirectly on behalf of a
real estate developer or landlord; or (f) the Transferee is not in Landlord's
reasonable opinion of reputable or good character.
12.03 LANDLORD'S OPTIONS. If at any time or from time to time during the
Term Tenant desires to effect a Transfer (which Transfer shall in no event be
for less than its entire interest in this Lease) or to sublet the Premises or
any portion thereof, Tenant shall deliver to Landlord written notice ("TRANSFER
NOTICE") at least sixty (60) days prior to the proposed effective date of the
Transfer setting forth: (a) the identity of the Transferee, (b) the nature of
the Transferee's business to be carried on in the Premises, and (c) the terms
and provisions of the proposed Transfer. Tenant shall also deliver to Landlord
with the Transfer Notice, a current financial statement and financial statements
for the preceding two (2) years of the Transferee which have been certified or
audited by a reputable independent accounting firm acceptable to Landlord, and
such other information concerning the business background and financial
condition of the proposed Transferee as Landlord may reasonably request together
with the proposed form of assignment or sublease. Landlord shall have the
option, exercisable by written notice delivered to Tenant within thirty (30)
days after Landlord's receipt of the Transfer Notice, such financial statements
and other information as may be requested by Landlord, either to:
(i) approve or disapprove such Transfer or sublease; or
(ii) in the case of any proposed subletting (for substantially the
balance of the Term), terminate this Lease as to that portion of the
Premises proposed to be subleased, and, in the case of any proposed
assignment or encumbrance, terminate this Lease with respect to the entire
Premises, which termination shall be effective on the date specified in
Landlord's notice of termination.
If this Lease is terminated by Landlord pursuant to the foregoing with
respect to only a portion of the Premises, the Rent required under this Lease,
and including Tenant's Proportionate Share, shall be adjusted proportionately
based on the square footage retained by Tenant and the square footage leased by
Tenant hereunder immediately prior to such recapture and cancellation, and
Landlord and Tenant shall thereupon execute an amendment of this Lease in
accordance therewith.
12.04 ADDITIONAL CONDITIONS. If Landlord does not exercise its sublease or
termination option and instead approves of the proposed Transfer or sublease
pursuant to Section 12.03, Tenant may enter into the proposed Transfer or
sublease with such proposed Transferee subject to the following further
conditions:
(a) the Transfer or sublease shall be on the same terms set forth in
the Transfer Notice and on the form of assignment or sublease previously
delivered to and approved by Landlord (if the terms have changed, Tenant
must submit a revised Transfer Notice to Landlord and Landlord shall have
another thirty (30) days after receipt thereof to make the election in
Sections 12.03(a) or 12.03(b) above;
(b) no Transfer or sublease shall be valid and no Transferee shall
take possession of the Premises until an executed counterpart of the
assignment, sublease or other instrument affecting the Transfer or sublease
has been delivered to Landlord pursuant to which the Transferee shall
expressly assume all of Tenant's obligations under this Lease (or with
respect to a sublease of a portion of the Premises or for a portion of the
Term, all of Tenant's obligations applicable to
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such portion); Tenant shall remain fully liable under this Lease and Tenant
shall provide Landlord with a written ratification agreement from each
guarantor of this Lease in form and substance satisfactory to Landlord.
(c) all Transfer and sublease agreements shall: (i) prohibit further
Transfers and subleases without Landlord's consent under this Section 12;
(ii) impose the same obligations and conditions on the transferee or
subtenant as are imposed on Tenant by this Lease (except as to Rent and
term or otherwise agreed by Landlord); (iii) be expressly subject and
subordinate to each and every provision of this Lease; (iv) have a term
that expires on or before the expiration of the Term of this Lease; (v)
provide that the Tenant and/or Transferee shall pay Landlord the amount of
any additional costs or expenses incurred by Landlord for repairs,
maintenance, or otherwise as a result of any change in the nature of
occupancy caused by the transfer or sublease; and (vi) contain Tenant's
acknowledgment that Tenant remains liable under this Lease notwithstanding
the Transfer or sublease.
12.05 TRANSFER PROFIT. Fifty percent (50%) of any rents and other economic
consideration paid to Tenant directly or indirectly in connection with any
Transfer or sublease which exceed, in the aggregate, (i) the rents payable by
Tenant (as scheduled in the Lease) to Landlord for the balance of the Term
(prorated to reflect obligations allocable to any portion of the Premises
subleased) plus (ii) any reasonable tenant fit-up costs, advertising expenses,
"market" rent concessions, brokerage commissions and attorneys' fees actually
paid by Tenant in connection with such Transfer (specifically excluding moving
or relocation costs paid to the Transferee), shall be paid to Landlord as
Additional Rent on a monthly basis within ten (10) days after receipt thereof by
Tenant, without affecting or reducing any of Tenant's other Lease obligations.
In calculating the monthly amount payable by Tenant to Landlord under this
Section, the profit shall be apportioned and payable on a monthly basis; and
Tenant's expenses (as described in clause (ii) above) shall be amortized over
the remaining Term, and Tenant shall only be allowed that portion of such
expenses that represents the proportionate amount allowable to such month. Each
payment shall be sent with a detailed statement certifying the accuracy and
completeness of the information provided by Tenant. Landlord shall have the
right to audit Tenant's books and records to verify the accuracy of Tenant's
statement.
12.06 PERMITTED CONTROLLED TRANSFERS. Notwithstanding any provisions of
this Section 12 above to the contrary, Tenant may assign this Lease or sublet
the Premises or any portion thereof, without Landlord's consent (except as to
the form of assignment or sublease) and without extending any sublease or
termination option to Landlord, to any corporation, limited liability company
which controls, is controlled by or is under common control with Tenant, or to
any corporation or other legal entity resulting from a merger or consolidation
with Tenant, or to any person or entity which acquires all of the assets of
Tenant's business as a going concern, provided that: (a) at least thirty (30)
days prior to such assignment or sublease, Tenant delivers to Landlord the
financial statements and other financial background information of the assignee
or sublessee described in Section 12.03 above and the proposed form of
assignment or sublease; (b) if an assignment, the assignee assumes, in full, the
obligations of Tenant under this Lease (or if a sublease, the sublessee of a
portion of the Premises or Term assumes, in full, the obligations of Tenant with
respect to such portion); (c) the financial net worth of the assignee equals or
exceeds that of Tenant as of the date of execution of this Lease; (d) Tenant
remains fully liable under this Lease and will continue to have a net worth not
less than Tenant's net worth on the date hereof; (e) Tenant provides Landlord
with a written ratification agreement from each guarantor of this Lease in form
and substance satisfactory to Landlord; (f) the use of the Premises permitted
under Section 7.01 of this Lease remains unchanged; and (g) such transaction is
not entered into as a subterfuge to avoid the restrictions and provisions of
this Section 12. Landlord acknowledges that Tenant is a publicly traded company
and that the sale of the capital stock in Tenant shall not be deemed an
assignment of this Lease.
12.07 NO RELEASE OF TENANT. No consent by Landlord to any Transfer or
sublease shall release Tenant of Tenant's obligations under this Lease or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. Landlord may require that any
Transferee (other than a subtenant) remit directly to Landlord on a monthly
basis, all monies due Tenant by said Transferee. However, the acceptance of rent
by Landlord from any other person shall not be deemed
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to be a waiver by Landlord of any other provision hereof or to be a consent to
any subsequent Transfer or sublease, or be a release of Tenant from any
obligation under this Lease. Consent by Landlord to one Transfer or sublease
shall not be deemed consent to any subsequent Transfer or sublease and
Landlord's express prior written consent to any other Transfer or sublease shall
be required. In the event of default by any Transferee of Tenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against such Transferee or successor.
12.08 ASSUMPTION OF OBLIGATIONS. Each Transferee shall assume all
obligations of Tenant under this Lease and shall be and remain liable jointly
and severally with Tenant for the payment of the Rent and the performance of all
of the terms, covenant, conditions, and agreements herein contained on Tenant's
part to be performed for the term of this Lease. No Transfer or sublease shall
be binding on Landlord unless the transferee or Tenant delivers to Landlord a
counterpart of the instrument of transfer which contains a covenant of
assumption by the transferee satisfactory in substance and form to Landlord,
consistent with the above requirements. The failure or refusal of the Transferee
to execute such instrument of assumption shall not release or discharge the
transferee from its liability to Landlord hereunder. Landlord shall have no
obligation whatsoever to perform any duty to or respond to any request from any
subtenant, it being the obligation of Tenant to administer the terms of its
sublease.
12.09 MATERIAL INDUCEMENT. Tenant understands, acknowledges and agrees that
(a) Landlord may exercise Landlord's option to terminate this Lease upon any
proposed sublease, assignment or encumbrance of this Lease by Tenant (as
provided in Section 12.03(b) above) instead of approving the proposed sublease,
assignment or encumbrance, and (b) Landlord's right to receive any excess
consideration paid by a Transferee in connection with an approved Transfer or
sublease as provided in Section 12.05 above, are a material inducement for
Landlord's agreement to lease the Premises to Tenant upon the terms and
conditions herein set forth. Tenant shall reimburse Landlord on demand for any
reasonable costs that Landlord may incur in connection with any proposed
Transfer or sublease, including the costs of investigating the acceptability of
the proposed Transferee or subtenant and the legal and consulting costs incurred
in connection with the review and preparation of any documents relative thereto
and the granting of any requested consent under this Section 12.
