<PAGE>
UNITED STATES
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 JANUARY 31, 2000.
-----------------
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 Number 0-2180
TOTAL-TEL USA COMMUNICATIONS, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-1656895 .
----------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CLOVE ROAD, LITTLE FALLS, NEW JERSEY 07424
----------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (973) 812-1100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value (based upon a $10.00 closing price) of the voting stock
held by nonaffiliates of the Registrant as of April 26, 2000: $27,951,780.
Number of shares of Common Stock outstanding on April 26, 2000: 7,944,071
Documents Incorporated By Reference:
None
<PAGE>
PART I
------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
--------------------------------------------------
Certain matters discussed in this Annual Report on Form 10-K are
"forward-looking statements" intended to qualify for the safe harbor from
liability provided by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Registrant "believes",
"anticipates", "expects", or words of similar import. Similarly, statements
which describe the Registrant's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this Report. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this Report and the Registrant undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
ITEM 1. Business
--------
GENERAL
Total-Tel USA Communications, Inc. ("TotalTel", the "Registrant" or the
"Company") is a leading regional facilities-based long distance
telecommunications and internet services provider servicing both the commercial
and wholesale marketplace. The Registrant's retail segment operates principally
in the Northeast, primarily servicing small and medium-sized businesses. The
Registrant's products and services include a broad range of voice, data and
Internet solutions. The wholesale division provides domestic and international
termination services to carriers worldwide at competitive rates. The Registrant
currently owns and operates two long distance switches, in New York City and
Newark, New Jersey. In addition, the Registrant currently owns and operates two
carrier grade routers, a remote access server and an email server located in New
York City and Northern New Jersey for its internet service offerings. TotalTel
has a Network Operations Center ("NOC") in Northern New Jersey, to monitor and
control its New Jersey network and to coordinate its various services.
Total-Tel processes approximately 95% of all its call volume through
its own facilities. The Registrant uses proven technology to provide customized
telecommunications solutions to its customers.
In the retail market, the Registrant has segmented potential customers
and tailored its service offerings, sales, marketing approach and network
development to provide service in a cost-effective manner. The Registrant
believes its customer service to be one of its principal competitive advantages.
The Registrant applies a dedicated team approach to soliciting and servicing its
clients, with substantial involvement of sales, customer service and technical
personnel in all aspects of customer relations. The Registrant intends to
continue to focus its efforts on small to medium-sized customers with sales of
$1 million to $60 million and monthly communications bills that range from $500
to $30,000. The Registrant's focus on customer service has also enabled it to
attract larger customers.
For Fiscal 2000, Total-Tel had gross revenues of approximately $140
million, derived approximately 50% from wholesale and 50% from commercial
services. For Fiscal 1999, the Registrant's gross revenues were approximately
$137 million. The Registrant's commercial sales activities have been
concentrated in Northern New Jersey and New York City, where, the Registrant
believes, approximately half of all United States multinational corporations
have headquarters. Based on industry sources, this area is believed to represent
40% of the total United States telecommunications market. For the near term, at
least, Total-Tel intends to focus its efforts on further penetrating commercial
users of its services in the Northeast, from the Washington, D.C. market through
Boston, Massachusetts, and to augment the services offered to its customers.
The Registrant's principal executive offices are located at Overlook at
Great Notch, 150 Clove Road, Little Falls, New Jersey 07424, and its telephone
number is (973) 812-1100. The Registrant was incorporated in 1959 as Faradyne
Electronics Corp. In November 1991, the Registrant changed its name from
Faradyne Electronics Corp. to Total-Tel USA Communications, Inc.
2
<PAGE>
INDUSTRY OVERVIEW
-----------------
HISTORY AND INDUSTRY DEVELOPMENT
Prior to 1984, AT&T dominated both the local exchange and long distance
marketplaces by owning the operating entities that provided both local exchange
and long distance services to most of the United States population. Although
long distance competition began to emerge in the late 1970s, the critical event
triggering the growth of long distance competition was the breakup of AT&T and
the separation of its local and long distance businesses as mandated by the
Modified Final Judgment (the "MFJ") relating to the breakup of AT&T (the "MFJ").
To foster competition in the long distance market, the MFJ prohibited AT&T's
divested local exchange businesses, the Regional Bell Operating Companies
("RBOCs"), from acting as single-source providers of telecommunications
services.
Although the MFJ established the preconditions for competition in the
market for long distance services in 1984, the market for local exchange
services has until recently virtually been closed to competition and has largely
been dominated by regulated monopolies. Efforts to open the local exchange
market began in the late 1980s on a state-by-state basis.
The Telecommunications Act of 1996, (the "1996 Act") is considered to
be the most comprehensive reform of the nation's telecommunications laws and
affects the development of competition for local telecommunications services.
Specifically, certain provisions of the 1996 Act provide for (i) the removal of
legal barriers for entry into the local telecommunications services market; (ii)
the interconnection of the Incumbent Local Exchange Carrier (the "ILEC") network
with competitors' networks; (iii) the establishment of procedures and
requirements to be followed by the RBOCs, including the requirement that RBOCs
offer local services for resale as a precondition to their entering into the
long distance and telecommunications equipment manufacturing markets; and (iv)
the relaxation of the regulation of certain telecommunications services provided
by Local Exchange Carriers ("LEC") and others.
