SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1996
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 ________TO _______
-----------------
COMMISSION FILE NO. 0-10966
NATIONAL TRANSACTION NETWORK, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-1535237
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Flanders Road
Westborough, Massachusetts 01581
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 870-3200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS: COMMON STOCK, $.15 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes_X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 20, 1997: $163,177, based on the average low bid
and high asked prices on the over-the-counter market as reported on that date.
Number of shares outstanding of registrant's common stock, $.15 par
value, as of March 20, 1997: 3,248,606.
Documents are incorporated by reference:
Portions of the Registrant's Definitive Proxy Statement
for the Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS.
The Company and its Markets
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National Transaction Network, Inc., a Delaware corporation ("NTN" or
the "Company"), is engaged in designing, developing, integrating, marketing, and
maintaining electronic payment systems for use in retail applications. NTN
software products are used to perform some or all of the tasks involved in
electronic payment transactions, including the collection of payment-related
data at the point of sale; the secure transmission of this data to a processing
computer; the authorization of the transaction; the collection of the completed
transactions; and the processing of these transactions for accountability, funds
management, and reporting reasons. NTN also provides support services relating
to the deployment and on-going operation of these systems.
The Company's predecessor was incorporated under Texas law on September
26, 1976. It completed an initial public offering of shares of its common stock
in February 1983. In June 1987, the Company's predecessor completed a subsequent
public offering of units of shares of its common stock and common stock purchase
warrants. On March 25, 1988, the stockholders of the Company's predecessor Texas
corporation approved the merger of the predecessor company with and into
National Transaction Network, Inc., a Delaware corporation which was a
wholly-owned subsidiary of the predecessor company. As a result of the merger,
National Transaction Network, Inc. has succeeded to all of the properties,
assets and liabilities of the predecessor company, and has carried on the
business of the predecessor company.
On September 13, 1996, International Verifact Inc. ("IVI"), a Toronto,
Ontario, Canada-based company, acquired beneficial ownership of approximately
84% of the outstanding common stock, $.15 par value, of the Company in a private
transaction. IVI acquired such shares in exchange for IVI common shares having
an aggregated market value of approximately $1,254,000. Due to the percentage
ownership of NTN acquired as a result of this transaction, NTN has become a
subsidiary of IVI and the financial position and results of operations of NTN
are included in IVI's consolidated financial position and results of operations
from the date of acquisition. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Electronic Payment Systems
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Electronic Payment Systems ("EPS") automate the acceptance of non-cash
payment media at a retail location. This automation process speeds customer
service, reduces retail operating expenses and attracts new customers by
allowing new forms of payment to be accepted. Automation reduces fraud and
eliminates many of the paper documents traditionally associated with non-cash
payments. Common types of payment media automated by EPS include:
* Electronic Funds Transfer ("EFT") using consumer ATM access (debit)
cards. EFT transactions result in the nearly immediate transfer of funds from
the consumer's bank account to the merchant's bank account in exchange for
merchandise and cash. On-line EFT requires the secure transmission of the
consumer's Personal Identification Number ("PIN") for verification at the
financial institution, as well as capture and transmission of the transactional
data.
* Credit Cards. This includes bank issued cards (MasterCard, Visa),
travel and entertainment cards (American Express, Diner's Club) and retailer
issued cards (Sears, Discover, J.C. Penney, etc.). Credit card transactions are
authorized and electronically captured, resulting in faster service and lower
operating costs.
* Checks. Payments by check may be automated to verify the consumer's
past check payment history and assure that no returned check items are
outstanding. Often, customer identification is based on a valid driver's license
or a retailer issued check cashing card.
-2-
* Electronic checks using the Automated Clearing House ("ACH"). This
consumer payment option replaces a paper check with an electronic item submitted
to the ACH for settlement between financial institutions. EPS identify the
consumer, capture the data and eliminate the need for the traditional paper
check.
* Electronic Government Benefits Transfer ("EBT"). EBT replaces labor
intensive paper food stamps and other forms of government benefits with
electronic transactions. These programs are in pilot tests or roll-out in
several states. The government expects to measure results based on reduced
administrative expenses and reduced fraud.
* Retailer-issued Gift Certificates. Traditionally, gift certificates
have been treated as manually processed, paper-based transactions. Due to
renewed emphasis on increased speed of acceptance, detailed management
reporting, and fraud protection, retailers are using EPS to automate this
process by converting to plastic card-based programs.
* Frequent Shopper Transactions. Retailers are rewarding their best
customers and incenting these and other customers to exhibit chain loyalty
through frequent shopper and targeted marketing programs. EPS are being used to
collect the customer history and to evaluate the effect of certain promotions on
the recipients of these promotions.
Product Strategy
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NTN seeks to identify specific niches in the retail industry and to
design complete electronic payment systems to meet the needs of its targeted
markets. Components of an electronic payment system may include transaction
terminals and peripherals, software at the point of sale for originating
transactions and communicating to other systems in the store, such as electronic
cash registers, communications methodologies for transmitting the transactions
to a processing computer, software for authorizing, processing, or re-routing
the transactions to a service provider, and support services to ensure the
smooth operation of these disparate parts.
NTN in-store systems are primarily built around its software products
operating in customer-activated terminals and back office personal computers.
NTN products address the requirements for in-store systems, which are usually
connected to one or more of many host processors.
NTN selects hardware platforms for characteristics providing easy
consumer operation, data security, reliability and availability. The Company's
software products are written to enhance and complement these features.
NTN communications controllers manage a number of terminals and provide
communications over a single telephone line or satellite uplink. NTN works with
the retailer and the transaction processing service provider to determine the
most appropriate communications strategy given retailer requirements for economy
and speed. In addition to consolidating communications, the controller handles
reporting on in-store EPS activity.
NTN products include processing services for certain transactions
proprietary to the retailer. Examples of these transactions include automated
gift certificates and frequent shopper transactions. NTN's services include the
collection, settlement, and management reporting related to these transactions.
In some cases, the NTN processing service consists of collecting and
re-directing these transactions to other processors.
NTN has sought to standardize its product offerings as much as
possible. This product strategy has allowed for a leveraged product development
effort while maintaining flexibility in responding to specific requirements of
customers.
-3-
Intellectual Property
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NTN relies on a combination of trade secrets, copyrights, and
trademarks to protect its intellectual property.
Strategic Alliances
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To facilitate product development and marketing, NTN has entered into
several key strategic alliances which provide access to hardware platforms and
markets for the Company's products. These alliances are all related to NTN's
strategic direction of providing products and services to meet the EPS needs of
retailers.
In December 1990, NTN entered into a distribution agreement with IVI.
The distribution agreement granted to the Company for a term of two years the
non-exclusive right to market, distribute or sell IVI products in the United
States. No minimum sales targets were required. The agreement expired on
December 31, 1992. Since the expiration of the agreement, the Company has
continued working with IVI under an informal extension of the non-exclusive
distribution agreement. In September 1996, IVI acquired beneficial ownership of
approximately 84% of the outstanding common stock of NTN. IVI's product line
includes point of sale terminals and peripherals for electronic transaction
processing applications. Alternate sources of supply are available.
In January 1993, NTN entered into a value-added reseller agreement with
Inacom Corporation. The agreement allows NTN to purchase IBM or compatible
personal computers from Inacom at preferential prices. These personal computers
may be used as the communications controller for NTN's payment systems. The
initial one year term of the agreement automatically renews for successive one
year terms unless the agreement is otherwise terminated by either party.
In September 1993, NTN entered into a master purchase agreement with
VeriFone, Inc., a leading manufacturer of electronic payment terminals. Pursuant
to the terms of the agreement, NTN receives discount pricing on VeriFone
hardware and software components. These VeriFone products are incorporated into
NTN's payment systems and sold to end-users in the United States on a
non-exclusive basis. The initial one year term of the agreement automatically
renews for successive one year terms unless the agreement is otherwise
terminated by either party.
In June 1996, NTN entered into an agreement with International Business
Machines Corporation ("IBM") which allows NTN to act as an IBM Industry
Remarketer for IBM's Advanced Payment System EPS software. The agreement allows
NTN to modify, market, and license the Advanced Payment System software, on a
non-exclusive basis, to end-user retailers. In addition, IBM Industry Remarketer
status allows NTN to purchase IBM point of sale hardware systems and services,
for its own development use only, at preferential prices. The term of the
agreement is one year and may be renewed by mutual agreement of both parties.
Marketing
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NTN has historically focused on producing Electronic Payment Systems
specifically designed for supermarkets and similar multi-lane retailers. In
seeking expansion of the Company's markets, NTN has also begun marketing into
other retail markets where it is felt that the Company's products may have
additional applicability.
NTN mainly markets through a direct selling force. The Company's
headquarters and regional sales offices provide the sales force with nationwide
coverage. The sales force focuses their coverage on supermarket retailers
primarily, with additional selling activity targeted at retailers in other
industry segments and the field sales force of strategic partners of the
Company. The direct sales force is supported by promotional plans including
trade show exhibits, regional seminars, direct mail campaigns, advertising in
the trade press, and press coverage.
-4-
NTN also uses several indirect sales channels. These indirect channels
influence the multi-lane retailer and Electronic Payment Systems industries,
including cash register vendors, supermarket wholesalers, third party networks,
and other software developers.
The recent acquisition of approximately 84% of the Company's
outstanding common stock by IVI makes available to NTN the financial resources
of IVI to help the Company expand its products and markets. The Company believes
that additional benefits from IVI's investment will be achieved by (i) creating
a competitive advantage through combining complementary product offerings; (ii)
leveraging combined software development organizations and technologies; and
(iii) economies of scale in sales, product support, and marketing initiatives.
Products
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NTN PINnacle Payment Systems are a family of standardized products
which provide retailers with the ability to accept electronic payments in a
variety of operating environments. These payment systems must work in
conjunction with several characteristics of the retailer's store environment
including the type of store system (cash register) used, the routing of
transactions for processing and the communications methods employed for
transmitting financial transactions. In addition, the retailer may choose one of
several models of electronic payment terminals on the market. The Company's
product line also includes services related to the operation of an electronic
payment system, such as systems integration, installation, training, and
hardware and software maintenance. All of these products and services are
designed to allow for development of common features across the Company's
customer base.
The NTN PINnacle Payment Controller is the heart of NTN's product line.
Controller software functionality centers around a variety of communications
interfaces, data collection routines and reporting of in-store data. NTN is
placing increased emphasis on being architecturally and functionally compatible
with the store system chosen by the retailer. NTN is able to provide
modifications and enhancements customized to the retailer's needs.
NTN PINnacle Payment Terminal Software is compatible with the NTN
controller. Terminal software originates electronic transactions through cashier
and consumer input. In some environments, the terminal software interacts with
compatible software on the cash register system to share data and to use the
cash register printer for receipt generation. NTN software is compatible with
the products of major store system providers including Fujitsu-ICL, IBM, and
NCR.
NTN assists its customers by offering a comprehensive set of
professional services necessary for the start-up and on-going support of
electronic payment systems. These services may include project management,
procurement and preparation of hardware components, hardware and software
maintenance, installation, training, custom software design and development and
new product evaluation for specific customers.
Customers
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NTN's customer base consists of large retail companies, principally in
the supermarket industry, located throughout the United States. In 1996,
Albertsons accounted for 39% of the Company's total revenues, Fujitsu-ICL
accounted for 12% of the Company's total revenues, and Bi-Lo Food Stores
accounted for 10% of the Company's total revenues.
-5-
Competition
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NTN has positioned itself as a full service provider of EPS for
multi-lane retailers. This market niche has attracted other suppliers of
competing products and services, some of whom have significantly greater
financial and marketing resources than NTN and may develop products that are
superior to NTN's products or that achieve greater customer acceptance. These
suppliers include point of sale hardware vendors and EPS providers, system
integrators, cash register vendors, and third party transaction processing
organizations. It is the Company's objective to successfully compete against its
competitors by focusing on the multi-lane retail market and providing the most
appropriate and complete electronic payment system available. NTN distinguishes
itself from its competitors through its system integration capabilities and its
wide array of professional services available to its customers. NTN's success
will depend in large part on its ability to increase its market share of its
targeted market segments and to sell additional products and services to
existing customers. Competition expected to be encountered by the Company could
result in pricing pressures and reduced margins which could have a material
effect on the Company's financial condition and results of operations in the
future.
Development
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During the years ended December 31, 1994, 1995 and 1996 the Company
incurred $1,145,838, $1,016,521, and $947,087 respectively, in research and
development expenses for software development in connection with its existing
and proposed products. During 1994, an additional $288,198 of costs incurred
were capitalized and accounted for in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." During 1995 and 1996, there were no
research and development expenses incurred that required capitalization. In
December 1994, the Company made a decision to write off $657,479 of capitalized
software development costs relating to a software product under development. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Regulation
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In some applications, users of EFT terminals may be subject to federal
or state regulation under statutes and regulations relating to electronic funds
transfer systems, credit cards and debit cards. Such laws may limit the
transactions capable of being performed, limit the locations where terminals may
be placed, limit card customer liability for fraudulent transfers and require
certain written documents to be produced at the time of transfer, among other
matters. There can be no assurance that compliance with such regulations will
not be burdensome and costly.
Employees
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As of December 31, 1996, the Company had thirty two employees. As of
March 20, 1997, the Company had thirty employees: Kenneth M. Kubler, its
Executive Vice President and General Manager, Milton A. Alpern, its Chief
Financial Officer, Vice President of Finance and Treasurer, Sheila C. Birney,
its Vice President of Product Development and Professional Services, Jeffrey A.
Wakefield, its National Sales Manager, seven software engineers, six marketing
and sales employees, eight customer service employees and five finance and
administrative employees.
-6-
ITEM 2. PROPERTIES.
The Company's principal executive offices, located at 117 Flanders Road,
Westborough, Massachusetts, are leased pursuant to a five-year lease executed in
November 1996. The Company's occupancy under the lease began on February 1,
1997. The lease expires on January 31, 2002. The total rental is approximately
$9,081 per month during the first two years of the lease, approximately $9,445
per month during the next two years of the lease, and approximately $9,808 per
month during the last year of the lease. The Company believes that the space,
consisting of approximately 17,400 square feet, is sufficient for the Company's
needs for 1997. One sales office, located at located at 6653 Kimball Drive, Gig
Harbor, Washington, which had a monthly rental of $385, was closed in May 1996.
Other sales people of the Company, not located at the Company's executive
offices, work out of home offices for which the Company incurs no rental
expense.
ITEM 3. LEGAL PROCEEDINGS.
The Company has no material legal proceedings at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders in
the quarter ended December 31, 1996.
-7-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
From January 10, 1991 through the present, the Company's common stock
has been listed on the pink sheets of the National Quotations Bureau, Inc., and
certain broker-dealers have held themselves out as market makers in the common
stock. Additionally, the Company's common stock is included on the OTC Bulletin
Board. The quotations below reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual transactions.
1995 High Low
---- ---- ---
First quarter (1/1 - 3/31)................... $1.26 $0.13
Second quarter (4/1 - 6/30).................. $0.88 $0.06
Third quarter (7/1 - 9/30)................... $0.56 $0.13
Fourth quarter (10/1 - 12/31)................ $0.56 $0.25
1996 High Low
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First quarter (1/1 - 3/31)................... $0.31 $0.25
Second quarter (4/1 - 6/30).................. $0.41 $0.25
Third quarter (7/1 - 9/30)................... $0.52 $0.19
Fourth quarter (10/1 - 12/31)................ $0.50 $0.25
As of March 11, 1997, there were 571 holders of record of the Company's
common stock. The Company has not paid dividends on its common stock and does
not anticipate paying dividends in the foreseeable future. The Company
anticipates that all earnings will be retained for development of the Company's
business.
-8-
ITEM 6. SELECTED FINANCIAL DATA.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue.................................$5,013,023 $8,006,417 $7,968,148 $9,509,907 $8,609,082
Cost of Revenue......................... 2,609,901 4,593,041 4,948,350 5,903,732 5,001,159
--------- --------- --------- --------- ---------
Gross Margin............................ 2,403,122 3,413,376 3,019,798 3,606,175 3,607,923
Total Operating
Expenses............................... 3,038,245 3,518,522 4,272,107 3,418,972 3,233,826
--------- --------- --------- --------- ---------
Income (Loss) from Operations........... (635,123) (105,146) (1,252,309) 187,203 374,097
Other Income (Expense).................. 20,128 16,445 15,879 (177,682) (191,769)
------ ------ ------ -------- --------
Income (Loss) before Income
Taxes and Extraordinary Credit......... (614,995) (88,701) (1,236,430) 9,521 182,328
Provision for Income Taxes.............. 78,000
--------- --------- --------- --------- ---------
Income (Loss) before Extra-
ordinary Credit........................ (614,995) (88,701) (1,236,430) 9,521 104,328
Extraordinary Credit.................... 71,000
--------- --------- --------- --------- ---------
Net Income (Loss)....................... $(614,995) $(88,701) $(1,236,430) $9,521 $175,328
Income (Loss) per Common
Share:
Income (Loss) before Extra-
ordinary Credit ................... $(.19) $(.03) $(.38) $.00 $.05
Extraordinary Credit................ .03
--------- --------- --------- --------- ---------
Net Income (Loss)................... $(.19) $(.03) $(.38) $.00 $.08
Weighted Average Number of
Common Shares Outstanding.............. 3,248,606 3,248,606 3,248,606 2,471,161 2,205,426
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
As Of December 31,
------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital......................... $427,353 $997,032 $993,108 $1,873,150 $1,748,343
Total Assets............................ 2,161,092 2,344,698 2,877,998 4,207,735 3,870,045
Long Term Liabilities................... 12,053 0 0 0 2,673,483
Stockholders' Equity
(Deficiency)........................... 634,250 1,249,245 1,337,946 2,574,376 (563,964)
</TABLE>
Note: All share and per share information has been restated to reflect the
one-for-fifteen reverse stock split of the Company's common stock, effected on
October 22, 1993.
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company's business strategy focuses on the development and
marketing of software products and professional services designed to address the
electronic payment system needs of multi-lane retailers. Turn-key system
solutions including customer-activated payment terminals, in-store controllers,
point of sale system integration and transaction processing network interfaces
are also provided to customers. These solutions enable retailers to automate
payment transactions involving consumer debit (ATM) cards, bank and retailer
issued credit cards, paper check authorization, electronic government benefits
and electronic checks.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenue for the year ended December 31, 1996 decreased by 37.4%
to $5,013,023 compared to $8,006,417 for the year ended December 31, 1995. The
decrease in revenue was primarily due to the inability of the Company to acquire
the necessary capital to properly invest in appropriate research and
development, marketing, and sales activities. In addition, primarily due to
resource constraints, the Company has been delayed in its ability to deliver new
payment system products to meet the new technology demands of several customers
and prospects. With the recent acquisition of approximately 84% of the Company's
outstanding common stock by IVI (See discussion below - Acquisition of Company's
Common Stock), management believes that the availability of IVI's resources to
NTN will help the Company expand the development and marketing of its products
and services. Lastly, revenues for 1996 were impacted by several customers of
the Company having completed large roll-outs of the Company's systems in 1995.
Uncertainties with respect to future orders from existing or potential customers
could have a material effect on net sales or earnings in the future.
For the year ended December 31, 1996, gross margins as a percent of
revenue increased to 47.9% from 42.6% for the year ended December 31, 1995. The
increase in gross margin percentage relates to the continuing trend of higher
margin software and professional services comprising a larger percentage of the
Company's total revenue. For the year ended December 31, 1996, software and
professional services accounted for approximately 44% of total revenue compared
to approximately 36% of total revenue for the year ended December 31, 1995.
Total operating expenses for the year ended December 31, 1996 decreased
by 13.6% to $3,038,245 compared to $3,518,522 for the year ended December 31,
1995. Sales and marketing expenses decreased by 37.3% in 1996 to $1,111,665
compared to $1,771,800 in 1995. Sales and marketing expenses include the costs
of distribution, sales commissions, product marketing, and account management. A
significant portion of the decrease in sales and marketing expenses was due to a
reduction of staff in the sales and marketing organization in the fourth quarter
of 1995. The reduction of staff resulted in a decrease in compensation and
fringe benefits expenses of approximately $359,000 for the year ended December
31, 1996 compared to the year ended December 31, 1995. The reduction of staff
was also primarily responsible for a decrease in travel and entertainment
expenses between the two years totaling approximately $174,000. Additionally,
sales commission expense decreased by approximately $178,000 due to the decrease
in revenue experienced in 1996. These decreases in sales and marketing expenses
were partially offset by increases in outside consulting expenses ($69,000)
resulting from the utilization in 1996 of outside contractors to assist the
Company in managing a specific project to enable a customer to automate their
acceptance of certain proprietary payment transactions and in coordinating the
Company's trade show participation.
-10-
Research and development expenses decreased by 6.8% to $947,087 for the
year ended December 31, 1996 compared to $1,016,521 for the year ended December
31, 1995. The decrease in 1996 was primarily due to a reduction in the
utilization of independent, outside programming contractors.
General and administrative expenses increased by 34.1% to $979,493 for
the year ended December 31, 1996 compared to $730,201 for the year ended
December 31, 1995. General and administrative expenses primarily include the
finance and administration costs of the Company. The increase in these expenses
for 1996 is primarily due to severance and recruitment costs totaling
approximately $181,000 incurred in connection with certain management personnel
changes made immediately following the acquisition in September 1996 of
approximately 84% of NTN's outstanding common stock by IVI. In addition, bad
debt expense relating to certain uncollectible customer balances totaling
$44,000 and moving expenses of $25,000 relating to the relocation of the
Company's executive offices contributed to the increase in general and
administrative expenses for the year ended December 31, 1996.
Other income and expense, consisting entirely of interest earned on
invested cash balances, totaled $20,128 in 1996 compared to $16,445 in 1995. The
increase in interest income resulted from an increase in the amount of funds
available for investment in 1996.
No tax provision was required in 1996 due to the loss incurred.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenue for the year ended December 31, 1995 increased slightly
to $8,006,417 compared to $7,968,148 for the year ended December 31, 1994. The
increase in revenue between 1994 and 1995 resulted from several factors
including the sale to an existing customer of the Company's newly released
payment system product integrated to the NCR cash register system and the
increasing need of supermarket retailers to automate consumer payment options
involving Electronic Food Stamps. These increases were offset by a decrease in
revenue between 1994 and 1995 resulting from a decrease in the number of the
Company's payment systems installed by a significant customer into additional
divisions. The revenue derived from this customer accounted for approximately
32% of the Company's total revenue for the year ended December 31, 1995 compared
to approximately 53% of total revenue for the year ended December 31, 1994.
Gross margins as a percent of total revenue increased to 42.6% for the
year ended December 31, 1995 compared to 37.9% for the year ended December 31,
1994. The increase in gross margin between the two years was due to higher
margin software sales comprising a larger percentage of total revenue for the
year ended December 31, 1995 compared to the year ended December 31, 1994.
Revenue derived from sales of software accounted for 21% of total revenue for
the year ended December 31, 1995 compared to 10% for the year ended December 31,
1994.