13. DEFAULTS AND REMEDIES
13.01 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an event of default (each an "EVENT OF DEFAULT")
hereunder:
(a) NONPAYMENT. Failure by Tenant to pay any installment of Annual
Base Rent, Additional Rent or any other sum due and payable hereunder
within five (5) days following Landlord's written notice of such failure.
(b) CERTAIN OBLIGATIONS. Failure by Tenant to perform, observe or
comply with any of the covenants, conditions or provisions contained in
Sections 8.03(a) (Alterations) and 12.01 (Assignment and Subletting).
(c) OTHER OBLIGATIONS. Failure by Tenant to perform any covenants,
conditions or provisions of this Lease to be performed or observed by
Tenant other than those matters specified in subparagraph (a) or (b) of
this Section 13.01, where such failure continues for thirty (30) days after
written notice by Landlord to Tenant of such failure; provided, however,
that if the nature of Tenant's non-compliance is such that more than thirty
(30) days are required for its cure, then Tenant shall not be deemed to be
in default if Tenant commences such cure within such thirty (30) day period
and thereafter diligently and continuously prosecutes the same to
completion within sixty (60) days following the date of Landlord's written
notice with respect to such failure.
(d) ASSIGNMENT; RECEIVERSHIP; ATTACHMENT. (i) The making by Tenant of
any arrangement or assignment for the benefit of creditors; (ii) the
appointment of a trustee or receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's
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interest in this Lease, where possession is not restored to Tenant within
thirty (30) days; or (iii) the attachment, execution, or other judicial
seizure of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where such seizure is not discharged
within thirty (30) days.
(e) BANKRUPTCY. The admission by Tenant or Tenant's guarantor (if any)
in writing of its inability to pay its debts as they become due, the filing
by Tenant or Tenant's guarantor (if any) of a petition in bankruptcy
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, the filing by Tenant or Tenant's guarantor (if
any) of an answer admitting or failing timely to contest a material
allegation of a petition filed against Tenant or Tenant's guarantor (if
any) in any such proceeding or, if within forty-five (45) days after the
commencement of any proceeding against Tenant or Tenant's guarantor (if
any) seeking any involuntary reorganization, or arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present
or future statute, law or regulation by any of Tenant's creditors or such
guarantor's creditors, such proceeding shall not have been dismissed.
(f) FINANCIAL INFORMATION. The existence of materially false
information in any financial statement given to Landlord by Tenant, or its
successor in interest or by any guarantor of any of Tenant's obligations
hereunder.
(g) ABANDONMENT. Abandonment of the Premises by Tenant.
The defaults described in Section 13.01(d) through (g) are hereby
deemed to be non- curable defaults without the necessity of any notice by
Landlord to Tenant thereof.
13.02 REMEDIES. Upon the occurrence of any Events of Default by Tenant
which is not cured by Tenant within the grace periods specified in Section 13.01
hereof, if any, Landlord shall have the following rights and remedies, in
addition to all other rights or remedies available to Landlord in law or equity:
(a) Landlord may give written notice to Tenant specifying such Event
of Default or Events of Default and stating that this Lease and the Term
hereby demised shall expire and terminate on the date specified in such
notice (which may be the date the notice is given), and upon the date
specified in such notice, this Lease and the Term hereby demised, and all
rights of Tenant under this Lease shall expire and terminate. Upon any
termination of this Lease, Tenant shall quit and peaceably surrender the
Premises, and all portions thereof, to Landlord. Following any such
termination, Landlord may, without further notice, re-enter the Premises,
and any portions thereof, and take possession thereof, and may dispossess
Tenant and remove Tenant and all other persons and property from the
Premises and the right to receive all rental and other income of and from
the same.
(b) At Landlord's election, without terminating this Lease, Landlord
may, without re-entry, recover possession of the Premises in the manner
prescribed by any statute relating to summary process, and any demand for
the Rent, re-entry for condition broken, and any and all notices to quit,
or other formalities of any nature, to which Tenant may be entitled, are
hereby specifically waived. Landlord may relet the Premises for the account
of Tenant. No such termination of Tenant's right to possess the Premises
under this Section 13.02(b) shall relieve Tenant of its liabilities and
obligations under this Lease (as if such right of possession had not been
so terminated or expired), and such liabilities and obligations shall
survive any such termination of Tenant's possessory interest.
In the event of any such termination of this Lease or Tenant's right
of possession, whether or not the Premises, or any portion thereof, shall
have been relet, Tenant shall pay the Landlord a sum equal to the Rent and
any other charges required to be paid by Tenant up to the time of such
termination of such right of possession and thereafter Tenant, until the
end of the
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Term, shall be liable to Landlord for and shall pay to Landlord: (i) the
equivalent of the amount of the Rent payable under this Lease, less (ii)
the net proceeds of any reletting effected pursuant to the provisions
hereof after deducting all of Landlord's "Reletting Expenses" (as defined
in Section 13.02). Tenant shall pay such amounts in accordance with the
terms of this Section 13.02(b) as set forth in a written statement thereof
from Landlord to Tenant (hereinafter, the "DEFICIENCY") to Landlord in
monthly installments on the days on which the Annual Base Rent is payable
under this Lease, and Landlord shall be entitled to recover from Tenant
each monthly installment of the Deficiency as the same shall arise. Tenant
shall also pay to Landlord upon demand the costs incurred by Landlord in
curing Tenant's defaults existing at or prior to the date of such
termination and the cost of recovering possession of the Premises. Tenant
agrees that Landlord may file suit to recover any sums that become due
under the terms of this Section from time to time, and all reasonable costs
and expenses of Landlord, including attorneys' fees and costs incurred in
connection with such suits shall be payable by Tenant on demand.
(c) At any time after an Event of Default and termination of the Lease
by Landlord, whether or not Landlord shall have collected any monthly
Deficiency as set forth in Section 13.02(b), Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord, on demand, as and
for final damages for Tenant's default and in lieu of any subsequent
Deficiency (but without limitation of the provisions of subsection (f)
hereof):
(i) all Rent and other sums due and payable by Tenant on the date
of termination; plus
(ii) the costs of curing Tenant's defaults existing at or prior
to the date of termination; plus
(iii) the cost of recovering possession of the Premises and the
Reletting Expenses; plus
(iv) the Deficiency at time of demand, if not previously paid by
Tenant; plus
(v) an amount equal to the difference between the then present
value of the aggregate of the Rent and any other charges to be paid by
Tenant hereunder for the then unexpired term of this Lease (assuming
this Lease had not been so terminated), and the then present value of
the then aggregate fair market rent of the Premises for the same
period (taking into account rentals received by Landlord under a
replacement Lease of the Premises). In the computation of present
value, a discount rate as reasonably determined by Landlord shall be
employed.
(d) In connection with any reletting of the Premises by Landlord
following an Event of Default, Landlord's reletting activities shall be on
such rental and other terms as Landlord shall deem appropriate, and the
terms of any leasing must be consistent with the prevailing standards of
institutional real estate investors and lenders, including, without
limitation, those relating to the economic terms of any proposed lease and
the credit quality of any proposed tenant. Landlord shall be entitled to
grant such rental and economic concessions and other incentives as may be
customary for similar space in Fairfield County. Landlord shall not be
required to subdivide the Premises nor accept any tenant offered by Tenant
or observe any instruction given by Tenant about such reletting or do any
act or exercise any care or diligence with respect to any reletting of the
Premises.
(e) Any and all property belonging to Tenant or to which Tenant is or
may be entitled which may be removed from the Premises by Landlord pursuant
to the authority of this Lease or applicable law, may be handled, removed
or stored in a commercial warehouse or otherwise by Landlord at Tenant's
risk and expense and Landlord shall in no event be responsible for the
value, preservation or safekeeping thereof. Tenant shall pay to Landlord,
upon demand,
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any and all expenses incurred in such removal and all storage charges for
such property so long as the same shall be in Landlord's possession or
under Landlord's control.
(f) Landlord shall have the right of injunction, in the event of a
breach or threatened breach by Tenant of any of the agreements, conditions,
covenants or terms hereof, to restrain the same and the right to invoke any
remedy allowed by law or in equity, whether or not other remedies,
indemnity or reimbursements are herein provided. The rights and remedies
given to Landlord in this Lease are distinct, separate and cumulative
remedies; and no one of them, whether or not exercised by Landlord, shall
be deemed exclusive of any of the others.