The continuing deregulation of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have expanded substantially the Registrant's opportunities in the
converging voice and data communications services markets. For example,
technological advances, including rapid growth of the Internet, the increased
use of packet switching technology for voice communications, and the growth of
multimedia applications, are expected to result in substantial growth in the
high-speed data services market.
This new market opportunity should permit Competitive Local Exchange
Carriers ("CLECs") with operating and marketing expertise to offer a full range
of telecommunications services, including local and long distance calling,
toll-free calling, custom calling features, data services, and Internet access
and services. Telecommunications companies with an established base of long
distance customers may have an opportunity to sell additional services to such
customers.
The Registrant believes that small and medium-sized businesses have
historically been under served with respect to customer service and support. The
Registrant has observed that RBOCs and the Tier I carriers (carriers with annual
revenues in excess of $5 billion), primarily concentrate their sales and
marketing efforts on residential and large business customers. Thus, the
Registrant also believes there is a significant market opportunity with respect
to small and medium-sized businesses to which customer service may be a
significant part of their buying decision.
3
<PAGE>
NETWORK
The Registrant's strategy has been to develop a geographic
concentration of revenue-producing customers through the sale of
telecommunications services in areas where it has installed switching platforms.
CURRENT NETWORK
Switches. Currently, the Registrant operates an advanced
telecommunications network that includes two DSC switches, located in New York
City and Newark, New Jersey. The Registrant has installed DSC DEX 600 switches
in Newark and a DEX600E switch in New York, which provides interexchange
switching capabilities and is currently being used as the Registrant's
international gateway switching platform.
During Fiscal 2000, the Registrant billed approximately 1.25 billion
minutes, with approximately 95% of its minutes over its own switches. The
Registrant believes that increasing the traffic carried on its own network would
improve operating margins.
International. The Registrant is interconnected with a number of United
States and foreign wholesale international carriers through its New York switch.
The purpose of connecting to a variety of carriers is to provide
state-of-the-art, lowest-cost routing and network reliability. These
interconnected international carriers are also a source of wholesale
international traffic and revenue.
Internet. Currently, the Registrant owns and operates an IP (Internet
Protocol) Network that includes two Cisco 7500 routers, located in New York
City. The Registrant owns and operates an Ascend TNT remote access server (RAS)
located in New York also. The RAS provides dial-up Internet access services.
Through a association with NorthPoint, a wholesale Digital Subscriber Lines
("DSL"), CLEC, the Registrant offers DSL internet service in the Philadelphia,
New York, New Jersey and Connecticut markets.
Other Features. The Registrant is interconnected by SS7 out-of-band
digital signaling throughout its network. The SS7 signaling system reduces
connect time delays, thereby enhancing overall network efficiencies.
Additionally, the SS7 technology is designed to permit the anticipated expansion
of the Registrant's Advanced Intelligent Network ("AIN") capabilities throughout
its network. The Registrant's advanced switching platform would enable it to (i)
deploy features and functions quickly throughout its entire network, (ii) expand
switch capacity in a cost-effective manner, and (iii) lower maintenance costs
through reduced training and spare parts requirements.
Security and Reliability. The Registrant has a NOC in Northern New
Jersey, which monitors and controls the Registrant's network and coordinates its
various services from a central location, increasing the security, reliability
and efficiency of the Registrant's operations. Centralized electronic monitoring
and control of the Registrant's network allows the Registrant to avoid
duplication of this function in each switch site. The NOC also helps reduce the
Registrant's per-customer monitoring and customer service costs. In addition,
the Registrant's network employs an "authorized access" architecture. Unlike
many telecommunications companies, which allow universal access to their
network, the Registrant utilizes an automatic number identification security
screening architecture which ensures only the ANIs of those users who have
subscribed to the Registrant's services and have satisfied the Registrant's
credit and provisioning criteria have access to the network. The Registrant
believes that this architecture provides the Registrant the ability to better
control bad debt and fraud in a manner that is invisible and nonintrusive to the
customer. This architecture also allows the Registrant to better manage network
capacity, as unauthorized and unplanned users cannot access the network.
PRINCIPAL PRODUCTS AND SERVICES
-------------------------------
PRODUCT AND SERVICE OFFERINGS
The Registrant offers retail telecommunications services primarily to
small and medium-sized businesses. The Registrant's retail service offerings
currently include long distance and toll-free services (both with and without an
AIN), multiple access options, calling card, data, Internet access DSL, email,
facsimile, directory assistance and teleconferencing services. The Registrant is
considering plans to provide local exchange service, enhanced data and Internet
services, and additional AIN features. The Registrant's wholesale services
include domestic and international termination and transport services to
domestic and international telecommunications carriers.