Total operating expenses decreased by 17.6% to $3,518,522 for the year
ended December 31, 1995 compared to $4,272,107 for the year ended December 31,
1994. The write-off of $657,479 of capitalized software development costs in
December 1994 accounted for the majority of the decrease in operating expenses
between 1994 and 1995. These costs had previously been capitalized in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
write-off resulted from a re-prioritization of Company resources to focus on new
market requirements. Prior to the release of the software products for which
development costs had been capitalized, market demands shifted towards
integrated payment system solutions away from the stand-alone product under
development by the Company. Accordingly, the Company canceled the project under
development and redirected its marketing and product development efforts to meet
current market opportunities for integrated products.
Sales and marketing expenses increased by 3.6% to $1,771,800 in 1995
compared to $1,710,885 in 1994. An increase in salaries expense ($134,000)
resulted from the hiring of a Western Region Sales Manager in the
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fourth quarter of 1994 and a Southeast Region Sales Manager in the second
quarter of 1995. Additionally, salaries expense for the year ended December 31,
1995 includes approximately $16,000 of severance costs incurred in the fourth
quarter of 1995 for personnel changes made at that time. Sales commission
expense also increased by $63,000 between 1994 and 1995. The increase was due to
higher sales commissions paid on higher margin software sales which comprised a
larger percentage of total revenue in 1995 compared to 1994. The increases in
sales and marketing expenses were offset by a decrease in travel and
entertainment expense ($72,000) relating to travel expenses incurred in
connection with the installation of the Company's payment systems into a large
number of divisions of a significant customer in 1994. In addition, other sales
and marketing expense decreases were experienced between 1994 and 1995 in
marketing promotion and outside services expenses ($39,000) relating to direct
mail and telesales campaigns conducted in 1994 and recruiting expenses ($23,000)
relating to sales and marketing hires in 1994.
Research and development expenses decreased by 11.3% to $1,016,521 for
the year ended December 31, 1995 compared to $1,145,838 for the year ended
December 31, 1994. Decreases in salaries and fringe benefit expenses totaling
approximately $316,000 were the result of a reduction in the number of research
and development personnel which occurred at the beginning of the first quarter
of 1995. Research and development expenses in 1994 also include a $55,800 charge
for severance costs incurred in connection with the reduction in personnel.
Other decreases in travel and entertainment expenses ($17,000), outside
consulting expenses ($18,000), and recruiting expenses ($18,500) contribute to
the overall decrease in research and development expenses between 1994 and 1995.
The decreases were partially offset by the capitalization of software
development costs totaling approximately $288,000 for the year ended December
31, 1994 in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." For the year ended December 31, 1995, there were no research and
development costs incurred that required capitalization.
General and administrative expenses decreased by 3.7% to $730,201 for
the year ended December 31, 1995 compared to $757,905 for the year ended
December 31, 1994. Decreases in outside consulting expenses ($12,000) for
management training and outside service expenses ($21,000) relating to the
design and printing of the Company's 1993 annual report were offset by increases
in travel and entertainment expenses ($11,600) and recruiting expenses ($6,200).
In addition, general and administrative expenses in 1994 include a $12,000 sales
tax accrual resulting from an audit of prior years.
Other income and expense, consisting entirely of interest income in
1995, totaled $16,445 compared to $15,879 in 1994, which includes $16,771 of
interest income for that year. The minimal change in interest income between
1994 and 1995 is based on a relatively consistent level of funds available for
investment during the two years.
No tax provision was required in 1995 due to the loss incurred.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances at December 31, 1996 were $266,045 compared to $407,257
at December 31, 1995. Net cash used for operating activities was $86,244 for the
year ended December 31, 1996 compared to net cash provided by operating
activities of $357,870 for the year ended December 31, 1995 and net cash used
for operating activities of $410,234 for the year ended December 31, 1994. The
net loss for the year ended December 31, 1996 offset by an increase in deferred
revenue ($517,846) accounted for the majority of cash used by operations during
the year. The increase in deferred revenue resulted from billings on 1997
hardware and software maintenance contracts having been made at the end of 1996.
Cash provided by operations for the year ended December 31, 1995 primarily
resulted from a decrease in inventory of $854,960 offset by a decreases in
accounts payable and accrued liabilities ($485,622). The decrease in inventory
was due to management's programs to reduce the Company's investment in hardware
inventory held for resale while improving purchasing and expediting methods
necessary to continue to meet customer delivery requirements. The net loss for
the year ended December 31, 1994 was primarily responsible for the cash consumed
during that period.
-12-
Net cash used in investing activities totaled $47,845, $24,645, and
$423,594 for the years ended December 31, 1996, 1995, and 1994, respectively.
Capital equipment expenditures, principally for computer, test and sales
demonstration equipment, accounted for $47,845, $24,645, and $135,396 of these
amounts in 1996, 1995, and 1994, respectively. The capitalization of software
development costs accounted for the balance of net cash used in investing
activities in 1994. Capital expenditures in 1997 are expected to be
approximately $275,000.
On February 28, 1997, the Company received a commitment from its bank
for the renewal of its working capital line of credit through January 4, 1998.
Maximum available borrowings under the line are the lesser of $750,000 or
certain levels of eligible accounts receivable and are subject to monthly and
quarterly financial performance covenants. Borrowings bear interest at a rate
per annum equal to the bank's prime rate (8.25% at March 20, 1997) plus 1.5% and
are secured by the Company's assets. At December 31, 1996, there were no
borrowings outstanding under the credit line nor have there been any borrowings
through March 20, 1997. Borrowing availability under the credit line at December
31, 1996 would have been $419,487 based on the terms of the renewal. Borrowings
under the renewed credit line are guaranteed by IVI.
Management believes that sources of liquidity for future needs can be
generated from existing cash balances, cash generated from operations,
borrowings available to the Company under its bank-financed working capital line
of credit, and financial resources made available to the Company from IVI, the
terms of which are pending negotiations.
ACQUISITION OF COMPANY'S COMMON STOCK
On September 13, 1996, IVI acquired beneficial ownership of
approximately 84% of the outstanding common stock, $.15 par value, of the
Company in a private transaction. IVI acquired such shares in exchange for IVI
common shares having an aggregated market value of approximately $1,254,000. Due
to the percentage ownership of NTN acquired as a result of this transaction, NTN
has become a subsidiary of IVI and the financial position and results of
operations of NTN are included in IVI's consolidated financial position and
results of operations from the date of acquisition.
IVI is engaged in the design, development, and sale of electronic
payment solutions for retailers, financial institutions, governments, and other
businesses in Canada, the United States, and internationally. IVI's hardware and
software products include point of sale debit/credit/EFT/EBT terminals, check
readers, smart card readers, check encoders, and secure PIN (personal
identification number) entry devices.
NTN software products support complementary IVI hardware devices and
the Company has marketed IVI products in the United States under a non-exclusive
distribution agreement since 1990. At the same time, NTN has also supported
other EPS providers' hardware products and operating environments with its
software products. While the impact of the IVI transaction on the Company's
business continues to evolve, the investment by IVI provides a renewed business
relationship between the companies and makes available to NTN the financial
resources of IVI to help the Company expand its products, services, and markets.
In addition, NTN believes that IVI's investment will help the Company increase
its market penetration by gaining access to the IVI customer base and allow NTN
to create a competitive advantage by leveraging combined products, technologies,
and other resources. Both companies, however, support the importance of NTN's
independence with regard to the hardware environments which its software
products support and the underlying relationships the Company has or establishes
with other parties who influence the EPS market. These parties include other
point of sale hardware vendors, electronic payment system resellers, cash
register vendors, transaction processing networks, and other software
developers. Accordingly, NTN will to continue to market its products and
services on multiple hardware platforms and operating environments necessary to
achieve its business objectives. While there can be no assurance that the
benefits of IVI's investment as outlined above will be achieved, management
believes that IVI's investment in NTN will not adversely affect the Company's
business or its relationships with its customers or the aforementioned parties
influencing the EPS market.
-13-
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. The forward-looking statements in this Form 10-K
including, without limitation, statements regarding management's plans and
objectives for future operations, and product plans and performance are made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results of operations and financial condition have
varied and may in the future differ materially from those contained in
forward-looking statements contained herein. The Company's future results remain
difficult to predict and depend on factors including, without limitation,
fluctuations in quarterly results, dependence on large customers, dependence on
principal products, dependence on third parties for hardware and equipment,
rapid technological changes, potential for new product delays and defects,
competition and competitive pricing pressures, and fluctuations in economic and
market conditions. Because of these and other factors, past financial
performance should not be considered an indication of future performance.
-14-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please refer to pages F-1 through F-12.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
-15-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the close of
the fiscal year.
-16-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON 8-K.
(a) The following financial statements, notes thereto and
independent auditors' report are filed as part of this report:
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
Schedules are omitted because of the absence of
conditions under which they are required or because the
required information is included in the financial statements
submitted.
(3) Listing of Exhibits:
The following exhibits, required by Item 601 of
Regulation S-K, are filed as part of this Annual Report on
Form 10-K. (Exhibit numbers, where applicable, in the left
column correspond to those of Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Form 10-K
Exhibit consecutive
Number Exhibit page number
- ------ ------- -----------
<S> <C> <C>
3(a) Amended and restated Certificate of
Incorporation filed October 22, 1993 see note (9)
3(b) Bylaws, as amended see note (4)
4(a) National Transaction Network, Inc.
1993 Director Stock Option Plan see note (8)
4(b) National Transaction Network, Inc.
1995 Director Stock Option Plan see note (11)
10(a) 1983 Incentive Stock Option Plan,
as amended see note (1)
10(b) Form of Stock Option Grant and
Exercise Notice for 1983 Incentive
Stock Option Plan see note (3)
10(c) 1988 Stock Plan, as amended see note (3)
-17-
10(d) Form of Incentive Stock Option
Agreement for 1988 Stock Plan see note (3)
10(e) Form of Non-Qualified Stock Option
Agreement for 1988 Stock Plan
(Consultants) see note (3)
10(f) Form of Non-Qualified Stock Option
Agreement for 1988 Stock Plan
(Directors) see note (3)
10(g) Agreement for IBM Licensed Program
Stand-Beside Electronic Payment
System Debit Application between the
Company and International Business
Machines Corporation dated as of
March 18, 1988 see note (2)
10(h) Lease between the Company and
Alden H. Kane and Shirley M. Kane,
Trustees of the Kane Industrial
Trust, dated December 27, 1988 see note (3)
10(i) Distribution Agreement between the
Company and International Verifact
Inc. dated December 31, 1990 see note (5)
10(j) Lease between the Company and Alden H.
Kane and Roger K. Kane, Trustees of the
Kane Industrial Trust, dated November 1, 1992 see note (6)
10(k) Severance Agreement between the Company and
Paul Siegenthaler dated January 30, 1993 see note (6)
10(l) National Transaction Network, Inc. Retirement
Savings 401(k) Plan see note (7)
10(m) Value-Added Reseller Agreement between the
Company and Inacom Corporation dated
January 11, 1993 see note (9)
10(n) Promissory Note and Security Agreement
between the Company and Silicon Valley Bank
dated June 11, 1993 see note (9)
10(o) Master Purchase Agreement between the Company
and VeriFone, Inc. dated September 22, 1993 see note (9)
10(p) Joint Marketing Agreement between the Company
and Card Establishment Services, Inc. dated
December 7, 1993 see note (9)
-18-
10(q) Severance Agreement between the Company and
Milton Alpern dated March 17, 1994 see note (9)
10(r) Form of the Director Stock Option Agreement
for the 1993 Director Stock Option Plan see note (10)
10(s) Form of the Director Stock Option Agreement
for the 1995 Director Stock Option Plan see note (11)
10(t) Industry Remarketer Agreement between the
Company and International Business Machines
Corporation dated June 3, 1996
10(u) Lease Agreement between the Company and
Aetna Real Estate Associates, L.P. dated
November 8, 1996
23 Consent of Deloitte & Touche LLP
</TABLE>
- ------------------------------
(1) Exhibit is incorporated by reference to the Exhibits to the Form S-1
Registration Statement No. 2-91030.
(2) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1987.
(3) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1988.
(4) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1989.
(5) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1990.
(6) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1992.
(7) Exhibit is incorporated by reference to the Exhibits to the Form 8
dated May 4, 1993.
(8) Exhibit is incorporated by reference to the Exhibits to the Form S-8
Registration Statement No. 33-66732 dated July 29, 1993.
(9) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1993.
(10) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1994.
(11) Exhibit is incorporated by reference to the Exhibits to the Form 10-K
for the fiscal year ended December 31, 1995.
- ---------------------------------
-19-
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the last quarter of the
fiscal year ended December 31, 1996.
(c) Exhibits:
The Company hereby files as part of this Form 10-K the
exhibits listed in Item 14(a) (3) above.
(d) Financial Statement Schedules:
The Company hereby files as part of this Form 10-K in Item 14
(a) (2) above.
-20-
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.
NATIONAL TRANSACTION NETWORK, INC.
March 24, 1997 By: /s/ L. Barry Thomson
----------------------
L. Barry Thomson, Chief Executive Officer,
President and Chairman of the Board
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 dates indicated.
March 24, 1997 /s/ L. Barry Thomson
----------------------
L. Barry Thomson, Chief Executive Officer,
President and Chairman of the Board
(Principal Executive Officer)
March 24, 1997 /s/ Milton A. Alpern
----------------------
Milton A. Alpern, Vice President of
Finance and Administration (Principal
Financial and Accounting Officer)
March 24, 1997 /s/ Kenneth M. Kubler
-----------------------
Kenneth M. Kubler, Executive Vice
President, General Manager and Director
March 24, 1997 /s/ Christopher F. Schellhorn
-------------------------------
Christopher F. Schellhorn, Director
March 24, 1997 /s/ George C. Whitton
-----------------------
George C. Whitton, Director
-21-
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ..................................... F-1
Balance Sheets as of December 31, 1996 and 1995 .................. F-2
Statements of Operations for the Years Ended ..................... F-3
December 31, 1996, 1995, and 1994
Statements of Stockholders' Equity for the Years ................. F-4
Ended December 31, 1996, 1995, and 1994
Statements of Cash Flows for the Years Ended ..................... F-5
December 31, 1996, 1995 and 1994
Notes to Financial Statements .................................... F-6-12
-22-
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE LLP
- --------------------- --------------------------------------------------
125 Summer Street Telephone:(617) 261-8000
Boston, Massachusetts Facsimile:(617) 261-8111
02110-1617
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
National Transaction Network, Inc.:
We have audited the accompanying balance sheets of National Transaction Network,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
March 3, 1997
- ---------------
Deloitte Touche
Tohmatsu
International
- ---------------
F-1
NATIONAL TRANSACTION NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $ 266,045 $ 407,257
Accounts receivable (less allowance for
doubtful accounts of $100,000
in 1996 and 1995) 1,406,113 1,384,222
Inventory 233,590 274,159
Prepaid expenses 36,394 26,847
------------ ----------
Total current assets 1,942,142 2,092,485
------------ ----------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 114,657 113,923
Machinery and equipment 670,394 595,216
------------ ----------
Total 785,051 709,139
Less accumulated depreciation and amortization (578,032) (460,605
Property and equipment - net 207,019 248,534
------------ ----------
DEPOSITS AND OTHER 11,931 3,679
------------- ----------
TOTAL $ 2,161,092 $ 2,344,698
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable $ 497,569 $ 445,200
Accounts payable to stockholder 95,287 247,402
Customer deposits 2,166 25,265
Accrued liabilities 346,620 331,509
Deferred revenue 563,923 46,077
Short-term portion of capital lease 9,224 -
------------ ----------
Total current liabilities 1,514,789 1,095,453
------------ ----------
LONG-TERM PORTION OF CAPITAL LEASE 12,053 -
------------ ----------
Total liabilities 1,526,842 1,095,453
------------ ----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value; authorized,
5,000,000 shares; none outstanding - -
Common stock, $.15 par value; authorized,
6,666,667 shares; issued and outstanding,
3,248,606 shares 487,291 487,291
Additional paid-in capital 12,589,255 12,589,255
Accumulated deficit (12,442,296) (11,827,301)
-------------- ------------
Total stockholders' equity 634,250 1,249,245
-------------- -----------
TOTAL $ 2,161,092 $ 2,344,698
============= ============
See notes to financial statements.
F-2
<TABLE>
<CAPTION>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
REVENUE:
Systems and equipment $ 2,823,236 $ 5,136,778 $ 5,926,088
Software and services 2,189,787 2,869,639 2,042,060
--------- --------- ---------
Total revenue 5,013,023 8,006,417 7,968,148
--------- --------- ---------
COSTS AND EXPENSES:
Cost of revenue 2,609,901 4,593,041 4,948,350
Sales and marketing 1,111,665 1,771,800 1,710,885
Research and development 947,087 1,016,521 1,145,838
General and administrative 979,493 730,201 757,905
Write-off of capitalized software costs - - 657,479
--------- --------- ---------
Total costs and expenses 5,648,146 8,111,563 9,220,457
--------- --------- ---------
LOSS FROM OPERATIONS (635,123) (105,146) (1,252,309)
OTHER INCOME AND EXPENSE, Net 20,128 16,445 15,879
--------- --------- ---------
NET LOSS $ (614,995) $ (88,701) $ (1,236,430)
============= ========== ============
LOSS PER COMMON SHARE $ ($.19) $ (0.03) $ (0.38)
============= ========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,248,606 3,248,606 3,248,606
============= =========== ============
See notes to financial statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
SHARES PAID-IN STOCKHOLDERS'
ISSUED AMOUNT CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 3,248,606 $ 487,291 $ 12,589,255 $ (10,502,170) $ 2,574,376
Net loss - - - (1,236,430) (1,236,430)
-------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1994 3,248,606 487,291 12,589,255 (11,738,600) 1,337,946
Net loss - - - (88,701) (88,701)
-------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1995 3,248,606 487,291 12,589,255 (11,827,301) 1,249,245
Net loss - - - (614,995) (614,995)
-------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1996 3,248,606 $ 487,291 $ 12,589,255 $ (12,442,296) $ 634,250
===========================================================================================
See notes to financial statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
NATIONAL TRANSACTION NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (614,955) $ (88,701) $ (1,236,430)
Adjustments to reconcile net loss to net cash (used for) provided by
operating activities:
Depreciation and amortization 117,720 116,470 109,945
Write-off of capitalized software costs - - 657,479
Loss on disposal of equipment - - 7,985
Increase (decrease) in cash from:
Accounts receivable (21,891) (119,305) 42,061
Inventory 40,569 854,960 85,472
Prepaid expenses (9,547) 38,245 11,988
Deposits and other (8,252) 800 4,573
Accounts payable to stockholder (152,115) 84,732 (209,949)
Customer deposits (23,099) 638 24,627
Accounts payable and accrued liabilities 67,480 (485,622) 106,233
Deferred revenue 517,846 (44,347) (14,218)
------------ --------- ------------
Net cash (used for) provided by operating activities (86,244) 357,870 (410,234)
------------ --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (47,845) (24,645) (135,396)
Capitalization of software costs - - (288,198)
------------ --------- ------------
Net cash used in investing activities (47,845) (24,645) (423,594)
------------ --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES - Repayment
of capital lease (7,123) - -
------------ --------- ------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (141,212) 333,225 (833,828)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 407,257 74,032 907,860
------------ --------- ------------
CASH AND EQUIVALENTS, END OF YEAR $ 266,045 $ 407,257 $ 74,032
============== ========== ============
SUPPLEMENTAL INFORMATION - Cash paid for:
Interest $ 4,168 $ - $ 892
============== ========== ============
Income and excise taxes $ 4,170 $ 5,467 $ 4,749
============== ========== ============
NONCASH TRANSACTIONS - Capital lease additions $ 28,400 $ - $ -
============== ========== ============
See notes to financial statements.
</TABLE>
F-5
NATIONAL TRANSACTION NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - National Transaction Network, Inc. (the "Company")
designs, integrates and markets point-of-sale electronic payment systems
and software, principally to the retail industry.
On September 13, 1996, International Verifact, Inc. ("IVI") acquired
beneficial ownership of approximately 84% of the outstanding common stock,
$.15 par value of the Company.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instruments - The carrying values of cash and equivalents,
accounts receivable, and accounts payable approximate fair value due to
the short-term nature of these instruments.
Stock-Based Compensation - Compensation expense associated with awards of
stock or options to employees is measured using the intrinsic value
method. Compensation expense associated with awards to non-employees is
measured using a fair value method.
Revenue Recognition - Revenue from sales of product is generally
recognized upon shipment. Revenue from maintenance agreements is
recognized ratably over the term of the agreements.
Inventory - Inventory is recorded at the lower of cost (first-in,
first-out basis) or market and consists primarily of electronic payment
terminals and related peripherals.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets which range from two to five
years. Depreciation expense was approximately $118,000, $116,000 and
$110,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company regularly reviews its property and equipment to
determine that the carrying values have not been impaired.
Capitalized Software Costs - Costs of software products developed for
resale are capitalized once technological feasibility is achieved.
Capitalization ceases when the product is available for release, and the
accumulated costs are amortized over the related product's estimated
economic life. Research and development costs are expensed as incurred.
Loss Per Common Share - Loss per common share has been computed based upon
the weighted average number of common shares outstanding during each year.
Shares issuable upon exercise of outstanding options have been excluded
from the computations since their effect is antidilutive.
Cash and Equivalents - The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
F-6
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes - The Company follows the asset and liability method of
accounting for income taxes, under which deferred income taxes 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. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Impairment of Long-Lived Assets - In 1996, the Company adopted 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
121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
The Company has reviewed its long-lived assets and has determined that no
events or changes in circumstances have occurred that would cause the
carrying value of any of its assets to not be recoverable.
Reclassification - Certain items in the 1995 and 1994 financial statements
have been reclassified to conform to the 1996 presentation.
2. LINE OF CREDIT
The Company had a working capital line of credit agreement with a bank
that provided for borrowings up to a maximum of $400,000. Borrowings under
the line of credit were based on certain accounts receivable balances,
bore interest at the bank's prime rate plus 4%, were collateralized by the
Company's assets and were subject to monthly and quarterly performance
covenants. At December 31,1996 and at other times during 1996, the Company
was not in compliance with certain covenants and had obtained a compliance
waiver from the bank. At December 31, 1996, there were no borrowings
outstanding under the line.
On February 28, 1997, the Company received a commitment from its bank for
the renewal of its working capital line of credit through January 4, 1998
that provides for borrowings up to a maximum of the lessor of $750,000 or
certain levels of eligible accounts receivable. Borrowings under the line
are subject to monthly and quarterly financial performance covenants, bear
interest at the bank's prime rate plus 1.5% and are collateralized by the
Company's assets. IVI guarantees the Company's line of credit and, to the
extent that the Company's cash requirements exceed the availability under
the line of credit, IVI will provide further financing to meet the
Company's cash requirements.