(g) For purposes of this Section 13.02, "RELETTING ALTERATIONS" shall
mean all repairs, changes, improvements, alterations or additions made by
Landlord in or to the Premises to the extent deemed reasonably necessary by
Landlord to prepare the Premises for the re-leasing following an Event of
Default; and "RELETTING EXPENSES" shall mean the reasonable expenses paid
or incurred by Landlord in connection with any re-leasing of the Premises
following an Event of Default, including, without limitation, marketing
expenses, brokerage commissions, management fees, attorneys' fees, the
costs of Reletting Alterations, operating expenses and rent and other
economic concessions provided to the new tenant.
13.03 LANDLORD'S RIGHT TO CURE DEFAULTS. If an Event of Default occurs or
Landlord reasonably determines that an emergency exists, the Landlord, without
being under any obligation to do so and without thereby waiving such default,
may remedy such default for the account and at the expense of the Tenant. If the
Landlord makes any expenditures or incurs any obligations for the payment of
money in connection therewith, including but not limited to reasonable
attorney's fees in instituting, prosecuting or defending any action or
proceeding, such sums paid or obligation incurred and costs, shall be paid upon
demand to the Landlord by the Tenant as Additional Rent pursuant to Section 4.04
hereof and if not so paid with interest at the rate of twelve (12%) percent per
annum calculated as of the date such payments were due.
13.04 NO ACCORD AND SATISFACTION. Landlord may collect and receive any rent
due from Tenant, and the payment thereof shall not constitute a waiver of or
affect any notice or demand given, suit instituted or judgment obtained by
Landlord, or be held to waive, affect, change, modify or alter the rights or
remedies that Landlord has against Tenant in equity, at law, or by virtue of
this Lease. No receipt or acceptance by Landlord from Tenant of less than the
monthly Rent herein stipulated shall be deemed to be other than a partial
payment on account for any due and unpaid stipulated rent; no endorsement or
statement on any check or any letter or other writing accompanying any check or
payment of rent to Landlord shall be deemed an accord and satisfaction, and
Landlord may accept and negotiate such check or payment without prejudice to
Landlord's rights to (i) recover the remaining balance of such unpaid rent, or
(ii) pursue any other remedy provided in this Lease.
13.05 DEFAULT BY LANDLORD. If Landlord fails to perform or observe any of
its Lease obligations and such failure continues for more than thirty (30) days
after Tenant has delivered written notice thereof ("TENANT'S DEFAULT NOTICE") to
Landlord and Landlord's Mortgagee, such failure shall constitute a default under
this Lease unless Landlord disputes the claimed default in good faith by written
notice to Tenant within such 30-day period; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for performance then Landlord shall not be in default (nor shall the
same constitute a constructive eviction) if Landlord commences performance
within such thirty (30) day period and thereafter diligently prosecutes the same
to completion. Tenant's Default Notice shall identify the Lease provisions
containing the Landlord's obligations that are the subject of Tenant's complaint
and specify in reasonable detail the nature and extent of Landlord's failure
with respect thereto. If Landlord or Landlord's Mortgagee fails to cure any
default within the applicable grace period, Tenant may pursue any remedies given
in this Lease or under the law, but Tenant shall not be entitled to terminate
this Lease or withhold or abate any Rent or other charges due hereunder.
13.06 INDIRECT DAMAGES. Notwithstanding any provision of this Lease to the
contrary (except Sections 7.05 and 8.08), none of the provisions of this Lease
shall cause either party to be liable to the
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other party, or anyone claiming through or on behalf of such other party, for
any special, indirect or consequential damages, including, without limitation,
lost profits or revenues.
13.07 WAIVERS.
(a) TENANT HEREBY REPRESENTS, COVENANTS AND AGREES THAT IT IS ENGAGED
PRIMARILY IN COMMERCIAL PURSUITS, AND THAT THE LEASE IS A "COMMERCIAL
TRANSACTION" WITHIN THE MEANING OF SECTION 52-278A(A) OF THE CONNECTICUT
GENERAL STATUTES (REV. 1958), AS AMENDED. TENANT HEREBY WAIVES ALL RIGHTS
TO NOTICE, PRIOR JUDICIAL HEARING OR COURT ORDER UNDER SECTION 52-278A ET
SEQ. OF THE CONNECTICUT GENERAL STATUTES (REV. 1958) AS AMENDED OR UNDER
ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDIES THE
LANDLORD MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER.
(b) TENANT, BY EXECUTION AND DELIVERY OF THIS LEASE, AND LANDLORD, BY
ACCEPTANCE HEREOF, EACH HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS LEASE
OR ANY OTHER AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY EACH PARTY.
TENANT AND LANDLORD ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP. TENANT AND LANDLORD FURTHER
ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL.
13.08 CLAIMS IN BANKRUPTCY. Nothing herein shall limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of any such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, the damages are to be proved, whether or not the
amount be greater, equal to or less than the amount of the loss or damage
referred to above. Without limiting any of the provisions of this Section 13, if
pursuant to the Bankruptcy Code, as the same may be amended, Tenant is permitted
to assign this Lease in disregard of the restrictions contained in Section 12,
Tenant agrees that adequate assurance of future performance by the assignee
permitted under the Bankruptcy Code shall mean the deposit of cash security with
Landlord in any amount equal to all Rent payable under this Lease for the
calendar year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord, without interest, for the
balance of the term as security for the full and faithful performance of all of
the obligations under this Lease on the part of Tenant yet to be performed. If
Tenant receives or is to receive any valuable consideration for such an
assignment of this Lease, such consideration, after deducting therefrom (a) the
brokerage commissions, if any, and other expenses reasonably designated by the
assignee as paid for the purchase of Tenant's property in the Premises, shall be
and become the sole exclusive property of Landlord and shall be paid over to
Landlord directly by such assignee. In addition, adequate assurance shall mean
that any such assignee of this Lease shall have a net worth indicating said
assignee's reasonable ability to pay the Rent, and abide by the terms of this
Lease for the remaining portion thereof applying commercially reasonable
standards.
14. NONDISTURBANCE AND RIGHTS OF MORTGAGE HOLDERS
14.01 SUBORDINATION.
(a) Tenant agrees that this Lease and all rights of Tenant hereunder
are and shall be automatically subject and subordinate at all times to any
mortgages (collectively the "MORTGAGES") and each individually, a
"MORTGAGE") which may now or hereafter affect the Project or any portion
thereof (whether or not the Mortgages shall also cover other lands,
buildings or leases), and to all amendments, renewals, modifications,
consolidations, replacements, and extensions of any of the foregoing. In
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confirmation of such subordination, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord or the holder of any
Mortgage or its assigns or successors in interest may reasonably request to
evidence such subordination. This Section shall be self-operative and no
further subordination shall be required. Tenant's agreement to subordinate
this Lease and its rights hereunder is subject to the condition that
Landlord delivers to Tenant a recordable instrument acceptable to the
holder of each Mortgage (each "LANDLORD'S MORTGAGEE") by which Landlord's
Mortgagee shall agree not to disturb Tenant's possession and occupancy of
the Premises or join Tenant in any such action as a party defendant so long
as Tenant is not in default in the performance or observance of any of the
terms, covenants or conditions contained in the Lease.
(b) In the event that any Mortgage is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, at the option of
Landlord's Mortgagee or the grantee or purchaser in foreclosure,
notwithstanding any subordination of any such Mortgage to this Lease,
attorn to and become the Tenant of the successor in interest to Landlord as
Tenant's landlord under this Lease, at the option of such successor in
interest. Tenant covenants and agrees to execute and deliver, within ten
(10) days following delivery of request by Landlord, Landlord's Mortgagee,
or by Landlord's successor in interest and in the form requested by
Landlord, Landlord's Mortgagee, or by Landlord's successor in interest, any
additional documents evidencing the priority or subordination of this Lease
with respect to the lien of any such Mortgage, which additional documents
shall be satisfactory to Landlord, Landlord's Mortgagee, and Landlord's
successors in interest.
(c) If Landlord's Mortgagee shall succeed to the interest of Landlord
under this Lease, Landlord's Mortgagee shall assume and perform Landlord's
obligations under this Lease only while it is the fee owner of the Building
and shall not be (i) liable for any breach, act or omission of any prior
landlord, including Landlord; (ii) subject to offsets, claims or defenses
which Tenant might have against prior landlords; (iii) bound by the payment
of Rent or other payment in lieu of rent which Tenant may have paid to any
prior landlord for more than thirty (30) days in advance of its due date;
(iv) bound by any assignment, surrender, termination, waiver, lease
amendment or modification of or affecting this Lease made without its
consent; or (v) any of the construction obligations of Landlord under this
Lease.
14.02 NOTICES. If Tenant is given written notice of the identity and
address of Landlord's Mortgagee, then Tenant shall give to such Landlord's
Mortgagee written notice of any default by Landlord under the terms of this
Lease by registered or certified mail, and such Landlord's Mortgagee shall be
given the opportunity to cure Landlord's default within the thirty (30) days
following such written notice; provided, however, that said thirty (30) day
period shall be extended so long as within said thirty (30) day period such
party has commenced to cure the default and such party is proceeding with due
diligence (including the exercise of its remedies against Landlord if necessary
to obtain possession of the Premises) to effect such cure.