CURRENT SERVICES
Retail Services. The Registrant provides retail telecommunications
services to over 14,000 commercial customers, primarily small and medium-sized
businesses located in the Northeastern region of the United States. The
Registrant sells retail services through its direct retail sales force and
independent marketing representatives. Retail commercial communications services
accounted for approximately 50% of the Registrant's Fiscal 2000
4
<PAGE>
revenues, and produced revenues of approximately $69,023,000 in Fiscal 2000 and
$72,556,000 in Fiscal 1999. Retail revenues fell in fiscal 2000 due to continued
decreases in price from the ever increasing competition within the industry. The
decreasing prices more than offset any volume gains that the Registrant
experienced in fiscal 2000. While the Registrant believes that minutes of use
will continue to increase, as the worldwide demand for communications services
increases, it also believes that the intense competition for those minutes from
other telecommunications providers will continue to create a trend towards
downward pressures on price. As both trends continue the Registrant believes
that it will be able to attract additional volume, but will also realize
significant price decreases that may adversely affect operations.
The Registrant's retail services include the following:
LONG DISTANCE: The Registrant offers a full range of switched and
dedicated domestic and international long distance services, including
"1+" outbound service in all 50 states along with global termination to
over 200 countries. Long distance services include intra-LATA,
inter-LATA, and worldwide international services. Long distance
features include both verified and non-verified accounting codes,
station-to-station calling, third-party calling, directory assistance,
and operator-assisted calling.
TOLL-FREE SERVICES: The Registrant offers a full range of switched and
dedicated domestic toll-free services, including toll-free origination
in all 50 states, international toll-free origination from over 30
countries, and toll-free directory assistance. AIN enhanced toll-free
services include the following features: Command Routing, Dialed Number
Identification Service Area Code/Exchange Routing, Real Time Automatic
Number Identification Delivery, Day-of-Year Routing, Day-of-Week
Routing, Time-of-Day Routing, Percentage Allocation Routing, PIN
protected 800 services, integrated voice response services, and store
locator services.
ACCESS OPTIONS: The Registrant offers its long distance and toll-free
customers multiple access options including dedicated access at DS0,
DS1, and DS3 speed(s) and switched access.
CALLING CARD AND SERVICES: The Registrant offers nationwide switched
access customized calling card services. Customers have the option of
calling cards, which are personalized, branded or generic.
INTERNET: The Registrant currently offers high-quality, dedicated DSL
and dial-up Internet access, email, IP addressing and Domain Name
Services.
DATA SERVICES: The Registrant offers advanced data transmission
services, including private line and Frame Relay services. Data
services have multiple access options, including dedicated access at
DS0, DS1, and DS3 speed(s) and switched access.
CUSTOMER MANAGEMENT CONTROL FEATURES: All of the Registrant's customers
have the option of customized management reporting features, including
interstate/intrastate area code summaries, international destination
matrix, daily usage summaries, state summaries, time of day summaries,
duration distribution matrix, exception reporting of long duration
calls, and incomplete and blocked call reporting.
Wholesale Services. The Registrant offers the following wholesale services:
domestic and international termination, switch ports, collocation facilities and
transport services to a broad spectrum of domestic and international carriers.
The Registrant offers international wholesale termination and transport services
primarily to domestic and international telecommunications carriers. Once the
Registrant interconnects with a carrier customer, the carrier may utilize the
Registrant on an as-needed basis, depending upon the pricing offered by the
Registrant and its competitors, as well as capacity. The Registrant has been
tested and approved as an authorized carrier for, and included in the routing
tables of all of its long distance and international carrier customers.
Wholesale revenues were approximately $70,737,000 and $64,727,000 during Fiscal
2000 and Fiscal 1999, respectively.
CUSTOMER BASE
-------------
TELECOMMUNICATIONS SERVICES MARKET
Overview of the United States Market. The United States market for
telecommunications services can be divided into three basic sectors: long
distance services, local exchange services and Internet access services
Long Distance Services. A long distance telephone call can be
envisioned as consisting of three segments. Starting with the originating
customer, the call travels along a local exchange network to a long distance
carrier's point of presence ("POP"). At the POP, the call is combined with other
calls and sent along a long distance network to a POP on the long distance
carrier's network near where the call will terminate. The call is
5
<PAGE>
then sent from this POP along a local network to the terminating customer. Long
distance carriers provide only the connection between the two local networks;
and, unless the long distance carrier is a local service provider, pay access
charges to LECs for originating and terminating calls.
Local Exchange Services. A local call is one that does not require the
services of a long distance carrier. In general, the local exchange carrier
connects end-user customers within a LATA and also provides the local access
(ingress and egress) of most long distance calls.
Internet Service. Internet services are generally provided in at least
two distinct segments. A local network connection is required from the Internet
Service Provider ("ISP") customer to the ISP's local facilities. For large,
communication-intensive users and for content providers, the connections are
typically unswitched, dedicated connections provided by LECs, Intelligent Call
Processing ("ICP"), or other providers, either as independent service providers
or, in some cases, by a carrier that is both a CLEC and an ISP. For residential
and small and medium-sized business users, these connections are generally
Public Switched Telephone Network ("PSTN") connections obtained on a dial-up
access basis as a local exchange telephone call. Once a local connection is made
to the ISP's local facilities, information can be transmitted and obtained over
a packet-switched IP data network, which may consist of segments provided by
many interconnected networks operated by a number of ISPs. The collection of
interconnected networks makes up the Internet. A key feature of Internet
architecture and packet switching is that a single dedicated channel between
communication points is never established, which distinguishes Internet-based
services from the PSTN.