3. STOCK OPTIONS
Stock Option Plans - Under the Company's 1988 and 1983 Stock Option Plans
(the "Plans"), incentive stock options to purchase up to a maximum of
933,000 shares of common stock may be granted to certain employees,
officers, consultants and directors at exercise prices not less than fair
market value at the date of the grant. Options become exercisable in
varying annual installments. The period within which any option may be
exercised cannot exceed ten years from the date of grant. At December 31,
1996, 402,289 shares were available for grant under the Plans.
F-7
3. STOCK OPTIONS (CONTINUED)
Director Stock Option Plans - Under the Company's 1995 and 1993 Director
Stock Option Plans (the "Director Plans"), nonqualified options to
purchase up to a maximum of 320,000 shares of common stock may be granted
to members of the Board of Directors. The exercise price of the options
may not be less than fair market value on the date of grant. Options under
the Director Plans become exercisable upon grant and continue for the
period determined by the Board of Directors but may not exceed ten years.
As of December 31, 1996, 228,333 shares were available for grant under the
Director Plans.
The following is a summary of all option activity under all Plans:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price Value
<S> <C> <C> <C>
Outstanding at January 1, 1994 318,447 $4.06
Granted 79,363 2.80
Expired or Canceled (99,685) 3.81
--------
Outstanding at December 31, 1994 298,125 3.29
Granted 437,545 0.41 $ 0.41
Expired or Canceled (143,685) 2.40
---------
Outstanding at December 31, 1995 591,985 0.67
Granted 251,000 0.42 $ 0.43
Expired or Canceled (220,605) 0.88
---------
Outstanding at December 31, 1996 622,380 0.50
========
</TABLE>
Options exercisable under all stock option plans at December 31, 1996 and
1995 were 270,601 and 240,613, respectively.
The fair value of options on their grant date was measured using the
Black/Scholes options pricing model. Key assumptions used to apply this
pricing model are as follows:
1996 1995
Average risk-free interest rate 6.4 % 5.9 %
Expected life of option grants 7.5 years 7.5 years
Expected volatility of underlying stock 174% 174%
Expected dividend payment rate, as a
percentage of the stock price on the
date of grant - -
F-8
3. STOCK OPTIONS (CONTINUED)
It should be noted that the option pricing model used was designated to
value readily tradable stock options with relatively short useful lives.
The options granted to employees are not tradable and have contractual
lives of up to ten years. However, management believes that the
assumptions used to value the options and the model applied yield a
reasonable estimate of the fair value of the grants made under the
circumstances.
The following table sets forth information regarding options at December
31,1996:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Weighted Average Exercise
Range of Number Average Remaining Price for
Number Exercise Currently Exercise Life Currently
of Options Prices Exercisable Price (in years) Exercisable
<S> <C> <C> <C> <C> <C>
605,380 $0.22 - $0.46 253,601 $0.40 8.23 $0.40
17,000 $3.00 - $22.50 17,000 $3.38 5.56 $3.38
</TABLE>
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure
compensation, reported net loss and loss per share, net of estimated
forfeitures before vesting of 25% for both 1996 and 1995, would have been
as follows:
1996 1995
Net loss as reported $ (614,995) $ (88,701)
Pro forma net loss $ (653,876) $ (110,942)
Loss per common share $ (0.19) $ (0.03)
Pro forma loss per share $ (0.20) $ (0.03)
F-9
4. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax liabilities - Property and equipment $ (12,000) $ (91,000)
----------- -----------
Deferred tax assets:
Compensated absences 27,000 28,000
Accounts receivable 40,000 44,000
Inventory 20,000 -
Net operating loss carryforwards 4,857,000 5,072,000
----------- -----------
4,944,000 5,144,000
----------- -----------
Valuation allowance (4,932,000) (5,053,000)
----------- -----------
Deferred taxes, net $ - $ -
=========== ===========
</TABLE>
For the years ended December 31, 1996 and 1995, the net changes in the
valuation allowance are primarily related to the change in net deferred
tax assets as such assets are fully reversed in each year. A
reconciliation between the U.S. statutory tax rate and the effective tax
rate for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory tax rate (34)% (34)% (34)%
State rate, net of federal benefit (6) (7) (7)
Write-off of capitalized software costs - - 10
Change in valuation allowance due to the uncertainty
of future realization of currently generated net
operating loss carryforwards 39 34 30
Nondeductible expenses 1 7 1
------- ------- -------
Effective tax rate - % - % - %
======= ======= =======
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
tax purposes of approximately $20,862,000, which expire in varying amounts
through 2011. Due to changes in ownership in 1989 and in 1996, the
Company's ability to utilize these carryforwards is likely to be limited
to approximately $1,300,000 in the aggregate.
F-10
5. COMMITMENTS
Office Lease - In November of 1996, the Company signed a noncancelable
lease for new office space, which commenced February 1997. The lease
requires reimbursement of certain tenant improvements and operating costs
throughout the term of the lease. The lease has a five-year term with one
five-year renewal option to extend the lease through January 2007.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $87,000, $109,000 and $119,000, respectively. Future minimum
lease payments, as of December 31, 1996, under this noncancelable
operating lease approximate the following:
1997 $ 107,000
1998 109,000
1999 113,000
2000 113,000
2001 117,000
-------
Total $ 559,000
=========
6. CAPITAL LEASE
In 1996, the Company entered into a capital lease for certain equipment.
The agreement has been capitalized at the present value of the future
minimum rental payments and is included in the equipment balance at
December 31,1996 at a value of $28,400, less accumulated amortization of
$7,123. Future minimum payments, by year and in the aggregate, under
capitalized lease obligations at December 31, 1996, consisted of the
following:
1997 $ 12,317
1998 12,317
1999 1,026
--------
Total minimum lease payment 25,660
Amount representing interest at 12% per annum (4,383)
--------
Present value of net minimum lease payments 21,277
Less current portion (9,224)
--------
Long-term portion of net minimum lease payments $ 12,053
========
F-11
7. CUSTOMERS
The Company's customer base consists of large retail companies,
principally in the supermarket industry, located throughout the United
States.
Major customers accounted for the following percentages of revenue:
Customers 1996 1995 1994
A 39 % 32 % 53 %
B 12 13 12
C 10 11 -
8. RELATED-PARTY TRANSACTIONS
Product Distribution Agreement - The Company sold certain products under
the terms of a product distribution agreement (the "Agreement") with IVI.
The Agreement granted the Company the nonexclusive right to market,
distribute or sell IVI's products in the United States. The Agreement
expired on December 31, 1992, and the Company and IVI have continued to
transact business under an informal extension of the Agreement. Total
purchases from IVI were approximately $453,000, $1,190,000 and $751,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
9. WRITE-OFF OF CAPITALIZED SOFTWARE COSTS
In December 1994, the Company wrote off $657,479 of capitalized software
development costs relating to a software product under development. These
costs had previously been capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." The
write-off resulted from the reprioritization of Company resources to focus
on new market requirements. Prior to the release of the software product
for which development costs had been capitalized, market demands shifted
towards integrated payment system solutions away from the stand-alone
product under development by the Company. Accordingly, the Company
canceled the project under development and redirected its marketing and
product development efforts to meet current market opportunities for
integrated products. An additional $55,846 of severance costs was incurred
in connection with the decision to write off the capitalized software
costs and was included in research and development expenses for the year
ended December 31, 1994.
* * * * * *
F-12
EXHIBIT 10(t)
IBM CUSTOMER AGREEMENT
- --------------------------------------------------------------------------------
Thank you for doing business with us. We strive to provide you with the highest
quality Products and Services. If, at any time, you have any questions or
problems, or are not completely satisfied, please let us know. Our goal is to do
our best for you.
This IBM Customer Agreement (called the "Agreement") covers business
transactions you may do with us to purchase Machines, License Programs, and
acquire Services.
This Agreement and its applicable Attachments and Transaction Documents are the
complete agreement regarding these transactions, and replace any prior oral or
written communications between us.
By signing below for our respective Enterprises, each of us agrees to the terms
of this Agreement. Once signed. 1) any reproduction of this Agreement, an
Attachment, or Transaction Document made by reliable means (for example,
photocopy or facsimile) is considered an original and 2) all Products and
Services you order under this Agreement are subject to it.
<TABLE>
<CAPTION>
<S> <C>
Agreed to: (Enterprise name) Agreed to:
National Transaction Network, Inc. International Business Machines Corporation
By Paul Siegenthaler By T. Webb
------------------------------------ --------------------------------------
Authorized Signature Authorized Signature
Name (type or print): Paul Siegenthaler Name (type of print): T. Webb
Date: 22 May 1996 Date: 6/03/96
Enterprise number: Agreement number: 1013129
Enterprise Address:
National Transaction Network, Inc. IBM Office address
9 Kane Industrial Drive 4111 Northside Parkway
Hudson, MA 017[ILLEGIBLE] Atlanta, GA [ILLEGIBLE]
</TABLE>
[AFTER SIGNING, PLEASE RETURN A COPY OF THIS AGREEMENT TO THE LOCAL "IBM OFFICE
ADDRESS" SHOWN ABOVE]
IBM CUSTOMER AGREEMENT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Section Title Page Section T1tle Page
PART 1 - GENERAL 3 PART 4 - PROGRAMS 13
1.1 Definitions 3 4.1 License 13
1.2 Agreement Structure 4 4.2 License Details 13
1.3 Delivery 4 4.3 Program Features Not Used on
1.4 Prices and Payment 5 the Designated Machine 13
1.5 Types of Service for Machines 5 4.4 Additional License Copies 14
1.6 Patents and Copyrights 6 4.5 Program Testing 14
1.7 Limitation of Liability 7 4.6 Packaged Programs 14
1.8 Mutual Responsibilities 7 4.7 Program Protection 14
1.9 Your Other Responsibilities 7 4.8 Program Services 14
1.10 IBM Business Partners 8 4.9 License Termination 15
1.11 Changes to the Agreement Terms 8
1.12 Agreement Termination 8 PART 5 - SERVICES 16
1.13 Geographic Scope 8
1.14 Governing Law 8 5.1 Maintenance Services 16
5.2 Continuing Support Services 17
PART 2 - WARRANTIES 9 5.3 Project Support Services 17
5.4 The Statement of Work 18
2.1 The IBM Warranties 9 5.5 Materials pwnership and License 18
2.2 Extent of Warranty 10
2.3 Items Not Covered by Warranty 10
PART 3 - MACHINES 11
3.1 Title and Risk of Loss 11
3.2 Production Status 11
3.3 Installation 11
3.4 Licensed Internal Code 11
</TABLE>
Page 2 of 19
IBM CUSTOMER AGREEMENT
PART 1 - GENERAL
- --------------------------------------------------------------------------------
1.1 DEFINITIONS
CUSTOMER-SET-UP MACHINE is an IBM Machine that you install according to our
instructions.
DATE OF INSTALLATION is the following:
1. for an IBM Machine--
a. the business day after the day we install it or, if you defer
installation, make it available to you for installation, or
b. the second business day after the end of a Customer-set-up Machine's
standard transit allowance period;
2. for a non-IBM Machine, the second business day after its arrival; and
3. for a Program, the latest of--
a. the day after its testing period ends,
b. 10 days after we ship it, or
c. the day, specified in a Transaction Document on which we authorize you
to make an Additional License Copy or a copy of a Program feature.
DESIGNATED MACHINE is the machine, that we require you to identify to us by
type/model and serial number, on which you intend to use a Program for
processing. When we specify that you do not have to provide this identification
to us, the term "Designated Machine" means the single machine on which you may
use the Program at any one time.
ENTERPRISE is any legal entity (such as a corporation) and the subsidiaries it
owns by more than 50 percent. The term "Enterprise" applies only to the portion
of the enterprise located in the United States or Puerto Rico.
MACHINE is a machine, its features, conversions, upgrades, elements, or
accessories, or any combination of them. The term "Machine" includes an IBM
Machine and any non-IBM Machine (including other equipment) that we may provide
to you.
MATERIALS are literary works or other works of authorship (such as programs,
program listings, programming tools, documentation, reports, drawings and
similar works) that we may deliver to you. The term "Materials" does not include
Programs or Licensed Internal Code.
PRODUCT is a Machine or a Program.
PROGRAM is the following, including features and any whole or partial copies:
1. machine-readable instructions;
2. a collection of machine-readable data, such as a data base; and
3. related licensed materials, including documentation and listings, in any
form.
The term "Program" includes an IBM Program and any non-IBM Program that we
may provide to you. The term does not include Licensed Internal Code or
Materials.
SERVICE is performance of a task, provision of advice and counsel, assistance,
or use of a resource (such as access to an information data base) we make
available to you.
SPECIFICATIONS is a document that provides information specific to a Product.
For a Machine, we call the document "Official Published Specifications." For a
Program, we call it "Licensed Program Specifications," or "License Information."
SPECIFIED OPERATING ENVIRONMENT is the Machines and Programs with which a
Program is designed to operate, as described in the Program's Specifications.
PAGE 3 OF 19
1.2 AGREEMENT STRUCTURE
ATTACHMENTS
Some Products and Services have terms in addition to those we specify in this
Agreement. We provide the additional terms in documents called "Attachments,"
which are also part of this Agreement. We make the Attachments available to you
for signature.
TRANSACTION DOCUMENTS
For each business transaction, we will provide you with the appropriate
"Transaction Documents" that confirm the specific details of the transaction.
Some Transaction Documents require signature, and others do not. The following
are examples of Transaction Documents that must be signed by both of us with
examples of the information they may contain:
1. addenda (contract-period duration, start date, and total quantity), and
2. statements of work (scope of Services, responsibilities, deliverables,
Completion Criteria, estimated schedule, and charges).
The following are examples of administrative, unsigned Transaction Documents
with examples of the information they may contain:
1. exhibits (eligible Products by category);
2. invoices (item, quantity, price, and amount payable); and
3. supplements (Machine quantity and type ordered, price, estimated shipment
date, and warranty period). Certain supplements may require signature
if requested by either of us.
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, those of an
Attachment prevail over those of this Agreement. The terms of a Transaction
Document prevail over those of both of these documents.
OUR ACCEPTANCE OF YOUR ORDER
A Product or Service becomes subject to this Agreement when we accept your
order. We accept your order by doing any of the following:
1. sending you a Transaction Document;
2 shipping the Product; or
3. providing the Service.
YOUR ACCEPTANCE OF ADDITIONAL TERMS
You accept the additional terms in an Attachment or Transaction Document by
doing any of the following:
1. signing the Attachment or Transaction Document;
2. using the Product or Service, or allowing others to do so; or
3. making any payment for the Product or Service.
1.3 DELIVERY
We will try to meet your delivery requirements for Products and Services you
order, and will inform you of their status. Transportation charges, if
applicable, will be specified in a Transaction Document.
Page 4 of 19
1.4 PRICES AND PAYMENT
The amount payable for a Product or Service will be based on one or more of the
following types of charges:
1. one-time (for example, the price of a Machine);
2. recurring (for example, a periodic charge for Maintenance Services);
3. time and materials (for example, charges for Hourly Services); or
4. fixed price (for example, a specific amount agreed to between us for Project
Support Services).
Depending on the particular Product, Service, or circumstance, additional
charges may apply. We will inform you in advance whenever additional charges
apply.
For a Product with a one-time charge, payment is due on its Date of
Installation. Recurring charges for a Product begin on its Date of Installation.
Payment for Services is due as we specify, either in advance, as the work
progresses, or after the work is completed. You agree to pay amounts due for
Products and Services, including any late payment fees, as we specify in the
invoice.
If any authority imposes a duty, tax, levy, or fee, excluding those based on
our net income, upon any transaction under this Agreement, then you agree to pay
that amount as specified in the invoice or supply exemption documentation. You
are responsible for personal property taxes for each Product from the date we
ship it to you.
One-time and recurring charges may be based on measurements of actual or
authorized use (for example, number of users or processor size for Programs and
meter readings for Maintenance Services). You agree to promptly notify us and
pay any applicable charges if you change the basis of measurement for usage
based charges. Recurring charges will be adjusted accordingly. We do not give
credits or refunds for charges already due or paid. In the event that we change
the basis of measurement, the charges will be subject to our price change terms.
We may increase recurring-charges for Products and Services (including hourly
rates and minimums) by giving you three months' written notice. An increase
applies on the first day of the applicable invoice period on or after the
effective date we specify in the notice.
We may increase one-time charges without notice. However, an increase to
one-time charges does not apply to you if 1) we receive your order before the
announcement date of the increase and 2) one of the following occurs within
three months after our receipt of your order:
1. we ship you the Product;
2. with our authorization, you make an Additional License Copy of a Program or
a copy of a Distributed Feature; or
3. a Program's group-upgrade charge becomes due.
You receive the benefit of a decrease in charges for amounts which become due on
or after the effective date of the decrease.
1.5 TYPES OF SERVICE FOR MACHINES
We provide certain types of repair and exchange service either at your location
or at our service center to keep Machines in, or restore them to, good working
order.
Under carry-in service, you may deliver the failing Machine or ship it suitably
packaged (prepaid, unless we specify otherwise) to a location we designate.
After we have repaired or exchanged the Machine, we will return it to you at our
expense unless we specify otherwise.
Under on-site service, we may repair the failing Machine at your site or
exchange it, at our discretion, depending on the nature of the failure.
Page 5 of 19
When a type of service involves the exchange of a Machine or part, the item we
replace becomes our property and the replacement becomes yours. You represent
that all removed items are genuine and unaltered. The replacement may not be
new, but will be in good working order and at least functionally equivalent to
the item replaced. The replacement assumes the warranty and Maintenance Service
status of the replaced item. Before we exchange a Machine or part, you agree to
remove all features, parts, options, alterations, and attachments not under our
service. You also agree to ensure that the item is free of any legal obligations
or restrictions that prevent its exchange.
You agree to:
1. obtain authorization from the owner to have us service a Machine that you do
not own; and
2. where applicable, before we provide service--
a. follow the problem determination, problem analysis, and service-request
procedures that we provide,
b. secure all programs, data, and funds contained in a Machine, and
c. inform us of changes in a Machine's location.
1.6 PATENTS AND COPYRIGHTS
For purposes of this Section, the term "Product" includes Materials (alone or
in combination with Products we provide to you as a system) and Licensed
Internal Code.
If a third party claims that a Product we provide to you infringes that party's
patent or copyright, we will defend you against that claim at our expense and
pay all costs, damages, and attorney's fees that a court finally awards,
provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If such a claim is made or appears likely to be made, you agree to permit us to
enable you to continue to use the Product, or to modify it, or replace it with
one that is at least functionally equivalent. If we determine that none of these
alternatives is reasonably available, you agree to return the Product to us on
our written request. We will then give you a credit equal to your net book value
for the Product, provided you have followed generally-accepted accounting
principles.
This is our entire obligation to you regarding any claim of infringement.
CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the following:
1. anything you provide which is incorporated into a Product;
2. your modification of a Product, or a Program's use in other than its
Specified Operating Environment;
3. the combination, operation, or use of a Product with other Products not
provided by us as a system, or the combination, operation, or use of a
Product with any product, data, or apparatus that we did not provide; or
4. infringement by a non-IBM Product alone, as opposed to its combination with
Products we provide to you as a system.
Page 6 of 19
1.7 LIMITATION OF LIABILITY
Circumstances may arise where, because of a default on our part or other
liability, you are entitled to recover damages from us. In each such instance,
regardless of the basis on which you are entitled to claim damages from us
(including fundamental breach, negligence, misrepresentation, or other contract
or tort claim), we are liable only for:
1. payments referred to in our patents and copyrights terms described above;
2. damages for bodily injury (including death) and damage to real property and
tangible personal property; and
3. the amount of any other actual direct damages or loss, up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply) for the
Product or Service that is the subject of the claim. For purposes of this
item, the term "Product" includes Materials and Licensed Internal Code.
This limit also applies to any of our subcontractors and Program developers.
It is the maximum for which we and our subcontractors and Program developers
are collectively responsible.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances are we, our subcontractors, or Program developers liable
for any of the following:
1. third-party claims against you for losses or damages (other than those under
the first two items listed above);
2. loss of, or damage to, your records or data; or
3. special, incidental or indirect damages or for any economic consequential
damages (including lost profits or savings), even if we are informed of their
possibility.
1.8 MUTUAL RESPONSIBILITIES
Both of us agree that under this Agreement:
1. neither of us grants the other the right to use its trademarks, trade names,
or other designations in any promotion or publication;
2. all information exchanged is nonconfidential. If either of us requires the
exchange of confidential information, it will be made under a signed
confidentiality agreement;
3. each is free to enter into similar agreements with others;
4. each grants the other only the licenses and rights specified. No other
licenses or rights (including licenses or rights under patents) are granted;
5. each may communicate with the other by electronic means and such
communication is acceptable as a signed writing. An identification code
(called a "USERID") contained in an electronic document is legally sufficient
to verify the sender's identity and the document's authenticity;
6. each will allow the other reasonable opportunity to comply before it claims
that the other has not met its obligations;
7. neither of us will bring a legal action more than two years after the cause
of action arose; and
8. neither of us is responsible for failure to fulfill any obligations due to
causes beyond its control.
1.9 YOUR OTHER RESPONSIBLLITIES
You agree:
1. not to assign, or otherwise transfer, this Agreement or your rights under it,
delegate your obligations, or resell any Service without prior written consent.
Any attempt to do so is void;
Paqe 7 of 19
2. to acquire Machines with the intent to use them within your Enterprise and
not for reselling, leasing, or transferring to a third party, unless either
of the following applies--
a. you are arranging lease-back financing for the Machines, or
b. you purchase them without any discount or allowance, and do not remarket
them in competition with our authorized remarketers;
3. to allow us to install mandatory engineering changes (such as those required
for safety) on IBM Machines. Any parts we remove become our property. You
represent that you have the permission from the owner and any lien holders to
transfer ownership and possession of removed parts to us;
4. that you are responsible for the results obtained from the use of the
Products and Services; and
5. to provide us with sufficient, free, and safe access to your facilities for
us to fulfill our obligations.
1.10 IBM BUSINESS PARTNERS
We have signed agreements with certain organizations (called "IBM Business
Partners") to promote, market, and support certain Products and Services. When
you order our Products or Services (marketed to you by IBM Business Partners)
under this Agreement, we confirm that we are responsible for providing the
Products or Services to you under the warranties and other terms of this
Agreement. We are not responsible for 1) the actions of IBM Business Partners,
2) any additional obligations they have to you, or 3) any products or services
that they supply to you under their agreements.
1.11 CHANGES TO THE AGREEMENT TERMS
In order to maintain flexibility in our Products and Services, we may change the
terms of this Agreement by giving you three months' written notice. However,
these changes are not retroactive. They apply, as of the effective date we
specify in the notice, only to new orders (those we receive on or after the date
of the notice) and to on-going transactions, such as licenses and Services.
Otherwise, for a change to be valid, both of us must sign it. Additional or
different terms in any order or written communication from you are void.
1.12 AGREEMENT TERMINATION
You may terminate this Agreement on written notice to us following the
expiration or termination of your obligations. Either of us may terminate this
Agreement if the other does not comply with any of its terms, provided the one
who is not complying is given written notice and reasonable time to comply.