14.03 ESTOPPEL CERTIFICATES. Tenant shall at any time, and from time to
time, upon not less than ten (10) days prior written notice from Landlord
execute, acknowledge and deliver to Landlord, to any prospective purchaser, or
Landlord's Mortgagee, a written certificate stating: (a) whether Tenant has
accepted the Premises and the commencement date and termination date of this
Lease; (b) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and has not been assigned; (c) that
there are not, to Tenant's best knowledge, any uncured defaults on the part of
the Landlord or Tenant hereunder, or specifying any defaults if any are claimed;
(d) the dates to which the Annual Base Rent and Additional Rent and other
charges under this Lease have been paid and the amounts thereof and any security
deposit, and that no Rent or security deposit has been paid in advance of its
due date (or, if so, stating such dates), and (g) any other information that may
reasonably be required by any of such persons, and which certificate shall be
the form requested by Landlord's Mortgagee or purchaser. It is intended that any
such certificate of Tenant delivered pursuant to this Section 14.03 may be
relied upon by Landlord and any prospective purchaser or Landlord's Mortgagee of
any part of the Building. Tenant's failure to deliver such Certificate within
said ten (10) day period shall be a default hereunder and shall be conclusive
upon Tenant that this Lease is in full force and effect and unmodified, and that
there are no uncured defaults in Landlord's performance hereunder.
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14.04 QUIET ENJOYMENT. Upon Tenant paying the Rent and performing all of
Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy
the Premises during the Term as against all persons or entities lawfully
claiming by or through Landlord; subject, however, to the provisions of this
Lease and to the rights of Landlord's Mortgagee.
15. NOTICES
15.01 MANNER OF NOTICE.
(a) All notices, demands and other communications ("NOTICES")
permitted or required to be given under this Lease shall be in writing, and
sent by personal service, certified mail (postage prepaid) return receipt
requested or by a nationally recognized overnight courier service, (a) to
Tenant (i) at 542 Westport Avenue, Norwalk, Connecticut 06851, Attention:
David S. Teitelman, if sent prior to Tenant's taking possession of the
Premises, or (ii) at the Building if sent subsequent to Tenant's taking
possession of the Premises, Attn: David S. Teitelman, or (iii) at any place
where Tenant or any agent or employee of Tenant may be found if sent
subsequent to Tenant's vacating, abandoning or surrendering the Premises,
and (b) to Landlord at c/o Berwind Property Group, Inc., One Belmont
Avenue, Suite 401, Bala Cynwynd, Pennsylvania 19004, Attention: Connecticut
Asset Manager, with copies to c/o Davis Management Corp., 187 Danbury Road,
Wilton, Connecticut 06897, and Aegis Realty Consultants, 1601 Market
Street, Suite 2230, Philadelphia, Pennsylvania 19103, Attention:
Connecticut Asset Manager, or (c) to such other address as either Landlord
or Tenant may designate as its new address for such purpose by notice given
to the other in accordance with the provisions of this Section 15.01.
(b) Notices shall be deemed to have been given (i) when hand delivered
(provided that delivery shall be evidenced by a receipt executed by or on
behalf of the addressee if delivered by personal service) if personal
service is used), (ii) the sooner of the date of receipt or the date that
is three (3) days after the date of mailing thereof if sent by postage
pre-paid registered or certified mail, return receipt requested, and (iii)
one (1) day after being sent by Federal Express or other reputable
overnight courier service (with delivery evidenced by written receipt) if
overnight courier service is used.
16. MISCELLANEOUS
16.01 AUTHORITY. If Tenant signs as a corporation or a partnership, each
person executing this Lease on behalf of Tenant hereby covenants and warrants
that Tenant is a duly authorized and existing entity, that Tenant is duly
qualified to do business in Connecticut, that Tenant has full right and
authority to enter into this Lease, and that each person signing on behalf of
Tenant is duly authorized to do so and that no other signatures are necessary.
Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties.
16.02 SUBMISSION. Submission of this instrument for examination does not
constitute a reservation of or option for lease of the Premises, and it is not
effective as a lease or otherwise until this Lease has been executed by both
Landlord and Tenant and a fully executed copy has been delivered to each.
16.03 BUILDING NAME. The Building and Project may be known by such name as
Landlord, in its sole discretion, may elect, and Landlord shall have the right
from time to time to change such designation or name without Tenant's consent
upon thirty (30) days prior written notice to Tenant.
16.04 NOTICE OF LEASE. Upon the Commencement Date of this Lease, either
party shall upon the request of the other, join in the execution of a notice of
lease pursuant to Section 47-19 of the Connecticut General Statutes and either
party may record the same. Tenant shall not record this Lease, and any recording
of this Lease or any memorandum thereof (other than as contemplated by the
preceding sentence) shall constitute an Event of Default by Tenant. At the
expiration or earlier termination of this Lease, Tenant shall, at the request of
Landlord, execute and deliver to Landlord a quit-claim deed, lease cancellation
instrument or other instrument of release in form suitable for recording,
provided that such document does not have the effect of waiving any claims that
either Landlord or Tenant may have against
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the other arising out of this Lease.
16.05 NO PARTNERSHIP. Any intention to create a joint venture or
partnership relation between the parties hereto is hereby expressly disclaimed.
Landlord shall not by the execution of this Lease in any way or for any purpose,
become (a) a partner of Tenant in the conduct of Tenant's business or otherwise,
or (b) a joint venturer or a member of a joint enterprise with Tenant.
16.06 TENANT'S FINANCIAL STATEMENTS. Tenant shall furnish Landlord
annually, within sixty (60) days after the end of each fiscal year of Tenant,
copies of the balance sheets of Tenant, as at the close of such fiscal year, and
statements of income and retained earnings of Tenant for such year, prepared in
accordance with generally accepted accounting principles and audited by Tenant's
independent certified public accountants. During such time that Tenant remains a
publicly traded United States company, Tenant shall not be required to deliver
its financial statements as aforesaid, but during such period Tenant shall
deliver its financial statements to Landlord within ten (10) days following
Landlord's request therefor. This agreement shall also be applicable to any
permitted assignees or sublessees.
16.07 JOINT AND SEVERAL. If two or more individuals, corporations,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each such individual,
corporation, partnership or other business association to pay Rent and perform
all other obligations hereunder shall be deemed to be joint and several, and all
notices, payments and agreements given or made by, with or to any one of such
individuals, corporations, partnerships or other business associations shall be
deemed to have been given or made by, with or to all of them. In like manner, if
Tenant shall be a partnership or other business association, the members of
which are, by virtue of statute or federal law, subject to personal liability,
the liability of each such member shall be joint and several.
16.08 SURVIVAL. All agreements, covenants and indemnifications contained
herein or made in writing pursuant to the terms of this Lease by or on behalf of
Tenant shall be deemed material and shall survive expiration or sooner
termination of this Lease.
16.09 BROKERS' FEE.
(a) Subject to the execution of this Lease by both parties, Landlord
shall pay to the Listing Broker designated in Section 1.09 a fee as set
forth in a separate agreement between Landlord and the Listing Broker.
(b) Tenant and Landlord each represent and warrant to the other that
neither has had any dealing with any person, firm, broker, or finder (other
than the person(s), if any, whose names are set forth in Section 1.09) in
connection with the negotiation of this Lease or the consummation of the
transaction contemplated hereby (except that Tenant, at its expense, has
retained Mark G. Anderson Consultants as Tenant's representative), and no
other broker or other person, firm, or entity is entitled to any commission
or finder's fee in connection with said transaction and Tenant and Landlord
do each hereby indemnify and hold the other harmless from and against any
costs, expenses, attorneys' fees, or liability for compensation or charges
which may be claimed by any such unnamed broker, finder, or other similar
party by reason of any dealings or actions of the indemnifying party.
16.10 ATTORNEY'S FEES. If on account of any default by Tenant in Tenant's
obligations under the terms of this Lease, it becomes necessary or appropriate
for Landlord to employ attorneys or other persons to enforce any of Landlord's
rights or remedies hereunder, Tenant shall pay upon demand as Additional Rent
hereunder all reasonable fees of such attorneys and other persons and all other
costs of any kind so incurred.
16.11 LANDLORD'S LIABILITY. The term "Landlord" as used herein and
throughout the Lease shall mean only the owner or owners at the time in question
of Landlord's interest in this Lease. Upon any transfer of such interest, from
and after the date of such transfer, Landlord herein named (and in case of any
subsequent transfers the then transferor) and each of its partners, principals,
shareholders, members,
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beneficiaries or co-tenants, as the case may be, ("LANDLORD'S CONSTITUENT
PARTIES") shall be relieved of all liability for the performance of any
obligations on the part of the Landlord contained in this Lease, provided that
any monies in the hands of Landlord or the then transferor at the time of such
transfer, in which Tenant has an interest, shall be delivered to the transferee.