International Service. A typical international long distance call
originates on a local exchange network or private line and is carried to the
international gateway switch of a long distance carrier. The call is then
transported along a fiber optic cable or a satellite connection to an
international gateway switch in the terminating country and, finally, to another
local exchange network or private line where the call is terminated. Generally,
only a small number of carriers are licensed by a foreign country for
international long distance and, in many countries, only the Post Telephone &
Telegraph administration ("PTT") is licensed or authorized to provide
international long distance service. Any carrier which desires to transport
switched calls to or from a particular country must, in addition to obtaining a
license or other permission (if required), must enter into operating agreements
or other arrangements with the PTT or another international carrier in that
country or lease capacity from a carrier which already has such arrangements.
MARKET OPPORTUNITIES
As a result of the 1996 Act and other federal, state, and international
initiatives, numerous telecommunications markets have been opened to
competition. In addition, the increasing globalization of the world economy,
along with increased reliance on data transmission and Internet access, has
expanded traditional telecommunications markets. The Registrant has targeted its
services principally to small and medium-sized businesses based upon its belief
that such customers are not aggressively targeted by Tier I providers and are
underserved with respect to customer service and support.
6
<PAGE>
COMPETITION
-----------
OVERVIEW
The Registrant operates in a highly competitive industry and estimates
that it has no greater than a 1% market share in the market in which it
operates. The Registrant expects that competition will continue to intensify in
the future due to regulatory changes, including the continued implementation of
the 1996 Act, and the increase in the size, resources, and number of market
participants. In each of its markets, the Registrant will face competition from
larger, better capitalized Tier I and Tier II providers and ILECs and CLECs.
While new business opportunities may be made available to the Registrant through
the 1996 Act and other federal and state regulatory initiatives, regulators are
likely to provide the ILECs with an increased degree of flexibility with regard
to pricing of their services as competition increases.
Competition for the Registrant's products and services is based on
price, quality, the ability to bundle services, brand equity, name recognition,
network reliability, service features, billing services, perceived quality and
responsiveness to customers' needs. While the Registrant believes that it
currently has certain advantages relating to price, quality, customer service
and responsiveness to customer needs, there is no assurance that the Registrant
will be able to maintain these advantages or obtain additional advantages. A
continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Registrant. Many of the Registrant's existing and potential competitors have
financial, technical, and other resources significantly greater than those of
the Registrant. In addition, in December, 1997, the FCC issued rules to
implement the provisions of the World Trade Organization Agreement on Basic
Telecommunications, which was drafted to liberalize restrictions on foreign
ownership of domestic telecommunications companies and to allow foreign
telecommunications companies to enter domestic markets. The new FCC rules went
into effect in February, 1998 and are expected to make it substantially easier
for many non-United States telecommunications companies to enter the United
States market, thus further increasing the number of competitors. The new rules
will also give non-United States individuals and corporations greater ability to
invest in United States telecommunications companies, thus increasing the
financial and technical resources potentially available to existing and
potential competitors as well as Registrant.
LONG DISTANCE MARKET
The long distance telecommunications industry is highly competitive and
affected by the introduction of new services by, and the market activities of,
major industry participants. The Registrant competes against various national
and regional long distance carriers, including both facilities-based providers
and switchless resellers offering essentially the same services as the
Registrant. In addition, significant competition is expected to be provided by
ILECs including, when authorized, RBOCs. The Registrant's success will depend
upon its ability to provide high-quality services at prices competitive with, or
lower than, those charged by its competitors. In addition, a high level of
customer attrition or "churn" has characterized the long distance industry. Such
attrition is attributable to a variety of factors, including initiatives of
competitors as they engage in advertising campaigns, marketing programs, and
provide cash payments or other incentives. End users are often not obligated to
purchase any minimum usage amount and can discontinue service without penalty at
any time. While the Registrant believes its customer turnover rate is lower than
that of many of its competitors, the Registrant's revenue has been, and is
expected to continue to be, affected by churn.
Tier I providers and other carriers have implemented new price plans
aimed at residential customers with significantly simplified rate structures,
which may have the impact of lowering overall long distance prices. There can
also be no assurance that long distance carriers will not make similar offerings
available to the small to medium-sized businesses that the Registrant primarily
serves. While the Registrant believes small and medium-sized business customers
are not aggressively targeted by large long distance providers, such as the Tier
I providers, there can be no assurance the Registrant's customers and potential
customers will not be targeted by these or other providers in the future.
Additional pricing pressure may come from IP transport, which is a developing
use of packet-switched technology that can transmit voice communications at a
cost that may be below that of traditional circuit-switched long distance
service. While IP transport is not yet available in all areas, requires the
dialing of additional digits, and generally produces sound quality inferior to
traditional long distance service, it could eventually be perceived as a
substitute for traditional long distance service and put pricing pressure on
long distance rates. Any reduction in long distance prices may have a material
adverse effect on the Registrant's business, financial condition and results of
operations.
Some of the Registrant's principal competitors are also major suppliers
of services to the Registrant. The Registrant both links its switching equipment
with transmission facilities and services purchased or leased from these
suppliers, and also resells services obtained from these suppliers. There can be
no assurance that these suppliers will continue to offer services to the
Registrant at competitive rates or on attractive terms, if at all, and any
failure to do so could have a material adverse effect on the Registrant.