Any terms of this Agreement which by their nature extend beyond its termination
remain in effect until fulfilled, and apply to respective successors and
assignees.
1.13 GEOGRAPHIC SCOPE
All your rights, all our obligations, and all licenses (except for Licensed
Internal Code and as specifically granted) are valid only in the United States
and Puerto Rico.
1.14 GOVERNING LAW
The laws of the State of New York govern this Agreement.
Page 8 of 19
IBM CUSTOMER AGREEMENT
PART 2 - WARRANTIES
- --------------------------------------------------------------------------------
2.1 THE IBM WARRANTIES
WARRANTY FOR IBM MACHINES
For each IBM Machine, we warrant that it:
1. is free from defects in materials and workmanship; and
2. conforms to its Specifications.
The warranty period for a Machine is a specified, fixed period commencing on its
Date of Installation.
During the warranty period, we provide warranty service under the type of
service we designate for the Machine or under the alternative service you select
under Maintenance Services.
For us to provide warranty service for a feature, conversion, or upgrade, we
require that the Machine on which it is installed be 1) for certain Machines,
the designated, serial-numbered Machine and 2) at an engineering-change level
compatible with the feature, conversion, or upgrade.
During the warranty period, we manage and install engineering changes that
apply to the Machine.
If a Machine does not function as warranted during the warranty period, we will
repair it or replace it with one that is at least functionally equivalent,
without charge. If we are unable to do so, you may return it to us and we will
refund your money.
WARRANTY FOR IBM PROGRAMS
For each warranted IBM Program, we warrant that when it is used in the Specified
Operating Environment, it will conform to its Specifications.
The warranty period for a Program commences on its Date of Installation and
expires when its Program Services are no longer available.
During the warranty period, we provide warranty service, without charge, for a
Program through Program Services. Program Services are available for a warranted
Program for at least one year following its general availability. Therefore, the
duration of warranty service depends on when you obtain your license.
If a Program does not function as warranted during the first year after you
obtain your license and we are unable to make it do so, you may return the
Program to us and we will refund your money. To be eligible, you must have
acquired the Program while Program Services (regardless of the remaining
duration) were available for it.
WARRANTY FOR IBM SERVICES
For each IBM Service, we warrant that we perform it:
1. in a workmanlike manner; and
2. according to its current description (including any Completion Criteria)
contained in this Agreement, an Attachment, or a Transaction Document.
Page 9 of 19
WARRANTY FOR SYSTEMS
Where we provide Products to you as a system, we warrant that they are
compatible and will operate with one another. This warranty is in addition to
our other applicable warranties.
2.2 EXTENT OF WARRANTY
If a Machine is subject to federal or state consumer warranty laws, our
statement of limited warranty included with the Machine applies in place of
these Machine warranties.
The warranties may be voided by misuse, accident, modification, unsuitable
physical or operating environment, operation in other than the Specified
Operating Environment, improper maintenance by you, removal or alteration of
Product or parts identification labels, or failure caused by a product for which
we are not responsible.
THESE WARRANTIES REPLACE ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
2.3 ITEMS NOT COVERED BY WARRANTY
We do not warrant uninterrupted or error-free operation of a Product or Service.
We will identify IBM Products that we do not warrant.
Unless we specify otherwise, we provide Materials, non-IBM Products, and non-IBM
Services on an "AS IS" basis. However, non-IBM manufacturers, suppliers, or
publishers may provide their own warranties to you.
Page 10 of 19
IBM CUSTOMER AGREEMENT
PART 3 - MACHINES
- --------------------------------------------------------------------------------
3.1 TITLE AND RISK OF LOSS
When we accept your order, we agree to sell you the Machine described in a
Transaction Document. We transfer title to you or, if you choose, your lessor
when we ship the Machine. However, we reserve a purchase money security interest
in the Machine until we receive the amounts due. For a feature, conversion, or
upgrade involving the removal of parts which become our property, we reserve the
security interest until we receive the amounts due and the removed parts. You
agree to sign an appropriate document to permit us to perfect our purchase money
security interest.
We bear the risk of loss for the Machine through its Date of Installation.
Thereafter, you assume the risk.
3.2 PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used parts. In some
cases, the Machine may not be new and may have been previously installed.
Regardless of the Machine's production status, our warranty terms apply.
3.3 INSTALLATION
For the Machine to function properly, it must be installed in a suitable
physical environment. You agree to provide an environment meeting our specified
requirements for the Machine.
We have standard installation procedures. We will successfully complete these
procedures before we consider an IBM Machine (other than a Customer-set-up
Machine) installed.
You are responsible for installing a Customer-set-up Machine we provide
instructions to enable you to do so) and a non-IBM Machine.
MACHINE FEATURES, CONVERSIONS, AND UPGRADES
We sell features, conversions, and upgrades for installation on Machines, and,
in certain instances, only for installation on a designated, serial-numbered
Machine. Many of these transactions involve the removal of parts and their
return to us. As applicable, you represent that you have the permission from the
owner and any lien holders to 1) install features, conversions, and upgrades and
2) transfer ownership and possession of removed parts (which become our
property) to us. You further represent that all removed parts are genuine and
unaltered. A part that replaces a removed part will assume the warranty and
Maintenance Service status of the replaced part.
You agree to allow us to install the feature, conversion, or upgrade within 30
days of its delivery. Otherwise, we may terminate the transaction and you must
return the feature, conversion, or upgrade to us at your expense.
3.4 LICENSED INTERNAL CODE
Certain Machines we specify (called "Specific Machines") use Licensed Internal
Code (called "Code"). We own copyrights in Code. We own all copies of Code,
including all copies made from them.
We will identify each Specific Machine in a Transaction Document. If you are the
rightful possessor of a Specific Machine, we grant you a license to use the Code
(or any replacement
Page 11 of 19
we provide) on, or in conjunction with, only the Specific Machine, designated by
serial number, for which the Code is provided. We license the Code to only one
rightful possessor at a time.
Under each license, we authorize you to do only the following:
1. execute the Code to enable the Specific Machine to function according to its
Specifications;
2. make a backup or archival copy of the Code (unless we make one available for
your use), provided you reproduce the copyright notice and any other legend
of ownership on the copy. You may use the copy only to replace the original,
when necessary; and
3. execute and display the Code as necessary to maintain the Specific Machine.
You agree to acquire any replacement for, or additional copy of, Code directly
from us in accordance with our standard policies and practices. You also agree
to use that Code under these terms.
You may transfer possession of the Code to another party only with the transfer
of the Specific Machine. If you do so, you must 1) destroy all your copies of
the Code that were not provided by us, 2) either give the other party all your
IBM-provided copies of the Code or destroy them, and 3) notify the other party
of these terms. We license the other party when it accepts these terms by
initial use of the Code. These terms apply to all Code you acquire from any
source.
Your license terminates when you no longer rightfully possess the Specific
Machine.
ACTIONS YOU MAY NOT TAKE
You agree to use the Code only as authorized above. You may not do, for example,
any of the following:
1. otherwise copy, display, transfer, adapt, modify, or distribute the Code
(electronically or otherwise), except as we may authorize in the Specific
Machine's Specifications or in writing to you;
2. reverse assemble, reverse compile, or otherwise translate the Code unless
expressly permitted by applicable law without the possibility of contractual
waiver;
3. sublicense or assign the license for the Code; or
4. Lease the Code or any copy of it.
Page 12 of 19
IBM CUSTOMER AGREEMENT
PART 4 - PROGRAMS
- --------------------------------------------------------------------------------
4.1 LICENSE
When we accept your order, we grant you a non-exclusive license for the Program.
Programs are copyrighted and licensed (not sold).
4.2 LICENSE DETAILS
Under each license, we authorize you to:
1. use the Program's machine-readable portion on only the Designated Machine
or, if it is inoperable, a backup Machine. If the Designated Machine
cannot assemble or compile the Program, you may assemble or compile it on
another Machine.
If a Program is stored on a network server solely for the purpose of being
distributed to other Machines, it is not considered to be in use.
Certain Programs IBM designates for home or travel use may be stored on
the Designated Machine and another Machine, provided the Program is not in
active use on both Machines at the same time.
If you change the Designated Machine previously identified to us, you
agree to notify us of the change and its date;
2. make and store copies of a Program, managed by a License management
tool, on Designated Machines under control of that tool, but your use may
not exceed the total number of users or amount of resource authorized;
3. do the following to support your authorized use as described above--
a. make copies of the Program, provided you reproduce copyright notices
and any other legends of ownership on each copy or partial copy, and
b. merge the Program into another Program; and
4. use any portion of the Program we 1) provide in source form, or 2) mark
restricted (for example, "Restricted Materials of IBM") only to--
a. resolve problems related to the use of the Program, and
b. modify the Program so that it will work together with other products.
You agree to comply with any additional terms (such as usage restrictions) we
may place on a Program. We identify these in the Program's Specifications or in
a Transaction Document.
ACTIONS YOU MAY NOT TAKE
You agree not to do any of the following:
1. sublicense, assign, or transfer (unless we specify otherwise in the Program
Specifications) the license for any Program;
2. distribute any Program to any third party; or
3. reverse assemble, reverse compile, or otherwise translate any Program.
4.3 PROGRAM FEATURES NOT USED ON THE DESIGNATED MACHINE
Some Programs have features that are designed for use on Machines other than
the Designated Machine on which the Program is used. You may make copies of
a feature and its documentation in support of your authorized use of the
Program. Persons using a Machine outside of your Enterprise may use the copy
only to access the associated Program. You agree to pay us for each copy you
make of any feature we refer to as a "Distributed Feature."
Page 13 of 19
4.4 ADDITIONAL LICENSE COPIES
You may order additional licenses for Programs. If you prefer, for each
license we grant, rather than shipping you another copy of the Program, we
will authorize you to make an additional copy (called an "Additional
License Copy").
For some Programs, you may make a copy under a Distributed System License
Option (called a "DSLO" license). We charge less for a DSLO license than we
do for the original license (called the "Basic" license). In return for the
lesser charge, you agree to do the following while licensed under a DSLO:
1. have a Basic license for the Program;
2. provide problem documentation and receive Program Services (if any) only
through the location of the Basic license; and
3. distribute to, and install on, the DSLO's Designated Machine, any
release, correction, or bypass that we provide for the Basic license.
4.5 PROGRAM TESTING
We provide a testing period for certain Programs to help you evaluate if
they meet your needs. If we offer a testing period, it will start 1) 10 days
after we ship the Program or 2) on the day we authorize you to make an
Additional License Copy. We will inform you of the duration of the Program's
testing period.
If you terminate your license during this period, we will credit you with
any charges you may have paid for the Program.
For the first order of each Distributed Feature, the testing period is the
same as its associated Program.
We do not provide a testing period for a Program under a DSLO license.
4.6 PACKAGED PROGRAMS
We provide certain Programs together with their own license agreements.
These Programs are licensed under the terms of the agreements provided with
them.
4.7 PROGRAM PROTECTION
For each Program, you agree to:
1. ensure that anyone who uses it (accessed either locally or remotely) does
so only for your authorized use and complies with our terms regarding
Programs;
2. maintain a record of all copies; and
3. if it is a licensed data base containing information we provide to you,
allow access to the information contained in it only to your employees,
agents, or subcontractors, and only in support of their work for you.
4.8 PROGRAM SERVICES
We provide Program Services for warranted Programs and for selected other
Programs. If we can reproduce your reported problem in the Specified
Operating Environment, we will issue defect correction information, a
restriction, or a bypass. We provide Program Services for only the
unmodified portion of a current release of a Program.
Page 14 of 19
We provide Program Services 1) on an on-going basis (with at least six
months' written notice before we terminate services for a Program), 2) until
the date we specify, or 3) for a period we specify.
4.9 LICENSE TERMINATION
You may terminate the license for a Program on one month's written notice or
at any time during the Program's testing period.
Licenses for certain replacement Programs may be acquired for an upgrade
charge. In this event, when you license these Programs, you agree to
terminate the license of the replaced Program.
We may terminate any license we grant you under the terms of this Part if
you do not meet your obligations regarding Programs.
You agree to destroy all copies of the Program after license termination.
However, you may keep a copy in your archives.
Page 15 of 19
IBM CUSTOMER AGREEMENT
PART 5 - SERVICES
- --------------------------------------------------------------------------------
5.1 MAINTENANCE SERVICES
We will restore the Machine to good working order or exchange it, based on
the type of service you select from those available for the Machine. We may
also perform preventive maintenance. We manage and install engineering
changes that apply to IBM Machines. We provide Maintenance Services for
selected non-IBM Machines.
We will inform you of the date on which Maintenance Services begin. We may
inspect the Machine within one month following that date. If the Machine is
not in an acceptable condition for service, you may have us restore it for a
charge. Alternatively, you may withdraw your request for Maintenance
Services. However, you will be charged for any Maintenance Services which we
have performed at your request.
For a Machine under a usage plan, you agree to provide us with the meter
reading as of the last working day of the period that the minimum
maintenance charge covers.
Maintenance Services do not cover accessories, supply items, and certain
parts, such as batteries, frames, and covers. In addition, Maintenance
Services do not cover service of a Machine damaged by misuse, accident,
modification, unsuitable physical or operating environment, improper
maintenance by you, removal or alteration of Machine or parts identification
labels, or failure caused by a product for which we are not responsible.
Unless otherwise agreed, Maintenance Services do not cover service of
Machine alterations.
ALTERNATIVE SERVICE DURING WARRANTY
For certain Machines, you may choose alternative warranty service. We
provide the alternative type of service for an additional charge. When the
alternative service ends, we will continue Maintenance Services for the
Machine under the same type of service you selected.
MAINTENANCE SERVICES TERMINATION
You may terminate Maintenance Services for a Machine on one month's written
notice to us under any of the following circumstances:
1. after it has been under Maintenance Services for at least six months;
2. if you permanently remove it from productive use within your Enterprise;
3. as of the effective date of an increase in Maintenance Services charges;
or
4. if you terminate coverage for a Machine also covered by a Maintenance
Service Option because we 1) remove a Machine type from eligibility or 2)
increase total adjusted charges for Maintenance Services.
We may terminate Maintenance Services for a Machine on three months' written
notice, provided it has been under Maintenance Services for at least one
year.
Either of us may terminate service for any Machine if the other does not
meet its obligations concerning Maintenance Services. On termination of
service for a Machine, we will give you any applicable credit.
MAINTENANCE SERVICE OPTIONS
We provide Maintenance Service Options for certain Machines. We provide the
terms specific to an Option in an Attachment or Statement of Work. We will
inform you periodically of any changes. We will defer an unfavorable change
(and all changes related to it) until the next anniversary of the start of
your contract period, if you request it in writing before the effective date
of the change.
Page 16 of 19
5.2 CONTINUING SUPPORT SERVICES
We provide Continuing Support Services on a contract-period basis to assist
you in improving the availability of your systems. We provide the terms
specific to a Service in an Attachment or Statement of Work. If we make a
change to the terms that 1) affects your current contract period and 2) you
consider unfavorable, on your request, we will defer it until the next
anniversary of the start of the contract period.
Each of us agrees to notify the other (before your current contract period
expires) if they do not intend to renew.
CONTINUING SUPPORT SERVICES TERMINATION
You may terminate a Continuing Support Service by providing us one month's
written notice upon fulfillment of any minimum commitments.
The termination of Services with contract periods longer than one year
results in adjustment charges In this case, you agree to pay the lesser of:
1. the difference between the total charges you paid through the termination
date and those you would have paid for the same period of time at the
charge level of the next shorter contract period;
2. the monthly charge multiplied by the applicable adjustment charge factor;
or
3. the total charges remaining to complete the contract period.
When an increase results in a change to your total monthly charge for a
Service of more than the adjustment charge we specify, you may terminate
that Service on the effective date of the increase. Adjustment or
termination charges do not apply in this case.
5.3 PROJECT SUPPORT SERVICES
Following are examples of Project Support Services we make available to you:
1. Consulting Services, such as reengineering business processes, linking
business and technology strategies, improving manufacturing processes,
and enhancing application development and information processing
capabilities. We are responsible for managing the engagement;
2. Custom Services, such as managing and performing project tasks to deliver
Materials or acting as a prime contractor to deliver an integrated system
that may consist of a combination of Products, Services, Materials, and
other items. We are responsible for managing the project, unless
specified otherwise in the Statement of Work; and
3. Hourly Services, such as assisting on a technical task. You are
responsible for managing the project and for any results achieved. The
Statement of Work will specify the hourly rate and estimated number of
hours. The estimate is not a fixed-price commitment. Charges = (actual
hours x rate) + expenses.
Hourly Services end when the first of the following occurs: 1) you advise
us, in writing, that further Services are not required, 2) we provide the
specified number of hours, or 3) the estimated end date expires. You may
authorize, in writing, additional hours or extension of the end date.
PROJECT SUPPORT SERVICES TERMINATION
Either of us may terminate a project on written notice to the other if
the other does not meet its obligations concerning the Statement of Work.
Upon termination, we will stop our work in an orderly manner as soon as
practical.
You agree to pay us for all Services we provide and any Materials we
deliver through the project's termination and any charges we incur in
terminating subcontracts.
Page 17 of 19
5.4 THE STATEMENT OF WORK
A separate Statement of Work will be signed by both of us for each Services
transaction not covered by another Transaction Document. When we accept your
order, we agree to provide the Services described in the Statement of Work.
The Statement of Work includes, for example:
1. our respective responsibilities;
2. the specific conditions (called the "Completion Criteria"), if any, that
we are required to meet to fulfill our obligations;
3. a contract period for Maintenance and Continuing Support Services and an
estimated schedule for Project Support Services that we provide for
planning purposes; and
4. applicable charges (not including taxes) and any other terms.
If a Statement of Work contains an estimated schedule, each of us agrees to
make reasonable efforts to carry out our respective responsibilities
according to that schedule. If the Statement of Work contains Completion
Criteria, we will inform you when we meet each of them. You then have 10
days to inform us if you believe that we have not met those criteria. The
project is complete when we meet the Completion Criteria.
CHANGES TO STATEMENTS OF WORK
When both of us agree to change a Statement of Work other than as permitted
in the Maintenance Service Options and Continuing Support Services Sections
of this Agreement, we will prepare a written description of the agreed
change (called a "Change Authorization"), which both of us must sign. The
terms of a Change Authorization prevail over those of the Statement of Work
and any of its previous Change Authorizations.
Any change in the Statement of Work may affect the charges, estimated
schedule, or other terms. Depending on the extent and complexity of the
requested changes, we may charge for our effort required to analyze it. When
charges are necessary, we will give you a written estimate and begin the
analysis only on your written authorization.
PERSONNEL
Each of us will:
1. designate a coordinator who will represent each of us, respectively, in all
matters concerning Project Support Services and other Services where
applicable; and
2. be responsible for the supervision, direction, and control of our respective
personnel.
We will try to honor your requests regarding the assignment of our personnel to
your project. However, we reserve the right to determine the assignment of our
personnel.
We may subcontract a Service, or any part of it, we provide to you, to
subcontractors selected by us.
5.5 MATERIALS OWNERSHIP AND LICENSE
We will specify Materials to be delivered to you. We will identify them as
being "Type I Materials," "Type II Materials," or otherwise as we both
agree. If not specified, Materials will be considered Type II Materials.
Type I Materials are those, created during the Service performance period,
in which you will have all right, title, and interest (including ownership
of copyright). We will retain one copy of the Materials. You grant us 1) an
irrevocable, nonexclusive, worldwide, paid-up license to use, execute,
reproduce, display, perform, distribute (internally and externally) copies
of, and prepare derivative works based on Type I Materiais and 2) the right
to authorize others to do any of the former.
Page 18 of 19
Type II Materials are those, created during the Service performance period
or otherwise (such as those that preexist the Service), in which we or third
parties have all right, title, and interest (including ownership of
copyright). We will deliver one copy of the specified Materials to you. We
grant you an irrevocable, nonexclusive, worldwide, paid-up license to use,
execute, reproduce, display, perform, and distribute, within your Enterprise
only, copies of Type II Materials.
Each of us agrees to reproduce the copyright notice and any other legend of
ownership on any copies made under the Licenses granted in this Section.
Page 19 of 19
IBM BUSINESS PARTNER AGREEMENT
INDUSTRY REMARKETER PROFILE
- --------------------------------------------------------------------------------
We welcome you as an IBM Business Partner.
This Profile covers the details of your authorization to market our products
with your value-added enhancements to End Users. Like you, we are committed to
providing the highest quality Products to the Customer. As our industry
remarketer, please let us know if you have any questions or problems with our
Products.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(a) this Profile;
(b) Remarketer General Terms (2125- [ILLEGIBLE]); and
(c) the applicable Attachments referred to in this Profile.
This Agreement and its applicable Transaction Documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is signed, 1) any reproduction of
this Agreement or a Transaction Document made by reliable means (for example,
photocopy or facsimile) is considered an original and 2) all Products you order
and Services you perform under this Agreement are subject to it.
Revised Profile (yes/no): no Date received by IBM: 5/31/96
--------- -----------
Agreed to: (IBM Business Partner name) Agreed to:
NATIONAL TRANSACTION NETWORK International Business Machines
Corporation
By Paul Siegauthaler By T. Webb
-------------------------------- -----------------------------------
Name (type or print): Paul Siegauthaler Name (type or print): T. Webb
Date: 22 May 1996 Date: 6/03/96
IBM Business Partner address: IBM Office address:
NATIONAL TRANSACTION NETWORK 4111 Northside Parkway
9 Kane Industrial Drive Atlanta, GA 30327
Hudson, MA 01743
[Industry Remarketers are required to sign this Profile, only if it is being
revised. After signing, please return a copy to the "IBM Office address" shown
above]
DETAILS OF OUR RELATIONSHIP
1. CONTRACT-PERIOD START DATE (MONTH/YEAR): __________ DURATION (MONTHS): 12
The start date is always the first day of a month. The start date does not
change with a revised Profile.
2. RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS:
For each approved relationship, each of us agrees to the terms of the
applicable Attachment by signing this Profile. Copies of those Attachments
are included. Please make sure you have them (and the Remarketer General
Terms) and notify us if any are missing.
<TABLE>
<CAPTION>
APPROVED
AUTHORIZED RELATIONSHIP (YES/NO) ATTACHMENT
<S> <C> <C>
1) Industry Remarketer yes Z125-4805-09 07/95
2) K-12 Education Remarketer no Z125-5177-02 02/95
THE FOLLOWING OFFERINGS HAVE ADDITIONAL
TERMS IN THE APPLICABLE ATTACHMENT:
1) Electronic Data Interchange no Z125-5207-000 3/94
2) Marketing Programs for Use
on non-IBM Machines no Z125-5241-00 07/94
3) IBM RISC System/6000 - North American no Z125-5308-01 02/95
4) IBM PC Server System/390 no Z125-5338-00 05/95
</TABLE>
3. NAME AND ADDRESS OF YOUR AGGREGATOR, IF APPLICABLE:
You may receive Dealer Exhibit Products through this Aggregator. By
selecting this Aggregator, you agree that it (and not we) will provide the
functions identified in the Remarketer General Terms as the Aggregator's
responsibility.