The obligations contained in this Lease to be performed by Landlord shall be
binding on Landlord's successors and assigns, only during their respective
periods of ownership, provided, however, that Landlord and each of Landlord's
Constituent Parties shall be under no personal liability with respect to any of
the provisions, covenants or agreements of this Lease. If Landlord becomes
obligated to pay Tenant a money judgment or otherwise expend funds on account of
any failure by Landlord to perform any of its obligations under this Lease,
Tenant shall be limited for the satisfaction of the money judgment or other
obligation solely to Landlord's interest in the Building (inclusive of the
proceeds of the sale thereof) and no other property or assets of Landlord or
Landlord's Constituent Parties shall be subject to levy, execution or other
enforcement procedure whatsoever for the satisfaction of the money judgment.
16.12 TIME OF ESSENCE. Except as provided in Section 16.13, TIME IS OF THE
ESSENCE with respect to the due performance of the terms, covenants and
conditions herein contained; provided, however that no delay or failure to
enforce any of the provisions herein contained and no conduct or statement shall
waive or affect any of Landlord's rights hereunder.
16.13 FORCE MAJEURE. Whenever during the Term it becomes impossible for
Landlord or Tenant to perform the obligations on either party's part to be
performed as a result of war, civil riots, labor disputes or strikes, or
inspection delays by governmental authorities (other than those caused by the
willful act or omission of Landlord or Tenant), or Acts of God or the elements,
then Landlord or Tenant shall be excused from such performance without penalty
or other liability or a breach of or default under this Lease to the other party
for the period of time in which the event or events giving rise to the
impossibility of performance shall exist. Landlord and Tenant agree that neither
party shall be excused from the timely performance of its obligations under this
Lease for a period of time greater than ninety (90) days, unless specifically
provided otherwise in this Lease, and that Tenant's obligation to pay Rent shall
not be excused on account of any force majeure condition, except as may be
otherwise specifically provided in this Lease.
16.14 INTERPRETATION. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. The words used in neuter
gender include the masculine and feminine. If there is more than one Tenant, the
obligations under this Lease imposed on Tenant shall be joint and several. The
captions preceding the articles of this Lease have been inserted solely as a
matter of convenience and such captions in no way define or limit the scope or
intent of any provision of this Lease.
16.15 NO MERGER. There shall be no merger of this Lease or of the leasehold
estate hereby created with the fee estate in the Premises or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as well as the fee estate in the
leasehold Premises or any interest in such fee estate. The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not
work a merger unless Landlord so elects, and shall, at the option of Landlord,
terminate all or any existing subtenancies or may, at the option of Landlord,
operate as an assignment to Landlord of any or all of such subtenancies.
16.16 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each provision of this Lease
shall be valid and enforceable to the full extent permitted by law. No remedy or
election hereunder shall be deemed exclusive, but shall wherever possible, be
cumulative with all other remedies at law or in equity. Neither this Lease nor
any term or provision hereof may be changed, waived, discharged or terminated
orally, and no breach thereof shall be waived, altered or modified, except by a
written instrument signed by the party against which the enforcement of the
change, waiver, discharge or termination is sought. Any right to change, waive,
discharge, alter or modify, or terminate this Lease shall be subject to the
prior express written consent of Landlord's Mortgagee.
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16.17 NO WAIVER. No waiver of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach of the same or any
other provision. No waiver of any breach shall affect or alter this Lease, but
each and every term, covenant and condition of this Lease shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof. No reference to any specific right or remedy shall preclude the
exercise of any other right or remedy permitted hereunder or that may be
available at law or in equity. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition hereof, or to exercise
any right or remedy consequent upon a breach thereof, and no acceptance of full
or partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach, agreement, term, covenant or condition.
16.18 MULTIPLE OPTIONS. In the event that Tenant has any multiple options
to expand, extend or renew this Lease, a later option cannot be exercised unless
the prior option to expand, extend or renew this Lease has been properly
exercised in accordance with the terms of this Lease.
16.19 GOVERNING LAW. This Lease and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with the laws of
the State of Connecticut.
16.20 BIND AND INURE. The terms, provisions, covenants and conditions
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant, and, except as otherwise provided herein, their respective heirs, legal
representatives, successors and assigns. Notwithstanding anything to the
contrary set forth herein, if Landlord's Mortgagee shall succeed to Landlord's
interests hereunder, then Landlord's Mortgagee shall not be deemed to have
assumed any obligations or liabilities under this Lease which arose prior to the
date any such Mortgagee succeeded to Landlord's interests hereunder.
16.21 ENTIRE AGREEMENT. This Lease, including the Exhibits hereto, which
are made part of this Lease, contain the entire agreement of the parties and all
prior negotiations and agreements are merged herein. Neither Landlord nor
Landlord's agents have made any representations or warranties with respect to
the Premises, the Building or this Lease except as expressly set forth herein,
and no rights, easements or licenses are or shall be acquired by Tenant by
implication or otherwise unless expressly set forth herein. Tenant covenants and
agrees that no diminution of light, air or view by any structure that may
hereafter be erected (whether or not by Landlord) shall entitle Tenant to any
reduction of Rent under this Lease, result in any liability of Landlord or
Tenant, or in any other way affect this Lease or Tenant's obligations hereunder.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LANDLORD:
________________________________ FAIRHAVEN INVESTORS LIMITED
PARTNERSHIP
________________________________ By__________________________________
Name:
Title:
TENANT:
________________________________ WILTEK, INC.
________________________________ By:_________________________________
Name:
Title:
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STATE OF ________________ )
) ss. ____________
COUNTY OF _______________ )
On this the ____ day of March, 1999, before me, _____________________, the
undersigned officer, personally appeared ___________________, who acknowledged
himself/herself to be the __________________ of BERGEN OF CONNECTICUT, INC., the
general partner of FAIRHAVEN INVESTORS LIMITED PARTNERSHIP, a limited
partnership and that he/she, in such capacity being authorized so to do executed
the foregoing instrument as his/her free act and deed and the free act and deed
of BERGEN OF CONNECTICUT, INC. for the purposes contained therein by signing the
name of FAIRHAVEN INVESTORS LIMITED PARTNERSHIP by himself/herself as
_____________ of BERGEN OF CONNECTICUT, INC.
IN WITNESS WHEREOF, I hereunto set my hand.
_______________________________________ Notary Public/Commissioner of
[Affix Notarial Seal] the Superior Court
STATE OF________________ ) ss. _______________
)
COUNTY OF ______________ )
On this the ____ day of March, 1999, before me, _________________________,
the undersigned officer, personally appeared __________________, who
acknowledged himself to be the ________________________ of WILTEK, INC., a
corporation, and that he, as such __________________________, being authorized
so to do, executed the foregoing instrument as his free act and deed and the
free act and deed of the corporation for the purposes contained therein by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
______________________________
Commissioner of the Superior Court/
Notary Public
[Affix Notarial Seal] My Commission Expires:
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EXHIBIT A
LEGAL DESCRIPTION
35 NUTMEG DRIVE, TRUMBULL, CONNECTICUT
A certain piece or parcel of land located on the southerly side of Nutmeg Drive
and the northwesterly terminous of Merritt Boulevard, Trumbull, Connecticut.
Shown on a map entitled "MAP PREPARED FOR TRUMBULL CORPORATE PARK EAST
ASSOCIATES NUTMEG DRIVE & MERRITT BLVD. TRUMBULL, CONN. SCALE: 1" = 50' DATE:
APRIL 6, 1987 REV. FEB. 11, 1988 DEC. 2, 1988 DEC. 28, 1988 SEPT. 22, 1995 APR.