7
<PAGE>
LOCAL EXCHANGE MARKET
Under the 1996 Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. In local
telecommunication markets, the Registrant's primary competitor would be the ILEC
serving each geographic area. ILECs are established providers of local telephone
services to all or virtually all telephone subscribers within their respective
service areas. ILECs also have long-standing relationships with regulatory
authorities at the federal and state levels. While recent FCC administrative
decisions and initiatives provide increased business opportunities to voice,
data and Internet-service providers, they also provide the ILECs with increased
pricing flexibility for their private line, special access and switched access
services. In addition, with respect to competitive access services, the FCC
recently proposed a rule which would provide for increased ILEC pricing
flexibility and deregulation for such access services, either automatically or
after certain competitive levels are reached. If the ILECs are allowed
additional flexibility by regulators to offer discounts to large customers
through contract tariffs, decide to engage in aggressive volume and term
discount pricing practices for their customers, or seek to charge competitors
excessive fees for interconnection to their networks, the revenue of competitors
to the ILECs could be materially adversely affected. If future regulatory
decisions afford the ILECs increased access services, pricing flexibility or
other regulatory relief, such decisions could also have a material adverse
affect on competitors to the ILECs.
The Registrant also would face competition or prospective competition
in local markets from other carriers, many of which have significantly greater
financial resources than the Registrant. For example, the Tier I providers have
begun to offer local telecommunications services in major domestic markets using
their own facilities or by resale of the ILECs' or other providers' services. In
addition to these long-distance service providers, entities which currently
offer or are potentially capable of offering local switched services include
companies which have previously operated as Competitive Access Provider ("CAP"),
cable television companies, electric utilities, microwave carriers, wireless
telephone system operators, and large customers that build private networks.
These entities, upon entering into appropriate interconnection agreements or
resale agreements with ILECs, could offer single-source local and long distance
services, similar to those offered or proposed to be offered by the Registrant.
YEAR 2000 MATTERS
-----------------
In the Registrant's previous filings with the Securities and Exchange Commission
on Forms 10-Q, 10-K and 10K/A, extensive descriptions of the Registrant's Year
2000 (Y2K) initiatives were presented. Nothing has come to the Registrant's
attention that would cause it to believe that its Y2K compliance effort was not
successful. While the Registrant will continue to monitor for Y2K related
problems, to date no significant Y2K issues have been encountered and the
Registrant does not currently anticipate incurring additional expenses to
address Y2K related issues.
SEASONAL NATURE OF BUSINESS
Registrant's business is not seasonal.
PATENTS, TRADEMARKS, LICENSES, ETC.
Registrant does not hold any material patents, franchises or
concessions.
GOVERNMENT REGULATIONS
----------------------
OVERVIEW
The Registrant's services are subject to regulation by federal, state,
and local governmental agencies. The FCC exercises jurisdiction over all
facilities and services of telecommunications common carriers to the extent
those facilities are used to provide, originate or terminate interstate or
international communications. State regulatory agencies retain jurisdiction over
carriers' facilities and services to the extent they are used to originate or
terminate intrastate communications. Municipalities and other local government
agencies may require carriers to obtain licenses or franchises regulating use of
public rights-of-way necessary to install and operate their networks. The
networks are also subject to numerous local regulations such as building codes,
franchises, and rights of way licensing requirements. Many of the regulations
issued by these regulatory bodies may be subject to judicial review, the results
of which the Registrant is unable to predict.
FEDERAL REGULATIONS - THE 1996 ACT
Statutory Requirements. The 1996 Act requires all Local Exchange
Carriers ("LECs") (including Incumbent Local Exchange Carriers "ILECs" and
Competitive Local Exchange Carriers "CLECs") (i) not to prohibit or unduly
restrict resale of their services; (ii) to provide local number portability;
(iii) to provide dialing parity and nondiscriminatory access to telephone
numbers, operator services, directory assistance, and directory listings; (iv)
to afford access to poles, ducts, conduits, and rights-of-way; and (v) to
establish reciprocal compensation
8
<PAGE>
arrangements for the transport and termination of local telecommunications
traffic. It also requires ILECs to negotiate local interconnection agreements in
good faith and to provide interconnection (a) for the transmission and routing
of telephone exchange service and exchange access, (b) at any technically
feasible point within the ILEC's network, (c) which is at least equal in quality
to that provided by the ILEC to itself, its affiliates, or any other party to
which the ILEC provides interconnection, and (d) at rates and terms and
conditions which are just, reasonable and nondiscriminatory. ILECs also are
required under the 1996 Act to provide nondiscriminatory access to network
elements on an unbundled basis at any technically feasible point, to offer their
local telephone services for resale at wholesale rates, and to facilitate
collocation of equipment necessary for competitors to interconnect with or
access Unbundled Network Elements ("UNEs").