NONE SELECTED
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Page 2 of 9
4. NAME AND ADDRESS OF YOUR K-12 EDUCATION SYSTEMS INTEGRATORS FOR K-12
EDUCATION PRODUCTS:
If you are a K-12 Education Remarketer, you may acquire K-12 Education
Products on the Dealer Exhibit from either the Primary or Secondary K-12
Education Systems Integrator named below. If a particular configuration
involving K-12 Education Products also requires other Products on the Dealer
Exhibit, you may acquire such other Products 1) from either of these
Integrators provided such other Products are ordered in conjunction with the
K-12 Education Products, or 2) separately through your Aggregator.
By selecting these Integrators, you agree that they (and not we) will provide
the functions identified in the Remarketer General Terms as an Aggregator's
responsibility.
PRIMARY K-12 EDUCATION SYSTEMS INTEGRATOR:
NOT APPLICABLE
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SECONDARY K-12 EDUCATION SYSTEMS INTEGRATOR:
NOT APPLICABLE
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
5. APPROVED ONLY FOR DEVELOPMENT SYSTEM (YES/NO): YES
---
You are approved to use the Products identified in this section, including
their associated Programs and peripherals, for development purposes. This
section is approval for development use and is not approval to market these
Products. Section 7 is approval for both marketing and development.
DEVELOPMENT SYSTEM PRODUCTS:
4690
- --------------------------- ----------------------- ------------------------
Page 3 of 9
6. PRODUCT APPROVAL
The following Products are listed in the Dealer Exhibit, the Software
Remarketer Exhibit, or the Industry Remarketer Exhibit, unless otherwise
noted. The terms of an Exhibit apply to the Products listed in it. Approval
to market the Products includes approval for you to acquire them for
development purposes. Certain Products may not be available to you directly
from IBM. Such Products may be sourced from an IBM Authorized Distributor.
<TABLE>
<CAPTION>
APPROVED TO MARKET APPROVED TO MARKET
TO END USERS TO END USERS
AS AN IR-MR (1) AS AN IR-PC (2)
SYSTEM TYPES (YES/NO) (YES/NO)
<S> <C> <C>
1) IBM System/390 no N/A
2) IBM RISC System/6000 (3) no N/A
3) IBM Scalable POWERparallel no N/A
Systems 9076 SP2 (4)
4) IBM AS/400 no N/A
5) IBM Networking Products no N/A
SYSTEM UNITS
1) IBM PC (5) N/A no
2) Item 1 above as workstations (6)(7) yes N/A
3) IBM PC Server (5) N/A no
except IBM PC Server System/390
4) Item 3 above as workstations (6)(7) yes N/A
5) IBM PC ServerSystem/390 N/A no
6) ThinkPad (5) N/A no
7) Item 6 above as workstations (7) yes N/A
8) IBM Retail POS Products no N/A
Models 468x and 469x (except 4694)
9) IBM 4694 Retail POS Products no N/A
10)IBM 465x Restaurant POS Products no N/A
11)K-12 Education System Units(8) N/A no
PRODUCT CATEGORIES
1) Graphics no N/A
2) Finance Products Category J1 no N/A
3) K-12 Education Programs (8) N/A no
4) IBM Storage Products no
Category S1 Products no N/A
Category S2 Products (10) no N/A
Category S3 Products (10) no N/A
Category S4 Products no N/A
5) IBM Entry System License Programs (11) N/A no
PRODUCTS AND OFFERINGS
1) Printers from the IBM Printing
Systems Company (7)(12) yes N/A
</TABLE>
(1) "IR-MR", means you are an industry remarketer of mid-range computer
Products. When we approve you or Products listed in the Industry
Remarketer Exhibit, you are also approved for their associated Programs and
peripherals listed in the Industry Remarketer, Software Remarketer and
Dealer Exhibits. When we approve you to market personal computer Products,
you are also approved for their associated Programs and peripherals listed
in the Dealer and Software Remarketer Exhibits.
(2) "IR-PC" means you are an industry remarketer of personal computer Products.
When we approve you for Products listed in the Dealer Exhibit, you are also
approved for their associated Programs and peripherals listed in the
Deeler, Software Remarketer and Industry Remarketer Exhibits.
(3) This approval authorizes you to market the IBM RISC System/6000 in the
United States and Canada, subject to terms of the IBM RISC System/6000
North American Remarketer Attachment.
(4) Your approval to market the IBM RISC System/6000 is a prerequisite for
approval to market the SP2. However, approval for the IBM RISC System/6000
does not constitute approval for you to market the SP2.
(5) May be available from an Aggregator.
(6) May only be used, in conjunction with your value-added enhancement, as 1)
peripherals to system types, 2) peripherals to Point of Sale (POS) systems,
or 3) controllers for POS systems.
(7) You are approved to market these Products only if you have been approved to
market a System Type as an IR-MR.
(8) Available only from a K-12 Education Systems Integrator.
(9) Category F and J2 Products in the Industry Remarketer Exhibit are not
available to IR-PC's.
(10) You are also approved for Category S1 Products.
(11) These Products are listed in IBMLink.
(12) See Section 10 "Additional Terms."
Page 4 of 9
EXCLUSIONS, IF APPLICABLE:
Although included by reference in Product approval, you are not approved for
these individual Products.
- --------------------------- ----------------------- ------------------------
- --------------------------- ----------------------- ------------------------
- --------------------------- ----------------------- ------------------------
7. AUTHORIZED LOCATIONS:
TOTAL NUMBER OF AUTHORIZED LOCATIONS LISTED IN THIS PROFILE: 1
---
<TABLE>
<CAPTION>
<S> <C> <C>
Loc ID Loc. Type (a) Authorized Location (street address, city, state, ZIP code)
IRMR 9 KANE INDUSTRIAL DRIVE
HUDSON, MA 01749
MINIMUM RENEWAL CRITERIA (4)
Product Name Volumes/Revenue/Other
4690 POS N/A -- DEVELOPMENT STATUS ONLY
MINIMUM NUMBER OF TRAINED PERSONNEL
Product/Course Name Mgmt Sales Prog Support Service
Certification (2) (3)
04 59 67 68 69 79 256 332 347
N N N N N N N N N
</TABLE>
(1) A location type ot "IR-MR" means an industry remarketer of mid-range
computer Products, "IR-PC" means an industry remarketer of personal
computer Products.
(2) As an IR-PC, the location must be certified tor you to market certain
Products or (when also approved as an IBM Premier Personal Computer
Servicer) to service certain Products. A "Y" means certified; an "N" (or
anything other than a "Y") means not certified. As an IR-MR, certification
does not apply (regardless ot whether anything is entered under the
certification groups). The group to which each Product is assigned is
specified in the Dealer and Sottware Remarketer Exhibits.
(3) As a K-12 Education Remarketer, you agree to notify us in writing it (at
any time) any ot your locations no longer satisfies our certification
requirements.
(4) If you are assigned a MRC tor the IBM RISC System/6000, your MRC includes
sales made in the U.S. and Canada.
Certification Groups:
04 = IBM Premier Personal Computer Servicer (a)
59 = IBM THINKable Products
67 = NetWare (b) - Basic
68 = NetWare - Gold
69 = NetWare - Platinum
79 = IBM VoiceType
256 = K-12 Education Products
332 = IBM Premier Personal Computer Servicer- Fixed Fee (a)
347 = IBM PC Server System/390
(a) While certified, you may not assign Warranty Service responsibility for any
Machines.
(b) Registered trademark of Novell, Inc.
Page 5 of 9
AUTHORIZED LOCATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Loc. ID Loc. Type (a) Authorized Location (street address, city, state, ZIP code)
MINIMUM RENEWAL CRITERIA
Product Name Volumes/Revenue/Other
MINIMUM NUMBER OF TRAINED PERSONNEL
Product/Course Name Mgmt Sales Prog Support Service
CERTIFICATION (2)(3)
04 59 67 68 69 79 256 332 347
Loc. ID Loc Type (a) Authorized Location (street address, city state, ZIP code)
MINIMUM RENEWAL CRITERIA
Product Name Volumes/Revenue/Other
MINIMUM NUMBER OF TRAINED PERSONNEL
Product/Course Name Mgmt Sales Prog Support Service
CERTIFICATION (2)(3)
04 59 67 68 69 79 256 332 347
</TABLE>
Page 6 Of 9
8. YOUR COMMITMENT, IF APPLICABLE:
A) This section identifies by System Type (1): your Contract Period System
Revenue Commitment (2); its Applicable Discount Percentage (3); and, the
Minimum Revenue Attainment you are required to achieve at the mid-point of
your Contract Period, in order to maintain the current discount percentage
(4). At your request we will review your Revenue Attainment, any time during
the contract period to determine if you qualify for a higher discount
percentage.
At the mid-point of your contract period, IBM will review your Revenue
Attainment by System Type. If it is less than the amount specified in column
(4), your discount percentage will be adjusted downward one level for the
remainder of the contract period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) (2) (3) (4)
System Type System Revenue Applicable Discount Six Months'(1) Minimum
or Commitment Percentage Revenue Attainment to
System Unit Maintain Current
(as applicable) Discount Percentage
IBM RISC
System/6000 (2) N/A N/A N/A
Federal (3) Discount for:
Machines N/A Programs N/A
IBM SP/2 N/A N/A N/A
IBM AS/400: N/A N/A
9402 N/A
9404 N/A
9406 N/A
I/O and SW N/A
IBM Point of
Sale Products N/A N/A N/A
</TABLE>
(1) 12 Months it you have a 24-month contract
(2) Your System Revenue Commitment is the aggregate of such Commitment tor the
U.S. and Canada. Your Applicable Discount Percentage is based on the
aggregate of your System Revenue Commitment tor the U.S. and Canada.
The Six Month Minimum Revenue Attainment review includes the aggregate of
your Attainment in the U.S. and Canada.
(3) The Products eligible for the Federal discount are identified in the
Industry Remarketer Federal Discount Schedule F.
B) This applies only to those Products listed in the Industry Remarketer
Exhibit which require a quantity commitment.
PRODUCT COMMITTED QUANTITY OF
CATEGORY PRODUCTS BY CATEGORY
N/A
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
----------------------- ----------------------------
Page 7 of 9
9. ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY, IF APPLICABLE:
You assign to us, or an IBM Premier Personal Computer Servicer, Warranty
Service responsibility for the following Dealer Exhibit Machines.
Type/Model Type/Model Type/Model Type/Model
------------- --------------- --------------- ---------------
------------- --------------- --------------- ---------------
------------- --------------- --------------- ---------------
------------- --------------- --------------- ---------------
------------- --------------- --------------- ---------------
Unless you are assigning to us, please specify the name of the IBM Premier
Personal Computer Servicer:
- -----------------------------------------------------
10. ADDITIONAL TERMS:
The following terms apply to the IBM Printing Systems Company.
1) END USER SUPPORT
We will provide End User support. Your End User satisfaction
responsibilities are limited to the responsibilities specified below. You
agree to:
1. select Products that best meet the End User's needs;
2. inform the End User of how to obtain ongoing support;
3. assist us, when requested, in ensuriog End User satisfaction, and
4. provide us within 10 days of installation of a product the following
information:
a. End User name and address;
b. Machine type/model and serial number; installation date and
location; and
c. date of sale.
2) DEMONSTRATION PRODUCTS
For use as demonstration Products, we may make IBM Printing Systems
Company Products available to you at lower charges.
You agree to:
1. use a demonstration Product primarily in support of your
Product-marketing activities;
2. not resell, lease, or transfer a demonstration Product for 6 months
after its Date of Installation, without prior written consent; and
3. pay an adjustment charge if you use a demonstration Product other than
as described above. The charge is the difference between what you
paid and the full charge for the Product.
You may not combine this offering with any other discount or allowance. We may
limit the quantity of demonstration Products you acquire.
Page 8 of 9
11. VALUE-ADDED ENHANCEMENT DESCRIPTIONS:
The following is a description of each of your value-added enhancements. If
we list certain Programs as your complete value-added enhancements, this
section is approval for you to market those Products as your value-added
enhancements to End Users.
IBM ADVANCED PAYMENT SYSTEM (APS) (DEVELOPMENT STATUS ONLY)
The implementation of Advanced Payment System (APS) for retailers to
include at a minimum:
- The IBM 4690 Advanced PaYment System
- System design for integration with the POS System and the network
implementation
- System customization as required by the end user
- If not the provider of the POS System, communication with and arrangement
with that provider for sharing end user support
- End user training
- End user support
The system must be placed in productive use to meet end user business needs .
By submitting this VAE, National Transaction Network certifies they have
received the appropriate IBM training on the application and that they have the
skills necessary to market, install and support the Product. This VAE may be
remarketed without the requirement to market IBM hardware.
********************************************************************************
Page 9 of 9
EXHIBIT 10(u)
LEASE
THIS LEASE, made this 8th day of November, 1996, by and
between AETNA REAL ESTATE ASSOCIATES, L.P., a Delaware limited
partnership, ("LANDLORD") C/O Allegis Realty Investors LLC, 242
Trumbull Street, Hartford, CT, 06103, and NATIONAL TRANSACTION
NETWORK, INC., a Delaware corporation, ("Tenant").
WITNESSETH:
That Landlord, for and in consideration of the rents and all
other charges and payments hereinafter reserved and payable by
Tenant, and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, does
hereby demise and lease to Tenant, and Tenant does hereby hire and
take from Landlord, the premises described below ("Premises"),
subject to all matters hereinafter set forth and upon and subject
to the covenants, agreements, terms, provisions and conditions of
this Lease for the term hereinafter stated.
1. TERMS. Landlord and Tenant agree to the following, unless
otherwise specifically modified by provisions of this Lease:
1.1 Premises. The Premises demised by this Lease consist of
approximately 17,436 rentable square feet on the first (1st) floor
of the 2-Story Building (hereinafter defined) and are part of that
certain real property upon which is constructed a certain building
(the "Building") consisting of two parts: a two story portion of
which the Premises demised hereby is a part, containing
approximately thirty-five thousand four hundred ninety three
(35,493) rentable square feet (the "2 Story Building") commonly
known as 117 Flanders Road, in the Town of Westborough, County of
Worcester, Massachusetts; and a second one story portion (the "1
Story Building") which adjoins the 2 Story portion of the
Building. The location and dimensions of the Premises are shown on
EXHIBIT A. The total rentable square feet in the Building is
approximately fifty thousand six hundred seventy-five (50,675),
15,182 rentable square feet of which is the 1 Story Building. No
easement for light or air is incorporated in the Premises. The
land upon which the Building sits, the Building and the Common
Areas are sometimes collectively referred to as the "Property".
1.1.1 Appurtenant Rights and Reservations. (a) Tenant shall
have, as appurtenant to the Premises, the non-exclusive right to
use, and permit its invitees to use, in common with others, the
common walkways necessary for access to the Building; parking
spaces in the Building parking lot as set forth in Section 45
hereof; and the common toilets, corridors and wash room facilities
on Tenant's floor and any other common area provided by Landlord
on such floor; Building entrances; the ground floor lobby,
passenger and freight elevators; and loading docks serving the
Building
("Common Areas"); but such rights shall always be subject to
Landlord rights to modify the size and location of such facilities
and to reasonable rules and regulations from time to time
established by Landlord for the proper and efficient operation of
the Building pursuant to Section 47.
(b) Excepted and excluded from the Premises are the
ceiling, floor, perimeter walls and exterior windows (except the
inner surfaces of each thereto), and any space in the Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, janitorial closets, sinks or other
Building facilities. Landlord shall have the right to place in the
Premises (but in such manner as to reduce to a minimum any
interference with Tenant's use of the Premises) utility lines,
equipment, stacks, pipes, conduits, ducts and the like, provided
that any such installation shall be boxed and decorated in a
manner consistent to the remainder of the area in which it is
located, and provided installations shall not materially interfere
with Tenant's use of the Premises for the ordinary conduct of its
business. To the extent reasonably practicable, any such
installation shall be located above hung ceilings, beneath the
floor or behind walls.
1.2 Lease Term:
Five (5) years plus any portion of a calendar month
as may be included at the beginning of the Term.
1.3 Rent. The basic rent ("Rent") shall commence on the
Commencement Date and is as follows:
a) Month 1-24 $108,975 annually or $9,081.25 per month;
b) Month 25-48 $113,334 annually or $9,444.50 per month;
c) Month 49-60 $117,693 annually or $9,807.75 per month.
In addition to the Rent, Tenant shall pay the Additional Rent
described in Article 10 and Article 17.
1.4 Notices and Payments Addresses:
If to Landlord:
Aetna Real Estate Associates, L.P.
c/o Trammell Crow NE, Inc.
745 Atlantic Avenue
Boston, MA 02111
Attn: Property Management
2
With a required copy to:
Kassler & Feuer, P.C.
101 Arch Street, 18th Floor
Boston, MA 02110
Attn: James D. Sperling, Esq.
If to Tenant:
National Transaction Network, Inc.
117 Flanders Road
Westborough, MA 01581
Attn: Vice President, Finance
With a required copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: Real Estate Department
1.5 Tenant's Proportionate Share. The Tenant's Proportionate
Share of the 2-Story Building is 49.13%; Tenant's Proportionate
Share of the entire Building is 34.41%. Expenses allocable to the
2-Story Building exclusively will be allocated on the basis of the
2-Story Building Tenant Proportionate Share; expenses incurred on
the basis of the Building will be allocated on the basis of the
Tenant Proportionate Share for the Building.
2. COMMENCEMENT AND EXPIRATION DATES.
2.1 Lease Term. The term of this Lease shall be as set forth
in Section 1.2.
2.2 Commencement Date.
2.2.1 The Commencement Date shall be upon Tenant's occupancy
of the Premises for the purpose of conducting its business
operations but not later than 60 days after the execution date of
this Lease, provided that Landlord's Work has been substantially
completed.
2.3 Delivery of Possession. Should Landlord tender possession
of the Premises to Tenant prior to the date specified as the Lease
Commencement Date, and Tenant elects to accept such prior tender,
such prior occupancy shall be subject to all the terms, covenants
and conditions of this Lease, including the payment of Rent and
Additional Rent; provided, however that, if the Landlord, in its
sole discretion, considers the Premises to be in suitable
condition for entry by Tenant, Tenant may enter the Premises prior
to the Commencement Date without the payment of Rent
3
and Additional Rent (except for electricity costs specifically
incurred due to Tenant's activities in the Premises, which costs
will be charged to Tenant) for purposes of tenant fit-up, phone
and computer installation, and the like, and for no other
purposes. The Commencement Date shall be deemed to commence
immediately at such time as Tenant shall use the Premises for the
operation of Tenant's business.
2.4 Tenant's Option to Extend. Provided that, at the time of
such exercise, this Lease is still in full force and effect
without default by Tenant beyond applicable grace periods and
Tenant occupies at least seventy-five percent (75%) of the
Premises Rentable Area for its own business purposes, Tenant shall
have the right and option (the "Extension Option") to extend the
Term of this Lease for one (1) extended term of five (5) years
(the "Extended Term") (or such shorter period as Landlord and
Tenant shall mutually agree). The Extended Term shall commence on
the day immediately succeeding the expiration date of the Initial
Term and shall end on the day immediately preceding the fifth
anniversary of the first day of such Extended Term. Tenant shall
exercise its Extension Option for the Extended Term by giving
written notice to Landlord of its desire to do so not later than
twelve (12) months prior to the expiration date of the Initial
Term. The giving of such notice by Tenant shall automatically
extend the Term of this Lease for the applicable Extended Term,
and no instrument of renewal need be executed. In the event that
Tenant fails to give such notice to Landlord this Lease shall
automatically terminate at the end of the Initial Term and Tenant
shall have no further option to extend the Term of this Lease. The
Extended Term shall be on all the terms and conditions of this
Lease, except (i) during any Extended Term, the extension
provisions of this Section shall not be effective, and (ii) the
Base Rent for the Extended Term shall be the prevailing base
rental rate projected to the time of commencement of the Extended
Term for comparable space in the Building or comparable space in
the market, but in any event not less than the Base Rent in effect
immediately prior to the Extended Term. Landlord and Tenant shall
attempt to agree upon the applicable Base Rent but, if agreement
is not reached by that date which is eleven (11) months prior to
the commencement date of the Extended Term, either Landlord or
Tenant may elect to follow the Appraisal Process for determination
of such Base Rent. The Appraisal Process shall be a determination
of the market rate by three (3) appraisers, one selected by the
Landlord, one by the Tenant and the third by the two appraisers so
selected, each of whom shall have had at least ten (10) years
experience in appraising commercial real estate in the Route
495/Route 9 Area. Each appraiser shall independently determine the
projected market rate of the Premises as of the commencement date
of the Extended Term, taking into account all of the terms and
conditions of this Lease. The market rate of the Premises shall be
deemed to be the appraisal, if any, which is the average of the
other two, or, if there is no such appraisal, the average of the
two appraisals
4
arithmetically closest in amount. The cost of the third appraiser
shall be borne equally by the Landlord and Tenant, and the cost of
each of the other two appraisers shall be borne by the party
selecting them. Upon determination of the Base Rent for the
Extended Term pursuant to the foregoing, the parties agree to
execute an amendment to the Lease acknowledging the same.
3. PAYMENT OF RENT. Tenant shall pay Landlord the Rent and
Additional Rent (as defined in Article 10, Article 17, and
elsewhere in this Lease) and any other payments due under this
Lease without prior notice, deduction or offset, in lawful money
of the United Sates in advance on or before the first day of each
month, except that the first month's Rent shall be paid upon the
execution hereof, at the address noted in Section 1.4, or to such
other party or at such other place as Landlord may hereafter from
time to time designate in writing. Rent and other amounts due
under this Lease for any partial month at the beginning or end of
the Lease term shall be prorated.
4. [INTENTIONALLY DELETED].