2, 1996 MAP #A2533 SEARCH FB/PG DRAWING NOWAKOWSKI, O'BYMACHOW & KANE CIVIL
ENGINEERING & LAND SURVEYING SHELTON, CONNECTICUT 06484, ("Map"), which Map is
on file or to be on file with the Trumbull Town Clerk's Office. Being more
particularly bounded and described as follows:
Commencing at a point in the southerly street line of Nutmeg Drive, said
point being the northwest corner of land now or formerly of Connecticut
Development Authority and being the northeast corner of the herein described
premises as shown on said Map;
Thence proceeding along the westerly property line of land now or formerly
of Connecticut Development Authority S 29(degree) 30' 21" E, a distance of
510.00' to a point;
Thence proceeding to the southerly property line of land now or formerly of
Connecticut Development Authority, N 60(degree) 29' 39" E, a distance of 78.35'
to a point, which point marks the northwest corner of land now or formerly of
Nasdaq Inc., as shown on said Map;
Thence proceeding to the westerly property line of land now or formerly of
Nasdaq Inc. S 17(degree) 40' 46" E, a distance of 510.71' to a point in the
northerly highway line of Merritt Boulevard, which point marks the southwest
corner of land now or formerly of Nasdaq Inc. and the southeast corner of the
herein described premises;
Thence proceeding along the northerly highway line of Merritt Boulevard S
74(degree) 33' 23" W, a distance of 3.59', to a point, thence proceeding along a
curve to the right having a delta of 60(degree) 00' 00" and a radius of 40.00; a
distance of 41.89' to a point in the northerly highway line of Merritt
Boulevard;
Thence proceeding along the northerly highway line of Merritt Boulevard
along a curve to the left, having a delta of 199(degree) 21' 23" and a radius of
60.0', a distance of 208.77' to a point in the westerly highway line of Merritt
Boulevard;
Thence proceeding along the northerly property line of land now or formerly
of Town of Trumbull and the northerly property line of land now or formerly of
Norden Systems Inc. S 64(degree) 00' 00" W a distance of 270.06' to a point;
thence proceeding along the northerly property line now or formerly of Norden
Systems Inc. S 73(degree) 00' 00" W a distance of 120.00' to a point; thence
proceeding along the northwest property line of land now or formerly of Norden
Systems Inc. S 22(degree) 00' 00" W, a distance of 53.52' to a point in the
easterly highway line of Merritt Parkway, which point marks the westerly corner
of Norden Systems Inc.;
Thence proceeding along the easterly highway line of Merritt Parkway, on
land now or formerly of State of Connecticut the following nine courses: along a
curve to a right having a delta of 06(degree) 44' 05" and a radius of 3,112.16',
a distance of 365.81' to a point; thence along a curve to the right having a
delta of 08(degree) 40' 58" and a radius of 710.0', a distance of 107.60' to a
point; thence proceeding N 20(degree) 20' 27" W, a distance of 35.28' to a
point; N 49(degree) 50' 27" W, a distance of 180.00' to a point; N 33(degree)
50' 27" W, a distance of 182.00' to a point; N 14(degree) 20' 27" W, a distance
of 181.00' to a point; N 00(degree) 39' 33" E, a distance of 45.12' to a point;
thence proceeding along a curve to the left having a delta of 74(degree) 07' 53"
and
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a radius of 60.0', a distance of 77.63' to a point; N 60(degree)29' 39" E, a
distance of 141.08' to a point on the westerly terminous of Nutmeg Drive;
Thence proceeding along the southerly terminous of Nutmeg Drive along a
curve to the left having a delta of 120(degree) 00' 00" and a radius of 60.00',
a distance of 125.66' to a point on the southerly street line of Nutmeg Drive; N
60(degree) 29' 39" E, a distance of 540.12' to the point or place of beginning.
TOGETHER WITH a Sanitary Sewer Easement dated February 18, 1988 and
recorded in Volume 650 at Page 413 of the Trumbull Land Records.
Being the same property as Lot 15-1 on "SUBDIVISION MAP OF PROPERTY LOCATED
ON MERRITT BOULEVARD & NUTMEG DRIVE TRUMBULL, CONNECTICUT PREPARED FOR BUNKER
RAMO. ELTRA CORPORATION J & D KASPER & ASSOCIATES Engineers, Surveyors,
Planners, Bridgeport, Connecticut Scale 1" = 100' Date Oct. 4, 1982 Sheet 1 of 1
Designated by K.J.K. Drawn by J.M.P. Checked by K.J.K. Proj. No. K3823/4094
REVISIONS No. Description Date 1. PUMP STA-PL AND EASEMENT 2-17-83 2. ADDITION
OF MINCHICK PROPERTY 8-23-83" ("Map") to which Map reference is hereby made,
which Map is on file with the Trumbull Town Clerk.
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EXHIBIT B
PREMISES
35 NUTMEG DRIVE, TRUMBULL, CONNECTICUT
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EXHIBIT C
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
35 NUTMEG DRIVE, TRUMBULL, CONNECTICUT
1. Tenant shall not display, inscribe, print, paint, maintain or affix on
any place or in or about the Building any sign, notice, legend, direction,
figure or advertisement, except on the doors of the Premises and on the
Directory Boards, and then only such name or names and matter, and in such
color, size, style, place and materials, as shall first have been approved in
writing by Landlord.
2. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Building in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities or, which in
Landlord's reasonable judgment, tends to impair the reputation of the Building
or its desirability as a building for offices, and shall not use the name of the
Building for any purpose other than as the business address of Tenant, and
Tenant shall not use any picture or likeness of the Building in any circulars,
notices, advertisements or correspondence without Landlord's prior written
consent.
3. Tenant shall not use the Premises for housing accommodations or lodging
or sleeping purposes, or do any cooking therein (except any convenience
kitchen), or use any illumination other than electric light, or use or permit to
be brought into the Building any flammable oils or fluids such as gasoline,
kerosene, naptha, and benzine, or any explosives, radioactive materials or other
articles deemed hazardous to life, limb or property.
4. Tenant shall not contract for any work or service which might involve
the employment of labor incompatible with the Building employees or employees of
contractors doing work or performing services by or on behalf of Landlord or
with the terms and conditions of any collective bargaining agreement to which
Landlord or Landlord's agents or contractors may be a party.
5. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises, and Tenant shall not cover or obstruct the sashes, sash
doors, skylights, windows and doors that reflect or admit light and air into the
public places in the Building.
6. No Tenant shall have any property stored outside, except with the prior
consent of Landlord.
7. All sidewalks, halls, passages, exits, entrances, elevators, lobbies and
stairways of the Building, if any, shall not be obstructed by any Tenant or used
by him for any purpose other than for ingress to and egress from his respective
Premises no shall any door be locked during normal business hours. No Tenant and
no employees or invitees of Tenant shall go upon the roof of the Building.
8. Tenant shall not alter any lock nor install any new or additional locks
or any bolts on any door of the Premises, except with the prior consent of
Landlord, which consent shall not be unreasonably withheld.
9. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof.
10. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals, fish or
45
<PAGE> 46
birds, bicycles or other vehicles be brought in or kept in or about the Premises
or the Building. All bicycles shall be parked in areas designated by Landlord at
the Building.
11. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air-conditioning other than that supplied by Landlord.
12. No boring or cutting for wires will be allowed without the consent of
Landlord.
13. Each Tenant, upon the termination of his tenancy, shall deliver to
Landlord the keys of offices, rooms and toilet rooms which shall have been
furnished Tenant or which Tenant shall have had made, and in the event of loss
of any keys so furnished, shall pay the Landlord therefor.
14. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the Rules and Regulations of the Building.
15. No vending machine or machines of any description shall be installed,
maintained or operated outside the Premises without the written consent of
Landlord.
16. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
17. Any permitted corrosive, flammable or other special wastes shall be
handled for disposal as directed by Landlord and strictly in accordance with all
applicable law.
18. Tenant's use of the Common Areas shall be limited to access and parking
purposes and under no circumstances shall Tenant be permitted to store any goods
or equipment, conduct any operations or construct or place any improvements,
barriers or obstructions in the Common Areas, or otherwise adversely affect the
appearance thereof, without the prior consent of Landlord.
19. Tenant agrees to handle and dispose of all rubbish, garbage, and waste
from Tenant's operations in accordance with regulations established by Landlord
and not permit the accumulation (unless in concealed metal containers), or
burning of any rubbish or garbage in, or about any part of the Building.
20. Tenant shall not change (whether by alteration, replacement, rebuilding
or otherwise) the exterior color and/or architectural treatment of the Premises
or of the Building in which the same are located, or any part thereof.
21. Tenant shall not use the plumbing facilities for any purpose other than
for which they were constructed, or dispose of any garbage or other foreign
substance therein, whether through the utilization of so-called "disposal" or
similar units, or otherwise.
22. Tenant shall not subject any fixtures, furnishings or equipment in or
on the Premises and affixed to the realty, to any mortgages, liens, conditional
sales agreements or encumbrances.
23. Tenant shall not install any awnings or curtains, blinds, shades or
screens in, on or outside the Premises which are visible to public view outside
the Premises.
24. Tenant shall not permit window cleaning or other exterior maintenance
and janitorial services in and for the Premises to be performed except by such
person(s) as shall be approved by Landlord and except during reasonable hours
designated for such purposes by Landlord.
25. Landlord reserves the right to make such other and further
nondiscriminatory Rules and Regulations as in its judgment may be necessary or
desirable for the safety, care and cleanliness of the Premises and the Building
and for the preservation of good order therein. Tenant agrees to abide by all
46
<PAGE> 47
such Rules and Regulations hereinabove stated and any additional Rules and
Regulations which are adopted.
26. Heating, lighting and plumbing: The Landlord or his agent should be
notified at once of any trouble with heating, lighting or plumbing fixtures.
Tenants must not leave doors of the Premises unlocked at night.
27. All freight, furniture, etc. must be received and delivered through
entrances to the Building designated for such purpose unless otherwise
authorized by the Landlord, and only during such hours and in such elevators as
Landlord may reasonably determine from time to time.
28. Nothing shall be thrown from or taken in through the windows, nor shall
anything be left outside the building on the window sills of the Premises.
29. No person shall loiter in the halls, corridors or lavatories.
30. The Landlord, its agents and employees shall have access at reasonable
times to perform their duties in the maintenance and operation of the Premises.