The 1996 Act also eliminates the existing AT&T antitrust consent
decree, which barred the provision of long distance services and manufacturing
by the Regional Bell Operating Companies (RBOCs). In addition, the 1996 Act
requires RBOCs to comply with certain safeguards and offer interconnection which
satisfies a prescribed 14-point competitive checklist before RBOCs are permitted
to provide in-region inter-LATA services. These safeguards are designed to
ensure that the RBOC's competitors have access to local exchange and exchange
access services on nondiscriminatory terms and that the subscribers of regulated
non-competitive RBOC services do not subsidize their provision of competitive
services. The safeguards are also intended to promote competition by preventing
RBOCs from using their market power in local exchange services to obtain an
anti-competitive advantage in the provision of other services. RBOCs have the
ability to provide out-of-region long-distance services and, if they obtain
authorization and under prescribed circumstances, may provide additional
in-region long-distance services. In December 1999, the FCC granted Bell
Atlantic's application to offer in-region long distance services in New York,
marking the first time since the breakup of AT&T that an RBOC has been able to
provide its customers with both local and long distance service.
The 1996 Act also granted important regulatory relief to industry
segments which compete with CLECs. ILECs were given substantial new pricing
flexibility. RBOCs were also granted new rights to provide certain cable TV
services. Inter Exchange Carriers ("IXCs") were permitted to construct their own
local facilities and/or resell local services. State laws may no longer require
CATVs to obtain a franchise before offering telecommunications services nor
permit CATVs' franchise fees to be based on their telecommunications revenue. In
addition, under the 1996 Act all utility holding companies are permitted to
diversify into telecommunications services through separate subsidiaries.
FCC Rules Implementing the Local Competition Provisions of the 1996
Act. In August 1996, the FCC released a First Report and Order, a Second Report
and Order and a Memorandum Opinion and Order (combined, the "Interconnection
Orders") which established a framework of minimum, national rules enabling state
Public Utility Commissions ("PUCs") and Public Service Commissions ("PSCs"), and
the FCC to begin implementing many of the local competition provisions of the
1996 Act. In its Interconnection Orders, the FCC prescribed certain minimum
points of interconnection necessary to permit competing carriers to choose the
most efficient points at which to interconnect with the ILECs' networks. The FCC
also adopted a minimum list of UNEs that ILECs must make available to
competitors upon request and a methodology for states to use in establishing
rates for interconnection and the purchase of UNEs. The FCC also adopted a
methodology for States to use when applying the 1996 Act "avoided cost standard"
for setting wholesale prices with respect to retail services.
The U.S. Supreme Court affirmed the authority of the FCC to establish
rules governing interconnection. We believe that additional disputes regarding
interconnection issues and other related FCC actions are likely. In particular,
the Supreme Court remanded to the FCC issues regarding what UNEs the FCC will
require ILECs to make available to competitors. In November 1999, the FCC
released a decision modifying the list of UNEs which all ILECs must offer to
other carriers. The Eighth Circuit decisions and their reversal by the Supreme
Court continue to cause uncertainty about the rules governing the pricing, terms
and conditions of interconnection agreements. The Supreme Court's ruling and
further proceedings on remand (either at the Eighth Circuit or the FCC) may
affect the scope of the PUCs' and PSCs' authority to conduct arbitration
proceedings or to implement or enforce interconnection agreements. The ruling
could also result in new or additional rules being promulgated by the FCC. Given
the ongoing uncertainty surrounding the effect of the Eighth Circuit decisions
and the recent decision of the Supreme Court reversing them, the Registrant may
not be able to obtain or enforce interconnection terms acceptable to it or that
are consistent with its business plans.
OTHER FEDERAL REGULATIONS
In general, the FCC has a policy of encouraging the entry of new
competitors in the telecommunications industry and preventing anti-competitive
practices. Therefore, the FCC has established different levels of regulation for
dominant carriers and non-dominant carriers. For purposes of domestic common
carrier telecommunications regulation, large ILECs are currently considered
dominant carriers, while CLECs are considered non-dominant carriers.
TARIFFS. As a non-dominant carrier, the Registrant may install and
operate facilities for the transmission of domestic interstate
communications without prior FCC authorization. Services of
non-dominant carriers have been subject to relatively limited
regulation by the FCC, primarily consisting of the filing of
tariffs and periodic reports. However, non-dominant carriers like
the
9
<PAGE>
Registrant must offer interstate services on a nondiscriminatory
basis, at just and reasonable rates, and remain subject to FCC
complaint procedures. With the exception of informational tariffs
for operator-assisted services and tariffs for interexchange
casual calling services, the FCC has ruled that IXCs must cancel
their tariffs for domestic interstate interexchange services.
Tariffs remain required for international services. Pursuant to
these FCC requirements, the Registrant has filed and maintains
tariffs for its interstate services with the FCC. All of the
interstate access and retail "basis" services (as defined by the
FCC) provided by the Registrant are described therein. "Enhanced"
services (as defined by the FCC) need not be tariffed. The
Registrant believes that its proposed enhanced voice and Internet
services are "enhanced" services which need not be tariffed.
However, the FCC is reexamining the "enhanced" definition as it
relates to IP transport and the Registrant cannot predict whether
the FCC will change the classification of such services.
INTERNATIONAL SERVICES. Non-dominant carriers such as the
Registrant are required to obtain FCC authorization pursuant to
Section 214 of the Communications Act and file tariffs before
providing international communication services. The Registrant has
obtained authority from the FCC to engage in business as a resale
and facilities-based international carrier to provide voice and
data communications services between United States and all foreign
points.