5. SECURITY DEPOSIT. As security for its full and faithful
performance of this Lease, Tenant shall pay Landlord a security
deposit of Nine Thousand Three Hundred Seventy One and 85/100
Dollars ($9,371.85) upon execution of this Lease. If Tenant
defaults with respect to any covenant or condition of this Lease,
including but not limited to the payment of Rent, Additional Rent
or any other payment due under this Lease, Landlord may apply all
or any part of the security deposit to the payment of any sum in
default or any other sum which Landlord may be required or deem
necessary to spend or incur by reason of Tenant's default. In such
event, Tenant shall, upon demand, deposit with Landlord the amount
so applied to replenish the security deposit within ten (10) days
of Landlord's demand therefor. If Tenant shall have fully complied
with all of the covenants and conditions of this Lease, (or if
otherwise, promptly following determination of Tenant's liability
for such failures to comply), the amount of the security deposit
or any remaining balance thereof, then held by Landlord shall be
repaid to Tenant within thirty (30) days after the expiration or
sooner termination of this Lease. Landlord may, in the event the
security deposit is depleted, at Landlord's election, apply any
Rent or Additional Rent prepaid by Tenant to replenish the
deposit. Landlord shall not be required to keep this security
deposit separate from its other funds unless required by law, and
Tenant shall not be entitled to interest on such deposit. As
additional security for Tenant improvement dollars spent by
Landlord, and as a precondition to this Lease becoming effective,
Tenant shall provide to Landlord on the date of execution of this
Lease, a clean, irrevocable letter of credit as security for the
performance of the obligations of Tenant hereunder, subject to the
terms and conditions set forth in this Section 5, in an amount
equal to Twenty Six Thousand One Hundred Fifty Four and 00/100
Dollars
5
($26,154.00) ("Initial Amount"). Because the exact amount of the
Tenant improvement dollars to be spent by Landlord has not been
determined as of the execution of this Lease, upon such
determination, Tenant may, at Tenant's sole cost, replace the
existing Letter of Credit with a Letter of Credit otherwise
meeting the requirements hereof in an amount based on the actual
initial amount ($3.00 per square foot x 50%). Any letter of credit
delivered hereunder shall be issued in favor of Landlord by a
Massachusetts bank (and otherwise be in form and substance)
acceptable to Landlord. For so long as no default beyond
applicable notice and grace periods, if any, has occurred under
the Lease (and no event has occurred or condition exists which
with notice and/or the passage of time would give rise to such a
default), on each anniversary of the delivery of the initial
letter of credit Tenant may replace the then existing letter of
credit with a new letter of credit in substantially the same form
in accordance with the following schedule:
Replacement Date Amount
First Anniversary 60% x Initial Amount
Second Anniversary 30% x Initial Amount
Third Anniversary Zero
It shall constitute an immediate event of default if
(i) Landlord shall not have at all required times a valid letter
of credit in the form and amounts set forth above or (ii) if less
than five (5) Business Days remain before any letter of credit
held by Landlord expires. If Tenant shall fail to perform any of
its obligations under the Lease beyond applicable notice and grace
periods, if any, Landlord may, but shall not be obliged to, draw
the entire amount of the letter of credit and apply the amount
necessary to cure the default. The balance shall be held by
Landlord as a security deposit for the performance of Tenant's
remaining obligations hereunder, and Tenant shall be obligated
upon demand to restore the cash security deposit from time to time
to the amount of the letter of credit required hereunder prior to
the original default by Tenant. Any cash security deposit
hereunder may be mingled with other funds of Landlord and no
fiduciary relationship shall be created with respect to such
deposit, nor shall Landlord be liable to pay Tenant any interest
thereon. Within thirty (30) days after the expiration of the third
year of the Term, the letter of credit, to the extent not drawn or
applied, shall be returned to Tenant, without interest.
6. USES.
6.1 Permitted Uses. The Premises are to be used only for
first-class office uses and storing, warehousing, and distribution
of electronic payment systems and software, and ancillary uses
related thereto ("Permitted Uses") and for no other business or
6
purpose without the prior written consent of Landlord. Tenant
agrees not to overload the floors of the Building. No act shall be
done in or about the Premises that is unlawful or that will
increase the existing rate of insurance on the Building. In the
event of a breach of this covenant, Tenant shall pay to Landlord
any and all increases in insurance premiums resulting from such
breach. Tenant shall not commit or allow to be committed any waste
upon the Premises, or any public or private nuisance or other act
or thing which disturbs the quiet enjoyment of the occupancy of
any adjacent property. Tenant, at its expense, shall comply with
all laws relating to its use or occupancy of the Premises and
shall observe such reasonable rules and regulations as may be
adopted and made available to Tenant by Landlord from time to time
for the safety, care and cleanliness of the Premises or the
Building and for the preservation of good order therein. Tenant
shall be exclusively responsible for determining that its use of
the Premises complies with applicable zoning and other laws.
6.2 Hazardous Materials.
6.2.1 As used herein, the term "Hazardous Material" shall mean
any substance or material which has been determined by any state,
federal or local governmental authority to be capable of posing a
risk of injury to health, safety or property, including all of
those materials and substances designated as hazardous or toxic by
the city in which the Premises are located, the U.S. Environmental
Protection Agency, the Consumer Product Safety Commission, the
Food and Drug Administration, and any federal agencies that have
overlapping jurisdiction with such state agencies, or any other
governmental agency now or hereafter authorized to regulate
materials and substances in the environment.
6.2.2 Tenant agrees not to introduce any Hazardous Material
in, on or adjacent to the Premises without complying with all
applicable federal, state and local laws, rules, regulations,
policies and authorities relating to the storage, use or disposal,
and clean-up of Hazardous Materials, including, but not limited
to, the obtaining of proper permits.
6.2.3 Tenant shall immediately notify Landlord of any inquiry,
test, investigation, or enforcement proceeding by or against
Landlord or the Premises concerning a Hazardous Material. Tenant
acknowledges that Landlord, as the owner of the Premises, shall
have the right, at its election, in its own name or as Tenant's
agent, to negotiate, defend, approve, and appeal, at Tenant's
expense, any action taken or order issued with regard to a
Hazardous Material by an applicable governmental authority which
Hazardous Material has been introduced in, on or near to the
Building by Tenant or those claiming by or through Tenant.
6.2.4 If Tenant's storage, use or disposal of any Hazardous
Material in, on or adjacent to the Premises results in any
7
contamination of the Premises, the soil or surface or groundwater
(i) requiring remediation under federal, state or local statutes,
ordinances, regulations or policies, or (ii) at levels which are
unacceptable to Landlord, in Landlord's reasonable judgment,
Tenant agrees to clean-up the contamination. Tenant further agrees
to indemnify, defend and hold Landlord harmless from and against
any claims, suits, causes of action, costs, fees, including
attorneys' fees and costs, arising out of or in connection with
any clean-up work, inquiry or enforcement proceeding in connection
therewith, and any Hazardous Materials currently or hereafter
used, stored or disposed of by Tenant or its agents, employees,
contractors or invitees on or about the Premises. Tenant shall not
be responsible for Hazardous Materials existing at the Building or
in the Premises prior to the Commencement Date.
6.2.5 Notwithstanding any other right of entry granted to
Landlord under this Lease, Landlord shall have the right to enter
the Premises or to have consultants enter the Premises throughout
the term of this Lease for the purpose of determining: (1) whether
the Premises are in conformity with federal, state and local
statutes, regulations, ordinances, and policies including those
pertaining to the environmental condition of the Premises, (2)
whether Tenant has complied with this Section 6, and (3) the
corrective measures, if any, required of Tenant to ensure the safe
use, storage and disposal of Hazardous Materials, or to remove
Hazardous Materials. Tenant agrees to provide access and
reasonable assistance for such inspections. Such inspections may
include, but are not limited to, entering the Premises or adjacent
property with drill rigs or other machinery for the purpose of
obtaining laboratory samples. Landlord shall not be limited in the
number of such inspections during the term of this Lease. If
Hazardous Materials are determined to be on or about the Premises
in a manner inconsistent with this Article 6 due to Tenant's acts
or omissions or due to the acts or omissions those claiming by or
though Tenant, Tenant shall reimburse Landlord for the cost of
such inspections within ten (10) days of receipt of a written
statement therefor. If such consultants determine that the
Premises are contaminated with Hazardous Materials introduced in,
on or near to the Building by Tenant or those claiming by or
through Tenant, Tenant shall, in a timely manner, at its expense,
remove such Hazardous Materials or otherwise comply with the
recommendations of such consultants to the reasonable satisfaction
of Landlord and any applicable governmental agencies. The right
granted to Landlord herein to inspect the Premises shall not
create a duty on Landlord's part to inspect the Premises, or
liability of Landlord for Tenant's use, storage or disposal of
Hazardous Materials, it being understood that Tenant shall be
solely responsible for all liability in connection therewith.
6.2.6 Tenant shall surrender the Premises to Landlord upon the
expiration or earlier termination of this Lease free of Hazardous
Materials introduced in, on or near to the Building by
8
Tenant or those claiming by or through Tenant, and in a condition
which complies with all governmental statutes, ordinances,
regulations and policies, recommendations of consultants hired by
Landlord, and such other reasonable requirements as may be imposed
by Landlord.
6.2.7 Tenant's obligations under this Article 6 shall survive
termination of this Lease.
7. LATE CHARGES. Tenant hereby acknowledges that late payment
to Landlord of Rent, Additional Rent or other sums due hereunder
will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to
ascertain. If any Rent, Additional Rent or other sum due from
Tenant is not received by Landlord or Landlord's designated agent
within five (5) days of the date when due, then Tenant shall pay
to Landlord a late charge equal to five percent (5%) of such
overdue amount, plus any reasonable attorneys' fees incurred by
Landlord by reason of Tenant's failure to pay Rent and other
charges when due hereunder. The parties hereby agree that such
late charges represent a fair and reasonable estimate of the cost
that Landlord will incur by reason of Tenant's late payment.
Landlord's acceptance of such late charges shall not constitute a
waiver of Tenant's default with respect to such overdue amount or
estop Landlord from exercising any of the other rights and
remedies granted hereunder.
8. REPAIRS AND MAINTENANCE.
8.1 Landlord's Obligation. Landlord agrees to keep in good
repair, at its expense, the structural portions of the roof,
foundations, and exterior walls of the Building and underground
utility and sewer pipes outside the exterior walls of the
Building, if any, except repairs rendered necessary by the
negligence of Tenant, or Tenant's employees, guests, agents,
customers, independent contractors or invitees, the repair of
which shall be paid for by Tenant within ten (10) days of
Landlord's written demand, except as covered by the waiver of
subrogation referenced in Section 19 hereof. Landlord also agrees
to keep in good condition and repair and perform the periodic
maintenance of the Common Areas, the Outside Area, as defined in
Section 10.1.3, the Building systems (including, without
limitation, the HVAC, electrical and plumbing systems), glass and
exterior doors, and the roof membrane, at a cost to be paid by
Tenant pursuant to Article 10. Landlord shall be under no
obligation to inspect the interior of the Building. Tenant shall
promptly report in writing to Landlord any defective condition
known to it which Landlord is required to repair.
8.2 Tenant's Obligations. Tenant accepts the Premises in
their present condition subject to the completion of Landlord's
Work and as suited for the uses intended by Tenant. Tenant shall,
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throughout the initial term of this Lease and any renewals
thereof, at its expense, maintain the Premises in substantially
the same condition they were in on the Commencement Date, except
those repairs expressly required to be made by Landlord. Tenant
agrees to return the Premises to Landlord at the expiration or
prior termination of this Lease in as good condition and repair as
when first received, normal wear and tear, damage by storm, fire,
lightning, earthquake or other casualty and eminent domain
excepted. Tenant hereby waives any law regarding Tenant's right to
make repairs and deduct the expenses of such repairs from the Rent
due under the Lease.
9. UTILITIES AND SERVICES.
9.1 Utility Bills. Tenant shall promptly pay to the supplying
utility all electricity, fuel, phone, light, heat, electric power
and other utility bills for the Premises which are currently
separately metered. If Tenant does not pay these bills, Landlord
may pay them and such payment shall be added to the Rent. Tenant
will be billed its Proportionate Share for Common Area electric
and HVAC. Tenant will also pay its Proportionate Share for all
water, sewer and gas supplied to the Property.
9.2 Disclaimer. Except in the case of Landlord's gross
negligence, Landlord shall not be liable for any loss, injury or
damage to property caused by or resulting from any variation,
interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any
maintenance. No temporary interruption or failure of such services
incident to the making of repairs, alterations, or improvements,
or due to accident, strike, or conditions or events beyond
Landlord's reasonable control shall be deemed an eviction of
Tenant or relieve Tenant from any of Tenant's obligations
hereunder. In no event shall Landlord be liable to Tenant for any
damage to the Premises or for any loss, damage or injury to any
property therein or thereon occasioned by bursting, rupture,
leakage or overflow of any plumbing or other pipes (including,
without limitation, water, steam, and/or refrigerant lines),
sprinklers, tanks, drains, drinking fountains or washstands, or
other similar cause in, above, upon or about the Premises or the
Building.
9.3 Heat Producing Equipment. Before installing any equipment
or lights which generate an undue amount of heat in the Premises
or if Tenant plans to use any high-power usage equipment in the
Premises, Tenant shall obtain the written permission of Landlord.
Landlord may refuse to grant such permission unless Tenant agrees
to pay the costs to Landlord for installation of supplementary air
conditioning capacity or electrical systems necessitated by such
equipment. In addition, Tenant shall, in advance, on the first day
of each month during the Lease term, pay Landlord the reasonable
amount estimated by Landlord as the cost of furnishing electricity
for the operation of such high-power usage
10
equipment and the cost of operation and maintenance of
supplementary air conditioning units necessitated by Tenant's use
of any equipment which generates an undue amount of heat. Landlord
shall be entitled to install and operate at Tenant's cost, a
monitoring/metering system in the Premises to measure the added
demands on electricity, heating, ventilation, and air conditioning
systems resulting from Tenant's heat generating or high-power
equipment usage, and after-hours service requirements. At
Landlord's option, Landlord may require Tenant to remove, at
Tenant's expense, any such electrical systems or supplementary air
conditioning system upon termination of the Lease, and Tenant
shall repair any damage to the Premises or the Building caused by
such removal.
10. ADJUSTMENTS.
10.1 Definition. In addition to the rent, and as additional
rent ("Additional Rent"), Tenant shall pay to Landlord the
applicable Tenant's Proportionate Share of the total cost of the
following items, it being the parties intention that Tenant's
occupancy hereunder be on an absolutely net basis to Landlord:
10.1.1 All Property Taxes. "Property Taxes" shall be defined
to include any form of assessment, license, fee, rent, tax, levy,
penalty (if a result of Tenant's delinquency), or tax (other than
net income, estate, succession, inheritance, transfer or franchise
taxes), imposed by an authority having the direct or indirect
power to tax, or by any city, county, state or federal government
or any improvement or other district or division thereof, whether
such tax is: (i) determined by the area of the Premises or the
Building or any part thereof or the Rent and other sums payable
hereunder by Tenant, including, but not limited to, any gross
income or excise tax levied by any of the foregoing authorities
with respect to receipt of such rent or other sums due under this
Lease; (ii) upon any legal or equitable interest of Landlord in
the Premises or the Building or any part thereof; (iii) upon this
transaction or any document to which Tenant is a party creating or
transferring any interest in the Premises or the Building; (iv)
levied or assessed in lieu of, in substitution for, or in addition
to, existing or additional taxes against the Premises or the
Building whether or not now customary or within the contemplation
of the parties; or (v) surcharged against the parking area.
10.1.2 All insurance premiums for the Property. Such insurance
premiums shall include all insurance premiums for fire
("All-Risk"), extended coverage, public liability, and other
insurance which Landlord reasonably deems necessary;
10.1.3 All reasonable costs to operate, maintain, clean,
repair, replace, supervise, insure and administer the Property
including, without limitation, the Building, the Common Areas and
the areas outside the Building including, but not limited to,
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parking areas, landscaping, sidewalks, signage, and the Building
roof membrane("Outside Areas"), and the Building systems
(including HVAC, electrical and plumbing). Provided, however, that
any of such expenses and costs which would be deemed capital
improvements in accordance with GAAP shall be amortized over their
useful life in accordance with 10.1.7.
10.1.4 Any parking charges or other costs levied, assessed or
imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any
governmental authority or insurer in connection with the use or
occupancy of the Premises or the common areas of the Building;
10.1.5 Cost incurred by Landlord for electricity, fuel, water
and sewer use charges, and all other utilities supplied to the
Property, and fees for any public services rendered to the
Property, except for those actually paid or reimbursed to Landlord
by tenants of the Property.
10.1.6 Any reasonable property management fees not to exceed
fees charged typically in other similar office buildings in the
Westborough, Massachusetts area, and reasonable administrative
costs, including, but not limited to, the cost of compensation
(including employment taxes and fringe benefits) of all persons
who perform regular and recurring duties connected with the
Property and the Building, and any reasonable costs incurred in
connection with employing a tax advisory service to obtain an
abatement of Property Taxes or to appeal the valuation of the
Building and/or real property on which it is situated; and
10.1.7 Amortization over its useful life of any energy
management system or other capital improvements installed by
Landlord, adding thereto a reasonable interest factor (taking into
account the rate then being charged by institutional lenders for
loans to finance the item over its useful life) on the unamortized
portion of the improvement.
Notwithstanding the foregoing, the following items shall be
excluded from those items which Landlord shall be entitled to
charge Tenant its Proportionate Share under this Article 10:
Salaries, wages, benefits and other expenses of administrative
employees and other persons not involved in the daily operations
of the Building (but charges for periodic, not daily, maintenance
personnel shall be included as chargeable expenses); principal,
interest or other charges relating to indebtedness secured by a
mortgage covering any portion of the Building or the Land; capital
expenditures for effecting any expansion of the rentable area of
the Building; expenses relative to any utility or other service
used or consumed in the premises leased to any tenant or occupant,
but only if Tenant's use or consumption of such utility or other
services is separately metered or submetered at the Premises;
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expenses relative to efforts to lease portions of the Building or
to procure new tenants for the Building, including advertising
expenses, leasing commissions and attorney's fees; negotiations or
disputes with any tenant of the Building; Landlord's general
overhead costs not directly related to the management or
operations of the Building; depreciation of the Building; repairs
and replacements arising out of a fire or other casualty or an
exercise of the eminent domain of the Building except that
insurance deductibles payable shall be properly chargeable;
Landlord's breach or violation of a law, lease or other obligation
(unless resulting from a Tenant breach of this Lease), including
fines, penalties and attorneys' fees, compensation paid to
employees or other persons in connection with commercial
concessions operated by Landlord; fees for licenses, permits or
inspections that are not part of routine maintenance of the
Building or result from the act or negligence of Landlord or any
other tenant of the Building; environmental testing, remediation
and compliance relating to Hazardous Materials existing at the
Building prior to the Commencement Date hereof; compliance by
Landlord with laws existing as of the date of this Lease,
including without limitation the Americans with Disabilities Act
and the regulations and standards thereunder, except to the extent
provided due to the specific nature of Tenant's occupancy (as
opposed to general office use); sculptures, paintings and other
works of art; repairs necessary to cure defects in the
construction of any structural portion or component of the
Building; any items with respect to which Landlord actually
receives reimbursement from insurance proceeds or from a third
party.
10.2 Monthly Payments. Upon the commencement of this Lease,
Landlord shall submit to Tenant a good faith estimate of monthly
Adjustments for the period between the Commencement Date and the
following January 1, and Tenant shall pay these estimated
Adjustments as additional rent ("Additional Rent") on a monthly
basis concurrently with the payment of the Rent. Tenant shall
continue to make such monthly payments for every month of the term
until notified by Landlord of any change therein. By March 1 of
each year, Landlord shall provide to Tenant a statement showing
the total Adjustments for the prior calendar year, prorated from
the Commencement Date of this Lease during the first year. If the
total monthly payments which Tenant has made for the prior
calendar year (or portion thereof during which this Lease was in
effect) is less than the actual Adjustments chargeable to Tenant,
then Tenant shall pay the difference in a lump sum within fifteen
(15) days after receipt of such statement from Landlord. Any
overpayment by Tenant shall be credited towards the Adjustments
next due. The actual Adjustments for the prior year shall be used
for purposes of calculating the estimated monthly Adjustments for
the current year with actual determination of such Adjustments
occurring after the end of each calendar year, except that in any
year in which resurfacing of the common parking area or major roof
repairs are planned, Landlord may include in the manner specified
in Section 10.1 hereof the estimated cost of such work in the
estimated
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monthly Adjustments. Even though the term of this Lease has
expired and Tenant has vacated the Premises, when the final
determination is made of Adjustments for the year in which this
Lease terminates, Tenant shall immediately pay any increase over
the estimated Adjustments previously paid and, conversely, any
overpayment shall be immediately returned by Landlord to Tenant.
Failure of Landlord to submit statements as called for herein
shall not be deemed a waiver of Tenant's obligation to pay
Adjustments as herein provided; however, Landlord shall not
enforce its remedies against Tenant for nonpayment of Adjustments
unless statements as called for herein have been supplied to
Tenant.
11. PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be
paid, before delinquency any and all taxes levied or assessed and
which become payable during the term of this Lease upon all
Tenant's leasehold improvements, equipment, furniture, fixtures,
and any other trade fixtures and personal property located on the
Premises. In the event any or all of Tenant's leasehold
improvements, equipment, furniture, fixture, and any other
personal property and trade fixtures shall be assessed and taxed
with Property Taxes, Tenant shall pay to Landlord its share of
such taxes within ten (10) days after delivery to Tenant by
Landlord of a statement in writing setting forth the amount of
such taxes applicable to Tenant's property but such taxes
attributable to Tenant's property shall not be included in the
Adjustment under Section 10.1.1.
12. LIABILITY INSURANCE. Tenant shall, at Tenant's expense,
obtain and keep in force during the term of this Lease a policy of
comprehensive general liability insurance including personal
injury liability, contractual liability, products and completed
operations liability and liquor liability (if applicable),
insuring Tenant against liability arising out of the use and
occupancy of the Premises and naming Landlord as an additional
insured. Such insurance shall be in the amount of not less than
Two Million and no/100ths Dollars ($2,000,000.00) for bodily
injury and property damage for any one accident or occurrence or
in the aggregate. Fire legal liability insurance in an amount of
not less than Fifty Thousand and no/100ths Dollars ($50,000.00)
shall also be obtained and kept in force during the term of this
Lease at Tenant's expense. The limit of any of such insurance
shall not limit the liability of Tenant hereunder. Tenant may
provide this insurance under a blanket policy, provided that
Landlord is named as an additional insured. If Tenant fails to
procure and maintain such insurance, Landlord may, but shall not
be required to, procure and maintain the same, at Tenant's expense
to be reimbursed by Tenant within ten (10) days of written demand.
All insurance required to be obtained by Tenant hereunder shall be
issued by companies reasonably acceptable to Landlord. Tenant
shall deliver to Landlord certified copies of policies or, at
Landlord's discretion, certificates of liability insurance
required herein with loss payable clauses satisfactory to Landlord
prior to the Commencement
14
Date. Any deductible under such insurance policy in excess of Two
Thousand Five Hundred and no/100ths Dollars ($2,500.00) must be
approved by Landlord in writing prior to issuance of such policy.
No policy shall be cancellable or subject to reduction of coverage
except upon twenty (20) days' prior written notice to Landlord.
All such policies shall name Landlord and its agents as additional
insureds (except with respect to loss of rents for which Landlord
shall be named as "loss payee"), shall be written as primary
policies not contributing with and not in excess of coverage which
Landlord may carry, and shall be written with an insurance carrier
satisfactory to Landlord. From time to time, as Landlord deems
necessary, the insurance coverage and limits of such coverage
required hereunder will be reviewed by Landlord, and Tenant will
be notified of any revisions or increases thereto reasonably
required by Landlord. Tenant shall obtain any revised or increased
coverage required by Landlord within thirty (30) days of any such
notification from Landlord.