31. No Tenant shall use any method of heating other than that provided for
in the Tenant's lease without the consent of the Landlord.
32. Any damage caused to the Building or the Premises or to any person or
party herein as a result of any breach of any of the rules and regulations by
the Tenant shall be borne by the Tenant.
33. Tenant will not store vehicles for extended periods of time in the
parking garage.
34. Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or the Lease. Landlord
may require any person leaving the Building with any package or other object or
matter to submit a pass, listing such package or object or matter, from the
tenant from whose premises the package or object or matter is being removed, but
the establishment and enforcement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of such tenant. Landlord shall in no way be liable
to Tenant for damages or loss arising from the admission, exclusion or ejection
of any person to or from the Premises or the Building under the provisions of
this Rule or the following Rule.
35. All persons entering and/or leaving the Building during hours other
than business hours may be required to sign a register. Landlord will notify
each tenant if Landlord elects to institute a pass system outside of regular
business hours.
36. Tenant shall not occupy or permit any portion of the Premises to be
occupied as an office for a public stenographer or public typist, or for the
warehousing, manufacture or sale to the general public of beer, wine, liquor, or
drugs; for rendition of medical, dental or other diagnostic or therapeutic
services; as a barber, beauty or manicure shop; as an employment bureau; or for
the preparation, dispensing or consumption of food and beverages in any manner
not consistent with office use, unless specifically approved and agreed to in
writing by Landlord and only for the exclusive use of Tenant, its employees and
visitors. Tenant shall not use the Premises or any part thereof, or permit the
Premises or any part thereof to be used, for sale at retail or auction of
merchandise, goods or property of any kind, except for promotional purposes, or
for manufacturing, printing or electronic data processing, except for the
operation of normal business office reproducing or printing equipment and other
business machines for Tenant's own requirements at the Premises; provided that
such use shall not exceed that portion of the mechanical or electrical
capabilities of the Building equipment allocable to the Premises.
37. Tenant shall not take or permit any action which would impair or
interfere with any of the Building services or the proper and economic heating,
cleaning, air conditioning or other servicing of
47
<PAGE> 48
the Building or the Demised Premises, or impair or interfere with or tend to
impair or interfere with the use of any of the other areas of the Building by
occasion or discomfort, annoyance or inconvenience to, Landlord or any other
tenants or occupants of the Building. Tenant shall cooperate with Landlord in
obtaining maximum effectiveness of the cooling system and if requested by
Landlord shall lower and close drapes and curtains when the sun's rays fall
directly on the windows of the Premises.
38. Tenant shall comply with such rules and regulations governing parking
as may be promulgated from time to time by Landlord, including, without
limitation, rules and regulations requiring the parking of vehicles in
designated spaces or areas or regarding the exclusion of other spaces or areas.
39. If any governmental license or permit shall be required for the proper
and lawful conduct of Tenant's business in the Premises, or any part thereof,
and if failure to secure such license or permit would in any way affect
Landlord, then Tenant, at its expense, shall duly procure and thereafter
maintain such license or permit and submit the same inspection by Landlord.
Tenant shall at all times comply with the terms and conditions of each such
license or permit, and failure to procure and maintain same by Tenant shall not
affect Tenant's obligations hereunder.
40. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense, in such a manner as shall be
sufficient in Landlord's judgment to absorb and prevent vibration, noise and
annoyance.
41. In the moving, delivery of receipt of safes, freight, furniture,
packages, boxes, crates, paper, office material, or any other matter or thing,
Tenant shall use and shall cause its employees and contractors and any others
making deliveries to the Premises to use hand trucks equipped with rubber tires,
side guards and such other safeguards as Landlord shall reasonably require. No
hand trucks shall be used in passenger elevators, and no such passenger
elevators shall be used for moving, delivery or receipt of the aforementioned
articles.
Landlord's Initials:_____________________ Tenant's Initials:___________________
48
<PAGE> 49
EXHIBIT D
CLEANING SPECIFICATIONS
35 NUTMEG DRIVE, TRUMBULL, CONNECTICUT
LOBBY AND PUBLIC AREAS
<TABLE>
<CAPTION>
DAILY:
-----
<S> <C>
1. Pull all trash. Replace liners as needed
2. Empty and clean all ashtrays
3. Spot wash all walls and doors
4. Vacuum all carpeting
5. Thoroughly clean all drinking fountains
6. Sweep all stairwells
WEEKLY:
------
1. Sweep and wash all stairs and landings
2. Spot wash walls
3. Vacuum all treads
4. Dust rails and ledges
5. Wipe down fixed equipment such as fire extinguisher
6. Spot clean all carpeting*
7. Clean all glass in doors and partitions
8. Dust down all ledges
</TABLE>
PERIODIC SPOT CLEANING
The following list of items and components includes by example, but is
not limited to items/components that require spot cleaning.
<TABLE>
<S> <C>
* Door hardware and accessories (including knobs, latches, push plate/bars, etc.)
* Wall/door partition surfaces (including glass in walls, doors and partitions)
* All moldings/framings
* Vents, grills/registers
* Telephones, disinfect all phone receivers
* Recessed fire equipment cabinets
* Light fixtures
* Lavatory fixtures
* Glass/mirrors
</TABLE>
*Carpet shampooing all common hallways, one time per year.
<TABLE>
<S> <C>
* Directory signage/panel frames
* Water coolers/fountains
* Elevator floor selector panels (metal polish to be used)
OFFICE AREAS
DAILY:
-----
1. Pull all trash and replace liners if necessary
2. Empty ashtrays
3. Vacuum all carpeted areas
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C>
4. Spot clean all walls, woodwork, doors and other surfaces
5. Sweep and spot wash all tile areas, if any
WEEKLY:
------
1. Dust artificial plants, paintings, and other wall decorations
2. Clean all glass doors and partitions
3. Spot clean carpet*
4. Remove dust from all furniture, window ledges, radiators, and
coat racks providing areas are free of personal belongings,
paperwork, etc.
</TABLE>
*Carpet shampooing all common hallways, one time per year.
<TABLE>
<CAPTION>
YEARLY:
------
<S> <C>
1. Clean all baseboards
2. Clean all vents
3. Clean both sides of exterior glass (window washing)
</TABLE>
CONFERENCE ROOMS
Follow office cleaning procedures
Vacuum all upholstered furniture as necessary
BATHROOMS
<TABLE>
<CAPTION>
DAILY:
-----
<S> <C>
1. Pull all trash. Replace liners as needed
2. Replenish towel dispensers, soap dispensers and toilet paper dispensers
3. Clean and thoroughly sanitize all toilets, rents, sinks, and urinals
4. Spot wash all walls, doors and partitions, including all graffiti.
5. Thoroughly wash all floors and baseboards with disinfectant cleaner
6. Wipe down and clean all mirrors and bright work including stainless steel and chrome
plumbing fixtures.
7. Wash down all sinks and counters
8. Empty and wash all feminine napkin disposal cans
</TABLE>
MONTHLY: (Last Friday of every month)
-------
Dust down all pipes, vents, and high spots.
Thoroughly wash down all walls, partitions, doors and other surfaces
with disinfectant cleaner.
SEMI-ANNUALLY:
-------------
Thoroughly machine scrub all floor surfaces to remove any build-up in
grouting or edges.
50
<PAGE> 51
EXHIBIT E
DESCRIPTION OF TENANT'S SPECIAL EQUIPMENT
35 NUTMEG DRIVE, TRUMBULL, CONNECTICUT
Tenant's Special Equipment will be in the range of the following:
1. One (1) 250 Diesel Generator Set rated 250KW standby 277/480 volts 3
phase 60 Hertz
2. Three to Five (3-5) Split System Liebert or equivalent 10 Ton
supplementary cooling units.
The parties hereto acknowledge and agree that the exact specifications of
the above listed Special Equipment are subject to modification by Tenant at
Tenant's discretion.
51
<PAGE> 52
OFFICE LEASE
Between
FAIRHAVEN INVESTORS LIMITED PARTNERSHIP
(Landlord)
and
WILTEK, INC.