ILEC PRICE CAP REGULATION REFORM. In 1991, the FCC replaced
traditional rate of return regulation for large ILECs with price
cap regulation. Under price caps, ILECs can raise prices for
certain services by only a small percentage each year. In
addition, there are constraints on the pricing of ILEC services
which are competitive with those of CLECs. In September 1995, the
FCC proposed a three-stage plan which would substantially reduce
ILEC price cap regulation as local markets become increasingly
competitive and, ultimately, would result in granting ILECs
nondominant status. Adoption of the FCC's proposal to reduce
significantly its regulation of ILEC pricing would significantly
enhance the ability of ILECs to compete against the Registrant and
could have a material adverse effect on the Registrant. The FCC
released an order in December, 1996 that adopted certain of these
proposals, including the elimination of the lower service band
index limits on price reductions within the access service
category. The FCC's December 1996 order also eased the
requirements necessary for the introduction of new services by
ILECs. In May, 1997, the FCC took further action updating and
reforming its price cap plan for the ILECs. Among other things,
the changes require price cap LECs to reduce their price cap
indices by 6.5 percent annually, less an adjustment for inflation.
The FCC also eliminated rules that require ILECs earning more than
certain specified rates of return to "share" portions of the
excess with their access customers during the next year in the
form of lower access rates. In August, 1999, the FCC again took
action designed to grant greater flexibility to price cap LECs as
competition develops. These reforms should facilitate the removal
of services from price cap regulation as competition develops in
the marketplace. The order granted immediate pricing flexibility
to price cap LECs in the form of streamlined introduction of new
services, geographic deaveraging of rates for services in the
trunking basket, and removal, upon implementation of toll dialing
parity, of certain interstate interexchange services from price
cap regulation. These actions could have a significant impact on
the interstate access prices charged by the ILECs with which the
Registrant expects to compete.
ACCESS CHARGES. Over the past several years, the FCC has granted
ILECs significant flexibility in their pricing of interstate
special and switched access services. Under this pricing scheme,
ILECs may establish pricing zones based on access traffic density
and charge different prices for each zone. The Registrant
anticipates that this pricing flexibility should result in ILECs
lowering their prices in high traffic density areas, the probable
area of competition with the Registrant. The Registrant also
anticipates that the FCC will grant ILECs increasing pricing
flexibility as the number of interconnections and competitors
increases. In May, 1997, the FCC took action to reform the current
interstate access charge system. The FCC adopted an order which
makes various reforms to existing rate structures for interstate
access designed to move access charges, over time, to more
economically efficient rate levels and structures. The FCC
recently granted LECs additional pricing flexibility. As such, the
carriers may offer volume discounts that may benefit larger long
distance carriers.
The FCC has also implemented changes in interstate access rules
that result in restructuring of the access charge system and
changes in access charge rate levels. As of January 1998, access
charges incurred by the Registrant are being passed on to end
users. In May 1999, the U.S. Court of Appeals (D.C. Circuit) sent
the access rate formula back to the FCC for further explanation
regarding how certain factors were calculated. These and related
actions may change access rates. If the formula is upheld, and
access rates are reduced, the result will be a lower cost of
providing long distance service, especially to business customers.
The impact of these new changes will not be known until they are
fully implemented over the next several years. In a related
proceeding, the FCC has adopted changes to the methodology by
which access has been used in part to
10
<PAGE>
subsidize universal telephone service and other public policy
goals. Telecommunications providers like us pay fees calculated as
a percentage of revenue to support these goals. The full
implications of these changes remains uncertain and subject to
change.
PICC. As part of Access Reform mandated in the Telecommunications
Act of 1996, beginning in 1998 local phone companies were
permitted to assess the Pre-subscribed Interexchange Carrier
Charge, also known as "PICC." The "PICC" is a monthly per line
cost charged by the local telephone company to each long distance
carrier for every customer phone line that is pre-subscribed to
that carrier. These charges are passed on to the end users.
UNIVERSAL SERVICE REFORM. In May 1997, the FCC released an order
which reforms the current system of interstate universal service
support and implements the universal service provisions of the
1996 Act. The FCC established a set of policies and rules designed
to ensure that low-income consumers and consumers who live in
rural, insular and high-cost areas receive a defined set of local
telecommunications services at affordable rates. This was to be
accomplished in part through expansion of direct consumer subsidy
programs and in part by ensuring that rural, small and high-cost
LECs continue to receive universal service subsidy support. The
FCC also created new programs to subsidize connection of eligible
schools, libraries and rural health care providers to
telecommunications networks. These programs were to be funded by
assessment of eligible revenue of nearly all providers of
interstate telecommunications carriers, including the Registrant.
The Registrant, like other telecommunications carriers providing
interstate telecommunications services, is required to contribute
a portion of its end-user telecommunications revenue to fund
universal service programs. These contributions became due
beginning in 1998 for all providers of interstate
telecommunications services. Such contributions were to be
assessed based on intrastate, interstate and international end
user telecommunications revenue. Contribution factors vary
quarterly and carriers, including the Registrant, are billed each
month. In addition, many state regulatory agencies have instituted
proceedings to revise state universal fund contribution
requirements, which will vary from state to state. Recently, the
U.S. Court of Appeals for the Fifth Circuit rejected the FCC's
effort to base contributions in part on intrastate revenues. The
FCC's universal service program may be altered as a result of
appeals, agency reconsiderations of its actions, or future
Congressional legislation.