13. FIRE INSURANCE - FIXTURES AND EQUIPMENT. Tenant shall
maintain in full force and effect on all trade fixtures and
equipment and other personal property on the Premises, a policy of
all risk property insurance covering the full replacement value of
such property. During the term of this Lease, the proceeds from
any such policy of insurance shall be used for the repair or
replacement of the fixtures and equipment so insured. Landlord
shall have no interest in the insurance upon Tenant's equipment
and fixtures and will sign all documents reasonably necessary or
proper in connection with the settlement of any claim or loss by
Tenant. Landlord will not carry insurance on Tenant's possessions.
Tenant shall furnish Landlord with certificate of insurance
evidencing that the requirements set forth herein are in full
force and effect. Any deductible in excess of Two Thousand Five
Hundred and no/100ths Dollars ($2,500.00) under such insurance
must be approved in writing by Landlord prior to issuance of such
policy. Tenant shall provide Landlord with notice of loss or
damage to property within forty-eight (48) hours after such loss
or damage occurs. Tenant shall provide and keep in force with
companies satisfactory to Landlord, business interruption and/or
loss of rental insurance in an amount equivalent to twelve (12)
months Rent and Additional Rent which shall not contain a
deductible greater than One Thousand Dollars ($1,000.00). Tenant
shall furnish Landlord with certificate of such insurance naming
Landlord as an additional insured. No policy shall be cancelable
or subject to reduction of coverage except upon twenty (20) days'
prior written notice to Landlord. Landlord agrees during the Term
of this Lease to maintain fire and extended casualty insurance,
insuring 100% of the insurable replacement value of the Building
(exclusive of land and foundations).
14. DESTRUCTION AND DAMAGE.
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14.1 Casualty Damage - Insured. If the Building is damaged by
fire or other perils the following provisions shall apply:
14.1.1 Total Destruction. In the event of total destruction of
the Building, Landlord shall elect either to promptly commence
repair and restoration of the Building and prosecute the same
diligently to completion, in which event this Lease shall remain
in full force and effect, or not to repair or restore the
Building, in which event this Lease shall terminate. In either
case, Landlord shall give Tenant written notice of its intention
within sixty (60) days after the occurrence of such destruction.
If Landlord elects not to restore the Building, this Lease shall
be deemed to have terminated as of the date of such total
destruction. In the event (i) such total destruction occurs during
the final year of the Lease Term or (ii) such repair or
restoration is not completed within 180 days of the destruction,
Tenant shall have the option to terminate this Lease by written
notice to Landlord in which event this Lease shall terminate
unless Landlord substantially completes the restoration within
thirty (30) days of such notice in which event this Lease shall
continue in full force and effect.
14.1.2 Partial Destruction. In the event of a partial
destruction of the Building to an extent not exceeding twenty-five
percent (25%) of the full insurable value thereof and if the
damage thereto is such that the Building may be repaired or
restored within one hundred eighty (180) days from the date of
such destruction and Landlord will receive insurance proceeds
sufficient to cover the cost of such repairs, Landlord shall
commence and proceed diligently with the work of repair and
restoration, in which event the Lease shall continue in full force
and effect; or if such repair and restoration requires longer than
one hundred eighty (180) days or the cost thereof exceeds
twenty-five percent (25%) of the full insurable value thereof or
if the insurance proceeds payable to Landlord will not be
sufficient to cover such cost, Landlord may elect either to so
repair and restore, in which event the Lease shall continue in
full force and effect, or not to repair, reconstruct or restore,
in which event the Lease shall terminate. In either case, Landlord
shall give written notice to Tenant of its intention within sixty
(60) days after the destruction occurs. If Landlord elects not to
restore the Building, this Lease shall be deemed to have
terminated as of the date of such partial destruction. If Landlord
elects to restore the Building but fails to substantially complete
the Building within one hundred eighty (180) days of such partial
destruction, Tenant shall have the right to terminate this Lease
by written notice to Landlord in which event this Lease shall
terminate thirty (30) days thereafter unless the Building is
substantially completed within such thirty (30) days in which
event the Lease shall continue in full force and effect.
14.2 Release. Upon any termination of this Lease under any
of the provisions of this article, the parties shall be released
16
thereby without further obligation to the other from the date of
the damage or destruction, except for items which accrued prior to
the date of such fire or other casualty and are then unpaid.
14.3 Rent Abatement. In the event of total or partial
destruction as herein provided, the monthly installments of Rent,
Additional Rent and all other charges due hereunder shall be
abated proportionately in the ratio which the Tenant's use of the
Premises is impaired from the date of such destruction until such
repair, reconstruction or restoration is completed or the lease
terminated as allowed hereunder; provided, however, if the damage
is due, directly or indirectly, to the fault or neglect of Tenant,
or its officers, contractors, licensees, agents, servants,
employees, guests, invitees or visitors, there shall be no
abatement of Rent, except to the extent Landlord receives proceeds
from any applicable insurance policy of Tenant to compensate
Landlord for loss of Rent. Tenant shall not be entitled to any
compensation or damages for loss of use of the whole or any part
of said Premises and/or any inconvenience or annoyance occasioned
by such damage, repair, reconstruction or restoration.
14.4 Delay. Tenant shall not be released from any of its
obligations under this Lease except to the extent and upon the
conditions expressly stated in this article. Notwithstanding
anything to the contrary contained in this article, if Landlord
has elected to repair and restore the Premises and is thereafter
delayed or prevented from repairing or restoring the Premises
within nine (9) months after the occurrence of such damage or
destruction by reason of acts of God, war, governmental
restrictions, inability to procure the necessary labor or
materials, or other cause beyond the control of Landlord, Landlord
shall be relieved of its obligation to make such repairs or
restoration and, Tenant shall be released from its obligations
under this Lease if Tenant notifies Landlord at the end of such
nine(9) month period of Tenant's desire to terminate this Lease
and if Landlord fails to substantially complete the repairs, or
restoration within sixty (60) days thereafter, this Lease shall
terminate at the expiration of such sixty (60) day period. If such
repairs and restoration are substantially completed within such
sixty (60) day period, this Lease shall continue in full force and
effect.
14.5 Uninsured Damage. If damage in excess of 25% of the
insurable value of the Building is due to any cause other than
fire or other peril covered by extended coverage insurance,
Landlord may elect to terminate this Lease.
14.6 Repair Obligation. If Landlord is obligated to or elects
to repair or restore as herein provided, Landlord shall repair or
restore only those portions of the Building and Premises which
were originally provided at Landlord's expense; and the
17
repair and restoration of areas or items not provided at
Landlord's expense shall be the obligation of Tenant.
14.7 End of Term. Notwithstanding anything to the contrary
contained in this article, Landlord may elect to terminate this
Lease in the event of damage in excess of ten percent (10%) of the
insurable value of the Building to the Building or the Premises
occurring during the last (12) months of the Lease or any
extension thereof; and Landlord shall not have any obligation to
repair or restore the Premises or the Building during the last
twelve (12) months of this Lease or any extension thereof.
14.8 Waiver. Any provisions of any state law which permit
termination of a lease upon destruction of the leased premises,
are hereby waived by Tenant; and the provisions of this article
shall govern in case of such destruction.
15. ALTERATIONS AND ADDITIONS: REMOVAL OF FIXTURES. Tenant
shall not make or allow to be made any alterations, additions or
improvements to or on the Premises without first obtaining the
written consent of Landlord which consent shall not be
unreasonably withheld, conditioned or delayed. Any such
alterations, additions or improvements made, including, but not
limited to, wall covering, paneling and built-in cabinet work, but
excepting furniture and trade fixtures, shall be made at Tenant's
sole expense, according to plans and specifications approved in
writing by Landlord, in compliance with all applicable laws, by a
licensed contractor, and in a good and workmanlike manner
conforming in quality and design with the Premises existing as of
the Lease Commencement Date, shall not diminish the value of the
Building or the Premises and shall at once become a part of the
realty and shall be surrendered with the Premises unless otherwise
agreed in writing with Landlord at the time consent is given. Upon
the expiration or sooner termination of the term hereof, Tenant
shall, at Tenant's sole expense, with due diligence, remove any
alterations, additions, or improvements made by Tenant, designated
by Landlord to be removed at the time Landlord consented to the
installation of the alterations, additions or improvements, and
repair any damage to the Premises caused by such removal. Tenant
shall remove all of its property and trade fixtures at the
termination of this Lease, either by expiration of the term or
other cause, and shall repair any damage to the Premises or
Building resulting from such removal. If Tenant shall fail to
remove any of its property of any nature whatsoever from the
Premises or the Building at the termination of this Lease or when
Landlord has the right of re-entry, Landlord may, in accordance
with the provisions of applicable statutes governing commercial
landlord and tenant matters (including requirements of notice to
Tenant), remove and store such property without liability for loss
thereof or damage thereto, such storage to be for the account and
at the expense of Tenant. If Tenant shall not pay the cost of
storing any such property after it has been stored for a period of
thirty (30) days or more, Landlord may, at its option,
18
sell, or permit to be sold, any or all such property at public or
private sale, in such manner and at such times and places as
Landlord, in its sole discretion, may deem proper, without notice
to Tenant, unless notice is required under applicable statutes,
and shall apply the proceeds of such sale: first, to the cost and
expense of such sale, including reasonable attorneys' fees
actually incurred; second, to the payment of the costs or charges
for storing any such property; third, to the payment of any other
sums of money which may then be or thereafter become due Landlord
from Tenant under any of the terms hereof; and fourth, the
balance, if any, to Tenant.
16. ACCEPTANCE OF PREMISES. Unless Landlord has expressly
agreed in this Lease to perform certain tenant improvement work in
the Premises, Tenant shall be deemed to have accepted the Premises
on the Lease Commencement Date in their "as is" condition. If this
Lease is entered into prior to the completion of construction of
the Building, or if tenant improvements are to be constructed by
Landlord in the premises, the acceptance of the Premises by Tenant
shall be deferred until receipt by the Tenant of an architect's
certificate of readiness certifying that the Premises are ready
for occupancy. Within five (5) days after the architect gives such
notice, Tenant shall make such inspection of the Premises as
Tenant deems appropriate, and, except as otherwise notified by
Tenant in writing to Landlord within such period, Tenant shall be
deemed to have accepted the Premises in their then condition. If,
as a result of such inspection, Tenant discovers minor deviations
or variations from the plans and specifications for Tenant's
improvements of a nature commonly found on a "punch list" (as that
term is used in the construction industry), Tenant shall promptly
notify Landlord of such deviations. The existence of such punch
list items shall not postpone the Lease Commencement Date of this
Lease nor the obligation of Tenant to pay Rent, Additional Rent or
any other charges due under this Lease but Landlord shall repair
or complete such items within thirty (30) days of receipt of
Tenant's "punch list" or such longer time as is reasonably needed
to complete the same with due diligence.
17. TENANT IMPROVEMENTS. Except for the Landlord's Work, as
hereinafter defined, the Premises are being leased on an "as is"
basis. Landlord agrees to provide an allowance of up to $52,308.00
($3.00 per rentable square feet of space in the Premises (the
"Allowance") for the acquisition and installation of the Leasehold
Improvements to the Premises all as more specifically described in
Exhibit LI attached hereto. Landlord agrees to construct at
Tenant's expense (subject to Landlord's payment of the Allowance),
the improvements to the Premises set forth in EXHIBIT B, attached
hereto and incorporated herein by this reference. Disbursements of
the Allowance will occur in the manner set forth in Exhibit LI
attached hereto.
19
Tenant agrees to reimburse Landlord for the Allowance actually
expended by paying to Landlord on the first day of each month
during the Term, as Additional Rent, the amount necessary to
amortize fully the Allowance over the initial five (5) year Term
plus annual interest thereon of ten percent (10.0%) per annum. In
addition to the Allowance, Landlord agrees to build any demising
walls which may be required and to make certain carpeting and wall
finish/painting improvements to the Common Area (all finish work,
materials selection and scope of work shall be at Landlord's sole
discretion) (as defined in Exhibit LI, the "Landlord's Work"), as
Landlord and Tenant mutually agree, prior to the commencement of
the Term, at Landlord's cost. The Landlord's Work is included in
the Base Rent and is not to be reimbursed by Tenant or included in
the Adjustments due under Section 10.
18. ACCESS. Tenant shall permit Landlord and its agents to
enter the Premises at all reasonable times and after reasonable
notice to inspect the same; to show the Premises to prospective
tenants (during the last nine months of the Term), or interested
parties such as prospective lenders and purchasers; to clean,
repair, alter or improve the Premises or the Building; to
discharge Tenant's obligations when Tenant has failed to do so
within a reasonable time after written notice from Landlord; to
post notices of nonresponsibility and similar notices and "For
Sale" signs; and to place "For Lease" signs upon or adjacent to
the Building or the Premises at any time within twelve (12) months
of the expiration of the term of this Lease. In entering Tenant's
Premises for the above-described purposes, Landlord agrees not to
unreasonably interfere with Tenant's business activities in the
Premises. Tenant shall permit Landlord and its agents to enter the
Premises at any time in the event of an emergency. When reasonably
necessary, Landlord may temporarily close entrances, doors,
corridors, elevators or other facilities without liability to
Tenant by reason of such closure and without such action by
Landlord being construed as an eviction of Tenant or a release of
Tenant from the duty of observing and performing any of the
provisions of this Lease. In exercising its right to enter the
Premises under this Section, Landlord agrees to consider Tenant's
reasonable business and security concerns.
19. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
release the other from any and all liability or responsibility to
the other (or any one claiming through or under them by way of
subrogation or otherwise) for any loss or damage to the Building,
the Premises, or property therein or for any business interruption
or loss of rental income against which the waiving party is
protected by insurance or required to be protected by insurance
under this Lease, even if such loss or damage is caused by the
fault or negligence of the other party, or any one for whom such
party is responsible. Landlord and Tenant shall cause its
insurance carrier(s) to consent to such waiver of all rights of
subrogation against the other party. Upon either party's request
20
the other party shall provide a copy of any such insurance
policies evidencing such a waiver of subrogation rights against
the other party.
20. INDEMNIFICATION. To the extent not reimbursable by
insurance, Tenant shall indemnify and hold harmless Landlord, its
agents, employees, officers, directors, partners and shareholders
from and against any and all liabilities, judgments, demands,
causes of action, claims, losses, damages, costs and expenses,
including reasonable attorneys' fees and costs, arising out of the
use, occupancy, conduct, operation, or management of the Premises,
or the willful misconduct or negligence of, Tenant, its officers,
contractors, licensees, agents, servants, employees, guests,
invitees, or visitors in or about the Building or arising from any
breach or default under this Lease by Tenant, or arising from any
accident, injury, or damage, howsoever and by whomsoever caused,
to any person or property, occurring in or about the Premises
except to the extent caused by the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors or in
or about the Building to the extent caused by Tenant's (or
Tenant's agent, employees, or contractors) negligence or willful
misconduct. This indemnification shall survive termination of this
Lease. This provision shall not be construed to make Tenant
responsible for loss, damage, liability or expense resulting from
injuries to third parties caused by the sole negligence of
Landlord, or its officers, contractors, licensees, agents,
employees, or invitees.
21. ASSIGNMENT AND SUBLETTING.
21.1 Landlord's Consent. Tenant shall not assign this Lease,
or sublease all or any part of the Premises, or permit the use of
the Premises by any party other than Tenant, without the prior
written consent of Landlord. When Tenant requests Landlord's
consent to such assignment or sublease, it shall notify Landlord
in writing of the name and address of the proposed assignee or
subtenant and the nature and character of the business of the
proposed assignee or subtenant and shall provide financial
information including financial statements of the proposed
assignee or subtenant. Tenant shall also provide Landlord with a
copy of the proposed sublet or assignment agreement. Landlord
shall have the option (to be exercised within thirty (30) days
from the submission of Tenant's request) to cancel this Lease as
of the commencement date stated in the proposed sublease (with
respect to such portion of the Premises to be affected by such
sublease) or assignment. If Landlord shall not exercise its option
to cancel the Lease within the time set forth above, its consent
to any proposed assignment or sublease shall not be unreasonably
withheld, conditioned or delayed.
21.2 Criteria. In determining whether or not to grant its
consent to a proposed sublet or assignment, Landlord shall be
entitled to consider all reasonable criteria including, but not
21
limited to, the following: (i) whether or not the proposed
subtenant or assignee is engaged in a business which, and the use
of the Premises will be in a manner which, is in keeping with the
then character and nature of all other tenancies in the Building,
(ii) the use to be made of the Premises by the proposed subtenant
or assignee does not conflict with any so-called "exclusive" use
then in favor of any other tenant of the Building, and that such
use would not be prohibited by any other portion of this Lease,
including, but not limited to, any rules and regulations then in
effect, or under applicable law, (iii) that the proposed subtenant
or assignee is of at least equal or better financial worth and
creditworthiness than Tenant as of the date of the request for
sublease or assignment and that such assignee or subtenant does
not impose a greater load upon the Premises and the Building
services (such as elevator, janitorial and security services),
than imposed by Tenant, (iv) that the sublease or assignment
agreement requires payment of the rent and other amounts as
required of Tenant hereunder with respect to the space being
subleased or assigned which are in no event less than that being
offered by Landlord for similar space in the Building under leases
then being negotiated, and (v) that Tenant shall provide Landlord
with reasonable proof of (i), (ii), (iii), and (iv), and (vi)
Tenant is not in default hereunder beyond applicable cure periods,
if any at the time it makes its request for such consent or at the
time the assignment or sublet is to take effect.
21.3 Approved Subleases and Assignments. If Landlord approves
an assignment or sublease as herein provided, Tenant shall pay to
Landlord, as additional rent due under this Lease, seventy five
percent (75%) of the difference, if any, between the Rent plus
Additional Rent allocable to that part of the Premises affected by
such assignment or sublease pursuant to the provisions of this
Lease, and the rent and any additional rent payable by the
assignee or subtenant to Tenant less reasonable costs incurred by
Tenant in connection with reletting the portion of the Premises
affected by such assignment or sublease including broker's
commissions, attorney's fees, and Landlord's fees to be paid by
Tenant incurred in connection with the giving of Landlord's
consent as set forth below. No consent to any assignment or
sublease shall constitute a further waiver of the provisions of
this section, and all subsequent assignments or subleases may be
made only with the prior written consent of Landlord. An assignee
of Tenant, at the option of Landlord, shall become directly liable
to Landlord for all obligations of Tenant hereunder, but no
sublease or assignment by Tenant shall relieve Tenant of any
liability hereunder. Any assignment or sublease without Landlord's
consent shall be void, and shall, at the option of the Landlord,
constitute a default under this Lease. In the event that Landlord
shall consent to a sublease or assignment hereunder, Tenant shall
pay Landlord's reasonable fees incurred in connection with the
processing of documents necessary to the giving of such consent.
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Notwithstanding any provision of this Lease to the contrary,
Tenant shall have the right without the requirement of obtaining
Landlord's consent but with the requirement of providing notice to
Landlord of all facts reasonably requested Landlord for the
purpose of determining the applicability of this Section, to (i)
assign or transfer any or all interest of Tenant in this Lease or
sublet all or any portion of the Premises to (1) any parent
corporation of Tenant, (2) any subsidiary corporation of Tenant or
of Tenant's parent corporation, but only for so long as such
subsidiary corporation remains a consolidation or reorganization
of Tenant or of Tenant's parent corporation with another
corporation; provided in each case that the net worth of the
resulting corporation equals or exceeds that of Tenant as of the
date hereof; or (ii) transfer or issues share of stock in Tenant
on any national securities exchange; or (iii) assign or transfer
its interest in this Lease to any entity (the "Acquiring Entity")
which purchases as a going concern, the business operations of
Tenant which occupy the Premises, provided that the net worth of
the Acquiring Entity equals or exceeds that of Tenant as of the
date hereof.
22. ADVERTISING. Tenant shall not display any sign, graphics,
notice, picture, or poster, or any advertising matter whatsoever,
anywhere in or about the Premises or the Building at places
visible from anywhere outside the Building or at the entrance to
the Premises without first obtaining Landlord's written consent
hereto, such consent to be at Landlord's sole discretion. Any such
consent by Landlord shall be upon the understanding and condition
that Tenant will maintain the sign in good condition and remove
the same at Tenant's expense upon the expiration or sooner
termination of this Lease. Tenant shall repair any damage to the
Premises or the Building caused by such removal. Landlord will
place, at Landlord's sole cost and expense, Tenant's name on the
existing free standing road directional sign for the Building. Any
additional monument signage will be at Tenant's sole cost and
expense and only after Landlord consents thereto.
23. LIENS. Tenant shall keep the Premises free from any liens
arising out of any work performed, materials ordered or
obligations incurred by or on behalf of Tenant, and Tenant hereby
agrees to indemnify and hold Landlord, its agents, employees,
independent contractors, officers, directors, partners, and
shareholders harmless from any liability, cost or expense for such
liens. Tenant shall cause any such lien imposed to be released or
record by payment or posting of the proper bond acceptable to
Landlord within twenty (20) days after the earlier of receipt of
notice of imposition of the lien or written request by Landlord.
Tenant shall give Landlord written notice of Tenant's intention to
perform work on the Premises which might result in any claim of
lien, at least ten (10) days prior to the commencement of such
work to enable Landlord to post and record a Notice of
Nonresponsibility or other notice deemed proper before
commencement of any such work.
23
If Tenant fails to remove any lien within the prescribed twenty
(20) day period, then Landlord may do so at Tenant's expense and
Tenant's reimbursement to Landlord for such amount shall be deemed
Additional Rent. Such reimbursement shall include all sums
disbursed, incurred or deposited by Landlord, including Landlord's
costs, expenses and reasonable attorneys' fees with interest
thereon at the maximum rate of interest permitted by law.
24. DEFAULT.
24.1 Tenant's Default. A default under this Lease by Tenant
shall exist if any of the following occurs:
24.1.1 If Tenant fails to pay Rent, Additional Rent or any
other sum required to be paid hereunder after written notice from
Landlord that such sums are due and Tenant fails to cure such
breach within ten (10) days of receipt of such notice; or
24.1.2 If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of
money, and Tenant fails to cure such breach within thirty (30)
days after written notice from Landlord where such breach could
reasonably be cured within such thirty (30) day period; provided,
however, that where such failure could not reasonably be cured
within the thirty (30) day period, that Tenant shall not be in
default if it commences such performance within the thirty (30)
day period and diligently thereafter prosecutes the same to
completion; and
24.1.3 If Tenant assigns its assets for the benefit of its
creditors; or
24.1.4 If the sequestration or attachment of or execution on
any material part of Tenant's personal property essential to the
conduct of Tenant's business occurs, and Tenant fails to obtain a
return or release of such personal property within thirty (30)
days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier; or
24.1.5 If a court makes or enters any decree or order other
than under the bankruptcy laws of the United States adjudging
Tenant to be insolvent, or approving as properly filed a petition
seeking reorganization of Tenant, or directing the winding up or
liquidation of Tenant, and such decree or order shall have
continued for a period of thirty (30) days.