(Tenant)
35 Nutmeg Drive
Trumbull, Connecticut
March 25, 1999
52
<PAGE> 53
OFFICE LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1 BASIC LEASE PROVISIONS............................................ 1
Section 1.01 Project........................................................... 1
Section 1.02 Building.......................................................... 1
Section 1.03 Premises.......................................................... 1
Section 1.04 Use............................................................... 1
Section 1.05 Term.............................................................. 1
Section 1.06 Annual Base Rent.................................................. 1
Section 1.07 Security Deposit.................................................. 1
Section 1.08 Tenant Share of Taxes and Operating Expenses...................... 1
Section 1.09 Listing Broker.................................................... 1
SECTION 2 PREMISES, PARKING AND COMMON AREAS................................ 1
Section 2.01 Premises.......................................................... 1
Section 2.02 Parking........................................................... 2
Section 2.03 Common Areas...................................................... 2
Section 2.04 Common Areas - Rules and Regulations.............................. 2
Section 2.05 Common Areas - Changes............................................ 2
SECTION 3 TERM.............................................................. 3
Section 3.01 Lease Term........................................................ 3
Section 3.02 Rent Commencement Date............................................ 3
Section 3.03 Tenant's Leasehold Improvements................................... 4
Section 3.04 Confirmatory Amendments........................................... 8
SECTION 4 RENT AND SECURITY................................................. 8
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 4.01 Annual Base Rent.................................................. 8
Section 4.02 Additional Rent................................................... 8
Section 4.03 Place of Payment.................................................. 9
Section 4.04 Terms of Payment.................................................. 9
Section 4.05 Late Charges; Interest............................................ 9
Section 4.06 Security Deposit.................................................. 9
SECTION 5 ADDITIONAL RENT FOR REAL ESTATE TAXES AND OPERATING EXPENSES...... 11
Section 5.01 Net Lease......................................................... 11
Section 5.02 Definitions....................................................... 11
Section 5.03 Payment of Additional Rent........................................ 14
Section 5.04 Payment of Electric Expense....................................... 14
Section 5.05 Landlord's Statements and Tenant's Inspection Rights.............. 15
Section 5.06 Additional Rent Adjustments....................................... 16
Section 5.07 Personal Property Taxes........................................... 17
SECTION 6 SERVICES AND UTILITIES............................................ 17
Section 6.01 Services.......................................................... 17
Section 6.02 Additional Services............................................... 18
Section 6.03 Excessive Current................................................. 18
Section 6.04 Utility Additions................................................. 19
Section 6.05 Landlord's Access................................................. 19
Section 6.06 Interruption of Services.......................................... 19
Section 6.07 Easements......................................................... 20
SECTION 7 CONDUCT OF BUSINESS BY TENANT..................................... 20
Section 7.01 Permitted Use..................................................... 20
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 7.02 Signage........................................................... 20
Section 7.03 Compliance With Legal and Insurance Requirements.................. 20
Section 7.04 Americans with Disabilities Act................................... 21
Section 7.05 Hazardous Materials............................................... 22
Section 7.06 Tenant's Failure to Maintain...................................... 24
SECTION 8 MAINTENANCE, REPAIRS, ALTERATIONS AND ADDITIONS................... 24
Section 8.01 Maintenance and Repair - Landlord's Obligations................... 24
Section 8.02 Maintenance and Repair - Tenant's Obligations..................... 24
Section 8.03 Alterations....................................................... 25
Section 8.04 No Liens.......................................................... 26
Section 8.05 Tenant's Property................................................. 26
Section 8.06 Ownership and Removal............................................. 27
Section 8.07 Surrender......................................................... 27
Section 8.08 Holdover Tenancy.................................................. 27
SECTION 9 INSURANCE......................................................... 28
Section 9.01 Tenant's Insurance................................................ 28
Section 9.02 Delivery of Policies.............................................. 28
Section 9.03 Increased Insurance Risk.......................................... 29
Section 9.04 Landlord's Insurance.............................................. 29
Section 9.05 Waiver of Claims.................................................. 30
Section 9.06 Limitation on Landlord's Liability................................ 30
Section 9.07 Indemnities....................................................... 30
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 10 CASUALTY.......................................................... 31
Section 10.01 Damage or Destruction............................................. 31
Section 10.02 Abatement of Rent................................................. 32
Section 10.03 Events of Termination............................................. 32
Section 10.04 Insurance Proceeds Upon Termination............................... 32
Section 10.05 Scope of Landlord's Repairs....................................... 32
SECTION 11 CONDEMNATION...................................................... 33
Section 11.01 Entire Condemnation............................................... 33
Section 11.02 Partial Condemnation.............................................. 33
Section 11.03 Proration......................................................... 33
Section 11.04 Temporary Taking.................................................. 33
Section 11.05 Condemnation Awards............................................... 34
SECTION 12 ASSIGNMENT AND SUBLETTING......................................... 34
Section 12.01 Landlord's Consent Required....................................... 34
Section 12.02 Restriction on Transfer........................................... 34
Section 12.03 Landlord's Options................................................ 34
Section 12.04 Additional Conditions............................................. 35
Section 12.05 Transfer Profit................................................... 36
Section 12.06 Permitted Controlled Transfers.................................... 36
Section 12.07 No Release of Tenant.............................................. 36
Section 12.08 Assumption of Obligations......................................... 37
Section 12.09 Material Inducement............................................... 37
SECTION 13 DEFAULTS AND REMEDIES............................................. 37
Section 13.01 Events of Default................................................. 37
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 13.02 Remedies.......................................................... 38
Section 13.03 Landlord's Right to Cure Defaults................................. 41
Section 13.04 No Accord and Satisfaction........................................ 41
Section 13.05 Default by Landlord............................................... 41
Section 13.06 Indirect Damages.................................................. 41
Section 13.07 Waivers........................................................... 42
Section 13.08 Claims in Bankruptcy.............................................. 42
SECTION 14 NONDISTURBANCE AND RIGHTS OF MORTGAGE HOLDERS..................... 43
Section 14.01 Subordination..................................................... 43
Section 14.02 Notices........................................................... 43
Section 14.03 Estoppel Certificates............................................. 44
Section 14.04 Quiet Enjoyment................................................... 44
SECTION 15 NOTICES........................................................... 44
Section 15.01 Manner of Notice.................................................. 44
SECTION 16 MISCELLANEOUS..................................................... 45
Section 16.01 Authority......................................................... 45
Section 16.02 Submission........................................................ 45
Section 16.03 Building Name..................................................... 45
Section 16.04 Notice of Lease................................................... 45
Section 16.05 No Partnership.................................................... 45
Section 16.06 Tenant's Financial Statements..................................... 45
Section 16.07 Joint and Several................................................. 46
Section 16.08 Survival.......................................................... 46
Section 16.09 Brokers' Fee...................................................... 46
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 16.10 Attorney's Fees................................................... 46
Section 16.11 Landlord's Liability.............................................. 46
Section 16.12 Time of Essence................................................... 47
Section 16.13 Force Majeure..................................................... 47
Section 16.14 Interpretation.................................................... 47
Section 16.15 No Merger......................................................... 47
Section 16.16 Severability...................................................... 48
Section 16.17 No Waiver......................................................... 48
Section 16.18 Multiple Options.................................................. 48
Section 16.19 Governing Law..................................................... 48
Section 16.20 Bind and Inure.................................................... 48
Section 16.21 Entire Agreement.................................................. 48
</TABLE>
LIST OF EXHIBITS
Exhibit A Legal Description of Project
Exhibit B Premises
Exhibit C Rules and Regulations
Exhibit D Cleaning Specifications
Exhibit E Description of Tenant's Special Equipment
Exhibit F Letter of Credit
-58-
<PAGE> 1
EXHIBIT 21
List of the Registrant's Subsidiaries
E-Sync Networks (U.K.) Ltd., a U.K. corporation.
Braincraft Learning Technologies, Inc., a New York corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 11, 1998, accompanying the consolidated
financial statements included in the Annual Report of E-Sync Networks, Inc.
(formerly known as Wiltek, Inc. and Subsidiary) on Form 10-KSB for the year
ended October 31, 1998. We hereby consent to the incorporation by reference of
said report in the Registration Statements of Wiltek, Inc. on Forms S-8 (Reg.
Nos. 33-7271 and 333-92933).
GRANT THORNTON LLP
March 5, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of E-Sync Networks, Inc.;
We consent to the incorporation by reference in the registration statements of
E-Sync Networks, Inc., Nos. 33-7271 and 333-92933 on Form S-8, of our reports
dated March 5, 2000, relating to the consolidated balance sheet of E-Sync
Networks, Inc. as of December 31, 1999 and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows and for the year
then ended and for the two months ended December 31, 1998 which reports are
included in the annual report on Form 10-K.
KPMG LLP
New York, New York
March 5, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE E-SYNC NETWORKS,
INC. (FORMERLY WILTEK, INC.) CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999
AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 OCT-31-1998
<PERIOD-START> JAN-01-1999 NOV-01-1997
<PERIOD-END> DEC-31-1999 OCT-31-1998
<CASH> 7182 0
<SECURITIES> 0 0
<RECEIVABLES> 1272 0
<ALLOWANCES> 124 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8712 0
<PP&E> 3620 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 17001 0
<CURRENT-LIABILITIES> 3812 0
<BONDS> 276 0
0 0
33 0
<COMMON> 76 0
<OTHER-SE> 12804 0
<TOTAL-LIABILITY-AND-EQUITY> 17001 0
<SALES> 7490 7584
<TOTAL-REVENUES> 7490 7584
<CGS> 6736 4637
<TOTAL-COSTS> 14562 729
<OTHER-EXPENSES> 97 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (6) 48
<INCOME-PRETAX> (7163) 307
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7163) 307
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7163) 307
<EPS-BASIC> (1.51) .08
<EPS-DILUTED> (1.51) .07
</TABLE>