24.1.6 The chronic delinquency by Tenant in the payment of
monthly Rent, or any other periodic payments required to be paid
by Tenant under this Lease, shall constitute a default. "Chronic
delinquency" shall mean failure by Tenant to pay Rent, or any
other periodic payments required to be paid by Tenant under this
Lease within five (5) days after written notice thereof for any
three (3)
24
months (consecutive or nonconsecutive) during any twelve (12)
month period. In the event of a chronic delinquency, at Landlord's
option, Landlord shall have the additional right to require that
monthly Rent be paid by Tenant quarter-annually, in advance.
24.2 Remedies. Upon a default, Landlord shall have the
following remedies, in addition to all other rights and remedies
provided by law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
24.2.1 Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as
long as Landlord does not terminate this Lease, and Landlord shall
have the right to collect Rent, Additional Rent and other charges
when due.
24.2.2 Landlord may terminate Tenant's right to possession of
the Premises at any time by giving written notice to that effect,
and relet the Premises or any part thereof. On the giving of the
notice, all of Tenant's rights in the Premises, shall terminate.
Upon such termination, Tenant shall surrender and vacate the
Premises in the condition required by Section 26, and Landlord may
re-enter and take possession of the Premises in accordance with
Massachusetts law and all the remaining improvements or property
and eject Tenant or any of Tenant's subtenants, assignees or other
person or persons claiming any right under or through Tenant or
eject some and not others or eject none. This Lease may also be
terminated by a judgment specifically providing for termination.
Any termination under this section shall not release Tenant from
the payment of any sum then due Landlord or from any claim for
damages or Rent, Additional Rent or other sum previously accrued
or then accruing against Tenant. Upon such termination Tenant
shall be liable immediately to Landlord for all reasonable costs
Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of
cleaning and redecorating the Premises required by the reletting
and like costs. Reletting may be for a period shorter or longer
than the remaining term of this Lease. No act by Landlord other
than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession. On termination,
Landlord has the right to remove all Tenant's personal property
and store same at Tenant's cost and to recover from Tenant as
damages:
(a) The worth at the time of award of unpaid Rent,
Additional Rent and other sums due and payable which had been
earned at the time of termination; plus
(b) The worth at the time of award of the amount by
which the unpaid Rent, Additional Rent and other sums due and
25
payable which would have been payable after termination until the
time of award exceeds the amount of such rent loss that Tenant
proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid Rent, Additional Rent and other sums due and
payable for the balance or the term after the time of award
exceeds the amount of such rent loss that Tenant proves could be
reasonably avoided; plus
(d) Any other amount necessary which is to compensate
Landlord for all the detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease, or
which, in the ordinary course of things, would be likely to result
therefrom including, without limitation, any reasonable costs or
expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring,
replacing, cleaning, altering or rehabilitating the Premises or
any portion thereof, including such acts for reletting to a new
tenant or tenants; (iii) for leasing commissions; or (iv) for any
other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from
time to time by the laws of the State in which the Premises is
located.
The "worth at the time of award" of the amounts
referred to in Sections 24.2.2(a) and (b) is computed by allowing
interest at the maximum interest rate allowed by law on the unpaid
rent and other sums due and payable from the termination date
through the date of award. The "worth at the time of award" of the
amount referred to in Section 24.2.2(c) is computed by discounting
such amount at the discount rate of the Federal Reserve Bank at
the time of award plus one percent (1%). Tenant waives redemption
or relief from forfeiture under any present or future law, in the
event Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
24.2.3 Landlord may, with or without terminating this Lease
but in accordance with all applicable laws, re-enter the Premises
and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. No
re-entry or taking possession of the Premises by Landlord pursuant
to this section shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to
Tenant.
25. SUBORDINATION. Subject to the nondisturbance language in
the following paragraph, Tenant will, upon request of Landlord in
writing, subordinate its rights hereunder to the lien of any
mortgage, deed of trust, ground lease or underlying lease now or
26
hereafter in force against the Premises, and to all advances made
or hereafter to be made upon the security thereof. Tenant shall
execute and return to Landlord any such subordination documents
within fifteen (15) days of Landlord's written request provided
such lender or lessor agrees, using their standard form therefor,
to recognize Tenant under this Lease and not to disturb Tenant's
possession, provided Tenant is not in default beyond applicable
grace periods, if any, under this Lease. The Landlord represents
that there is no mortgage presently encumbering the Property.
In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by the Landlord covering
the Premises, Tenant shall attorn to the purchaser at any such
foreclosure, or to the grantee of a deed in lieu of foreclosure,
and recognize such purchaser or grantee as the Landlord under this
Lease provided such purchaser or grantee agrees to recognize
Tenant under this Lease and not to disturb Tenant's possession,
provided Tenant is not in default beyond applicable grace periods,
if any, under this Lease.
The provisions of this article to the contrary
notwithstanding, and so long as Tenant is not in default
hereunder, this Lease shall remain in full force and effect for
the full term hereof.
26. SURRENDER OF POSSESSION. Upon expiration of the term of
this Lease, Tenant shall promptly and peacefully surrender the
Premises to Landlord in substantially the same condition as when
received by Tenant from Landlord or as thereafter improved,
reasonable use and wear and tear, damage by fire or other casualty
and eminent domain excepted. If the Premises are not surrendered
in accordance with the terms of this Lease, Tenant shall indemnify
Landlord and its agents, employees, independent contractors,
officers, directors, partners, and shareholders against any loss
or liability including reasonable attorneys' fees and costs, and
including liability to succeeding tenants, resulting from delay by
Tenant in so surrendering the Premises. This indemnification shall
survive termination of this Lease.
27. NON-WAIVER. Waiver by either party of any breach of any
term, covenant or condition herein contained shall not be deemed
to be a waiver of such term, covenant, or condition(s); or any
subsequent breach of the same or any other term, covenant or
condition of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of
such Rent.
28. HOLDOVER. If Tenant shall, without the written consent of
Landlord, hold over after the expiration of the term of this
Lease, such tenancy shall be deemed a month-to-month tenancy,
which
27
tenancy may be terminated as provided by applicable state law.
During such tenancy, Tenant agrees to (a) pay to Landlord, each
month, the greater of the fair market rental value for the
Premises or one hundred fifty percent (150%) of the Rent and
Additional Rent payable by Tenant for the last month of the term
of this Lease and (b) be bound by all of the terms, covenants and
conditions herein specified, so far as applicable.
29. CONDEMNATION.
29.1 Substantial Taking. If twenty (20) percent or more of the
Premises or of such portions of the Building as may be required
for the reasonable use of the Premises, are taken by eminent
domain or sale under threat of condemnation by eminent domain,
this Lease shall automatically terminate as of the date title
vests in the condemning authority, and all Rent, Additional Rent,
and other payments shall be paid to that date.
29.2 Partial Taking. In case of a taking of less than twenty
percent (20%) of the Premises, or a portion of the Building not
required for the reasonable use of the Premises, this Lease shall
continue in full force and effect, and the Rent shall be equitably
reduced based on the proportion by which the floor area of the
Premises is reduced, such reduction to be effective as of the date
title to such portion vests in the condemning authority.
29.3 Awards and Damages. Landlord reserves all rights to
damages to the Premises for any partial or entire taking by
eminent domain, and Tenant hereby assigns to Landlord any right
Tenant may have to such damages or award, and Tenant shall make no
claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with
Tenant's business. Tenant shall have the right to claim and
recover from the condemning authority compensation for any loss
which Tenant may incur for Tenant's moving expenses, business
interruption or taking of Tenant's personal property (not
including Tenant's leasehold interest), provided that such damages
may be claimed only if they are awarded separately in the eminent
domain proceedings and not out of or as part of the damages
recoverable by Landlord.
30. NOTICES. All notices and demands which may be required or
permitted to be given to either party hereunder shall be in
writing, and shall be sent by United States mail, postage prepaid
to the addresses set out in Section 1.5, and to such other person
or place as each party may from time to time designate in a notice
to the other. Notice shall be deemed given upon the earlier of
actual receipt or seventy-two (72) hours after deposit in the
United States mail, postage prepaid.
31. MORTGAGEE PROTECTION. Tenant agrees to give any
mortgagee(s) and/or trust deed holder(s), by registered mail, a
copy of any notice of default served upon the Landlord, provided
28
that prior to such notice Tenant has been notified in writing (by
way of notice of assignment of rents and leases, or otherwise) of
the addresses of such mortgagee(s) and/or trust deed holder(s).
Tenant further agrees that if Landlord shall have failed to cure
such default within the time provided for in this Lease, then the
mortgagee(s) and/or trust deed holder(s) shall have an additional
thirty (30) days within which to cure such default or if such
default cannot be cured within that time, then such additional
time as may be necessary if within such thirty (30) days any
mortgagee and/or trust deed holder(s) has commenced and is
diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event
this Lease shall not be terminated while such remedies are being
so diligently pursued.
32. COSTS AND ATTORNEYS' FEES. If Tenant or Landlord shall
bring any action for any relief against the other, declaratory or
otherwise, arising out of this Lease, including any suit by
Landlord for the recovery of Rent, Additional Rent or other
payments hereunder, or possession of the Premises, the losing
party shall pay the prevailing party a reasonable sum for
attorneys' fees in such suit, at trial and on appeal, and such
attorneys' fees shall be deemed to have accrued on the
commencement of such action.
33. BROKERS. Tenant represents and warrants to Landlord that
neither it nor its officers or agents nor anyone acting on its
behalf has dealt with any real estate broker other than Fallon,
Hines & O'Connor in the negotiating or making of this Lease, and
Tenant agrees to indemnify and hold Landlord, its agents,
employees, partners, directors, shareholders and independent
contractors harmless from all liabilities, costs, demands,
judgments, settlements, claims, and losses, including reasonable
attorneys' fees and costs, incurred by Landlord in conjunction
with any such claim or claims of any other broker or brokers
claiming to have interested Tenant in the Building or Premises or
claiming to have caused Tenant to enter into this Lease. Landlord
shall be responsible for paying any brokerage commission due to
Fallon, Hines & O'Connor.
34. LANDLORD'S LIABILITY. Anything in this Lease to the
contrary notwithstanding, covenants, undertakings and agreements
herein made on the part of Landlord are made and intended not for
the purpose of binding Landlord personally or the assets of
Landlord but are made and intended to bind only the Landlord's
interest in the Premises and Building, as the same may, from time
to time, be encumbered and no personal liability shall at any time
be asserted or enforceable against Landlord or its stockholders,
officers or partners or their respective heirs, legal
representatives, successors and assigns on account of the Lease or
on account of any covenant, undertaking or agreement of Landlord
in this Lease contained.
29
35. ESTOPPEL CERTIFICATES. Tenant shall, from time to time,
within fifteen (15) days of Landlord's written request, execute,
acknowledge and deliver to Landlord or its designee a written
statement stating: the date this Lease was executed and the date
it expires; the date Tenant entered into occupancy of the
Premises; the amount of Rent, Additional Rent and other charges
due hereunder and the date to which such amounts have been paid;
that this Lease is in full force and effect and has not been
assigned, modified, supplemented or amended in any way (or
specifying the date and terms of any agreement so affecting this
Lease); that this Lease represents the entire agreement between
the parties as to this leasing; that all conditions under this
Lease to be performed by the Landlord have been satisfied (or
specifying any such conditions that have not been satisfied); that
all required contributions by Landlord to Tenant on account of
Tenant's improvements have been received (or specifying any such
contributions that have not been received); that on this date
there are no existing defenses or offsets which the Tenant has
against the enforcement of this Lease by the Landlord; that no
Rent has been paid more than one (1) month in advance; that no
security has been deposited with Landlord (or, if so, the amount
thereof); or any other matters evidencing the status of the Lease,
as may be reasonably required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage against the
Building, or a purchaser of the Building. It is intended that any
such statement delivered pursuant to this paragraph may be relied
upon by a prospective purchaser of Landlord's interest or a
mortgagee of Landlord's interest or assignee of any mortgage upon
Landlord's interest in the Building. If Tenant fails to respond
within fifteen (15) days of receipt by Tenant of a written request
by Landlord as herein provided, Tenant shall be deemed to have
given such certificate as above provided without modification and
shall be deemed to have admitted the accuracy of any information
supplied by Landlord to a prospective purchaser or mortgagee.
36. FINANCIAL STATEMENTS. Within five (5) days after
Landlord's request, Tenant shall deliver to Landlord the most
recently publicly reported quarterly statements of Tenant, and
financial statements of the two (2) years prior to the most
recently publicly reported quarterly financial statements year,
with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted
accounting principles consistently applied.
37. TRANSFER OF LANDLORDS INTEREST. In the event of any
transfer(s) of Landlord's interest in the Premises or the
Building, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all
obligations and liabilities on the part of Landlord accruing from
and after the date of such transfer (except the obligation to
return the security
30
deposit unless actually delivered to the transferee), and Tenant
agrees to attorn to the transferee.
38. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of
money, other than Rent and Additional Rent, required to be paid by
it hereunder or shall fail to perform any other act on its part to
be performed hereunder, and such failure shall continue for ten
(10) days after receipt of written notice, Landlord may, but shall
not be obligated so to do, and without waiving or releasing Tenant
from any obligations of Tenant, make any such payment or perform
any such other act on Tenant's part to be made or performed as
provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in
the event of the nonpayment of sums due under this Section as in
the case of default by Tenant in the payment of Rent. All sums
paid by Landlord and all penalties, interest and costs in
connection therewith, shall be due and payable by Tenant on the
next day after such payment by Landlord, together with interest
thereon at the maximum rate of interest permitted by law from such
date to the date of payment thereof, by Tenant to Landlord, plus
collection costs and attorneys' fees.
39. SALES AND AUCTIONS. Tenant may not display or sell
merchandise outside the exterior walls of the Building and may not
use such areas for storage. Tenant further agrees not to install
any exterior lighting, amplifiers or similar devices or use in or
about the Premises an advertising medium which may be heard or
seen outside the Premises, such as flashing lights, searchlights,
loudspeakers, phonographs or radio broadcasts. Tenant shall not
conduct or permit to be conducted any sale by auction in, upon or
from the Premises whether said auction be voluntary, involuntary,
pursuant to any assignment for the payment of creditors or
pursuant to any bankruptcy or other insolvency proceeding.
40. NO ACCESS TO ROOF. Tenant shall have no right of access to
the roof of the Building and shall not install, repair or replace
any aerial, fan, air conditioner or other device on the roof of
the Building without the prior written consent of Landlord. Any
aerial, fan, air conditioner or device installed with such written
consent shall be maintained by Tenant in good condition and shall
be subject to removal by Landlord, at Tenant's expense, without
notice, at any time. Tenant shall also be responsible for
reimbursing Landlord for any repairs and restoration to the roof
or Building resulting from the installation or removal of such
items on the roof.
41. SECURITY. Tenant hereby agrees to the exercise by Landlord
and its agents and employees, within their sole but reasonable
discretion, of such security measures as, but not limited to, the
search of all persons entering or leaving the Building, the
evacuation of the Building for cause, suspected cause or for drill
purposes, the denial of any access to the Building and
31
other similarly related actions that it deems reasonably necessary
to prevent any threat of property damage or bodily injury. The
exercise of such reasonable security measures by Landlord, its
beneficiaries and their agents and employees, and the resulting
interruption of service and cessation of Tenant's business, if
any, shall not be deemed an eviction or disturbance of Tenant's
use and possession of the Premises, or any part thereof, or render
Landlord, its beneficiaries and their agents and employees, liable
to Tenant for any resulting damages or relieve Tenant from
Tenant's obligations under this Lease.
42. AUTHORITY OF TENANT. If Tenant is a corporation or
partnership, the corporation warrants and represents that each
individual executing this Lease on behalf of said corporation or
partnership is duly authorized to execute and deliver this Lease
on behalf of said corporation or partnership, and that this Lease
is binding upon said corporation or partnership.
43. NO ACCORD OR SATISFACTION. No payment by Tenant or receipt
by Landlord of a lesser amount than the monthly rent and other
sums due hereunder shall be deemed to be other than on account of
the earliest rent or other sums due, nor shall any endorsement or
statement on any check or accompanying any check or payment be
deemed an accord and satisfaction; and Landlord may accept such
check or payment without prejudice to Landlord's right to recover
the balance of such rent or other sum or pursue any other remedy
provided in this Lease.
44. MODIFICATIONS FOR LENDER. If in connection with obtaining
financing for the Building or any portion thereof, Landlord's
lender shall request reasonable modifications to this Lease as a
condition to such financing, Tenant shall not unreasonably
withhold, delay, or defer its consent to such modification
provided such modifications do not materially adversely affect
Tenant's rights hereunder or materially reduce the obligations of
Landlord hereunder.
45. PARKING. Tenant shall have the right to use, in common
with others entitled to the use thereof, at least 70 parking
spaces in the parking facilities on the Premises upon such terms
and conditions as are reasonably established by Landlord at any
time during the term of this Lease. Landlord shall have the right,
in its sole discretion, to reconfigure the parking area and modify
the existing ingress to and egress from the parking area as
Landlord shall deem appropriate; provided only that such
reconfiguration or modification shall not prevent on a permanent
basis the practical use of parking available to Tenant and
Tenant's guests.
46. EXTERIOR SIGNS. Tenant shall place no signs upon the
outside walls or roof of the Building or elsewhere on the Premises
except with the prior written consent of the Landlord. Any and all
signs placed on or about the Premises or the Building by Tenant
32
shall comply with Landlord's rules and regulations governing such
signs, and all governmental laws and Tenant shall be responsible
to Landlord for any damage caused by installation, use, or
maintenance of such signs. Tenant shall remove any of its signs
upon the termination of this Lease and repair any damage caused by
the sign installation or removal and, if Tenant fails to do so,
Landlord shall have the right to remove the signs and make such
repairs at Tenant's expense. Notwithstanding the foregoing,
signage will be provided at the entrance of the 117 Flanders Road
property at the location where other Building tenants have
directional signage. Such signage is to be consistent with the
other signage at the Metrowest Business Park. Landlord will
provide nonexclusive signage for Tenant, in a design suitable to
Landlord in its sole discretion, on the monument signage now
existing outside the Building.
47. RULES AND REGULATIONS. Tenant agrees to comply with such
reasonable rules and regulations as Landlord may adopt from time
to time for the orderly and proper operation of the Building and
parking and other common areas. The rules and regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant.
48. GENERAL PROVISIONS.
48.1 Acceptance. This Lease shall only become effective and
binding upon full execution hereof by Landlord and delivery of a
signed copy to Tenant.
48.2 Joint Obligation. If there be more than one Tenant, the
obligations hereunder imposed shall be joint and several.
48.3 Marginal Headings, Etc. The marginal headings, Table of
Contents, lease summary sheet and titles to the articles of this
Lease are not a part of the Lease and shall have no effect upon
the construction or interpretation of any part hereof.
48.4 Choice of Law. This Lease shall be governed by and
construed in accordance with the laws of the state in which the
Premises are located.
48.5 Successors and Assigns. The covenants and conditions
herein contained, subject to the provisions as to assignment,
inure to and bind the heirs, successors, executors, administrators
and assigns of the parties hereto.
48.6 Recordation. Neither Landlord nor Tenant shall record
this Lease, but Landlord and Tenant agree to execute a short-form
memorandum hereof which may be recorded at the request of either
party.
48.7 Quiet Possession. Upon Tenant's paying the rent reserved
hereunder and observing and performing all of the
33
covenants, conditions and provisions on Tenant's part to be
observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to
all the provisions of this Lease.
48.8 Inability to Perform. This Lease and the obligations of
the Tenant hereunder shall not be affected or impaired because the
Landlord is unable to fulfill any of its obligations hereunder or
is delayed in doing so, if such inability or delay is caused by
reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Landlord.
48.9 Partial Invalidity. Any provision of this Lease which
shall prove to be invalid, void, or illegal shall in no way
affect, impair or invalidate any other provision hereof and such
other provision(s) shall remain in full force and effect.
48.10 Cumulative Remedies. No remedy or election hereunder
shall be deemed exclusive but shall, whenever possible, be
cumulative with all other remedies at law or in equity.
48.11 Entire Agreement. This Lease contains the entire
agreement of the parties hereto and no representations,
inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein, shall be of any force or effect.
48.12 Exhibits. All exhibits and addenda attached hereto are
incorporated herein by this reference.
IN WITNESS WHEREOF, the parties herein have hereunto set their
hands and seals, in triplicate, the day and year first above
written.
LANDLORD:
Witness: AETNA REAL ESTATE ASSOCIATES, L.P.,
a Delaware limited partnership
By: Aetna/AREA Corp., its
general partner
/s/ Angela Migliore By: /s/ Illegible
-------------------- -------------------------
Its Vice President
-------------------------
34
TENANT:
Attest: NATIONAL TRANSACTION NETWORK, INC.,
a Delaware corporation
/s/ Illegible By: /s/ Milton A. Alpern
------------------ ---------------------------
Its Milton A. Alpern
Vice President of Finance
35
EXHIBIT A
THE PREMISES
(to be attached)
36
EXHIBIT B
(Attach Approved Plans)
37
EXHIBIT C
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Aetna Real Estate Associates, L.P.
TENANT: National Transaction Network, Inc.
LEASE DATE: November 8, 1996
PREMISES: Approximately 17,436 rentable square feet on the first (1st)
floor of the Building commonly known as 117 Flanders Road,
Westborough, Massachusetts, as more particularly described in
Section 1.1 of the Lease.
The Commencement Date of the above referenced lease is hereby established
as ________________, 1997.
LANDLORD:
Witness: AETNA REAL ESTATE ASSOCIATES, L.P.,
a Delaware limited partnership
By: Aetna/AREA Corp., its
general partner
/s/ Illegible /s/ Illegible
_________________________ By:______________________________
Its Vice President
TENANT;
Attest: NATIONAL TRANSACTION NETWORK, INC.
a Delaware corporation
/s/ Illegible
_________________________ By: /s/ Milton A. Alpern
--------------------------
Its Vice President of Finance
38
State: Connecticut
County: Hartford_ February 19, 1997
Then personally appeared before me the above namedJames M.
Fishman, of Aetna/AREA Corp., as General Partner of AETNA REAL
ESTATE ASSOCIATES, L.P., a Delaware limited partnership, and
acknowledged the foregoing instrument to be his free act and deed
and the free act and deed of Aetna/Area Corp.
/s/ Marsha S. McConaughy
-----------------------------------
Notary Public
My commission expires: April 30, 2000
State: Massachusetts
County: Worcester Feburary 12, 1997
Then personally appeared before me the above named Milton A. Alpern
________________, of NATIONAL TRANSACTION NETWORK, INC., a
Delaware corporation, and acknowledged the foregoing instrument to
be his free act and deed and the free act and deed of National
Transaction Network, Inc.
/s/ Illegible
-----------------------------------
Notary Public
My commission expires: March 11, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-66732 on Form S-8 of our report dated March 3, 1997 appearing in the Annual
Report on Form 10-K of National Transaction Network, Inc. for the year ended
December 31, 1996.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 24, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 266,045
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0
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<COMMON> 487,291
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<TOTAL-LIABILITY-AND-EQUITY> 2,161,092
<SALES> 5,013,023
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<CGS> 2,609,901
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