Pursuant to the Universal Service Order, all carriers are required
to submit a Universal Service Fund worksheet. The Registrant has
filed its Universal Service Fund worksheet. The amounts remitted
to the Universal Service Fund may be billed to the Registrant's
customers. If the Registrant does not bill these amounts to its
customers, its profit margin may be less than if it had elected to
do so. However, if the Registrant elects to bill these amounts to
its customers, customers may reduce their use of the Registrant's
services, or elect to use the services provided by the
Registrant's competitors, which may have a material adverse effect
upon the Registrant's business, financial condition, or results of
operations. The Registrant is eligible to qualify as a recipient
of universal service support if it elects to provide
facilities-based service to areas designated for universal service
support and if it complies with federal and state regulatory
requirements to be an eligible telecommunications carrier.
In October 1999, the FCC adopted a new high-cost universal service
support mechanism for non-rural carriers. The new mechanism is
based on the forward-looking costs of providing supported services
as determined by the Commission's cost model. The forward-looking
support mechanism provides support to non-rural carriers in those
states that have a statewide average forward-looking cost per line
greater than the national benchmark, which is set at 135 percent
of the national average forward-looking cost per line. The FCC's
decisions regarding universal service could have a significant
impact on future operations of the Registrant.
COLLOCATION. In March 1999, the FCC released its Collocation Order
which requires ILECs to permit CLECs to collocate any equipment
used for interconnection or access to unbundled network elements
even if that equipment includes switching or enhanced service
functions. Among other things, the Collocation Order also
prohibits ILECs from placing any limits on the use of switching or
enhanced features for collocated equipment, and requires ILECs to
make cageless collocation available and permit CLECs to construct
their own cross-connect facilities.
In March 2000, the U.S. Court of Appeals for the District of
Columbia Circuit vacated limited portions of the Collocation
Order, holding certain definitions contained in FCC rules were
impermissibly broad. The court remanded the Collocation Order in
part for further FCC consideration of these issues. The FCC will
be instituting proceedings to comply with the court's remand.
LINE SHARING. In November 1999, the FCC adopted a new order
requiring ILECs to provide line sharing, which will allow CLECs to
offer data services over the same line the consumer uses for voice
11
<PAGE>
services without the CLECs being required to offer the voice
services. State commissions have been authorized to establish the
prices to the CLECs for such services. The decision has been
appealed.
State Regulation
The Registrant believes that most, if not all, states in which it may
operate as a local telecommunications provider, require certification
or other authorization to offer intrastate services. Many of the states
in which the Registrant may operate are in the process of addressing
issues relating to the regulation of CLECs.
In some states, existing state statutes, regulations or regulatory
policy may preclude some or all forms of local service competition. However,
Section 253 of the 1996 Act prohibits states and localities from adopting or
imposing any legal requirement which may prohibit, or have the effect of
prohibiting, the ability of any entity to provide any interstate or intrastate
telecommunications service. The FCC has the authority to preempt any such state
or local requirements to the extent necessary to enforce the 1996 Act's open
market entry requirements. States and localities may continue to regulate the
provision of interstate communications services and require carriers to obtain
certificates or licenses before providing service, if such requirements do not
constitute prohibitive barriers to market entry.
Some states in which the Registrant operates are considering
legislation which could impede efforts by new entrants in the local services
market to compete effectively with ILECs. For example, some state PSCs and PUCs
are currently considering actions to preserve universal service and promote the
public interest. Such actions may impose conditions on the certificate issued to
an operating Registrant which would require it to offer service on a
geographically widespread basis through (i) the construction of facilities to
serve all residents and business customers in such areas, (ii) the acquisition
from other carriers of network facilities required to provide such service, or
(iii) the resale of other carriers' services. The Registrant believes that state
PSCs and PUCs have limited authority to impose such requirements under the 1996
Act. The imposition of such conditions by state PUCs, however, could increase
the cost to operating companies of providing local exchange services or
otherwise affect an operating company's flexibility to offer services.
The Registrant has intrastate authority for the provision of resold
interexchange services through certification or registration in every state
where it is required. The Registrant has CLEC certifications pending in several
states. There can be no assurance that the Registrant will receive the
authorizations it may seek in the future to the extent it expands into other
states or seeks to provide additional services. In most states, the Registrant
is required to file tariffs setting forth the terms, conditions and prices for
services which are classified as intrastate.
Local Interconnection. The 1996 Act imposes a duty upon all ILECs to
negotiate in good faith with potential interconnectors to provide
interconnection to the ILEC networks, exchange local traffic, make UNEs
available and permit resale of most local services. If negotiations do not
succeed, the Registrant has a right to seek state PUC or PSC arbitration of any
unresolved issues. The Registrant has begun the process of negotiating
interconnection arrangements in several states in its targeted region.
Arbitration decisions involving interconnection arrangements in several states
have been challenged in lawsuits filed in U.S. District Court by the affected
ILECs
COMPLIANCE WITH ENVIRONMENTAL PROVISIONS
Registrant believes that it complies in all material respects with
current pertinent federal, state, and local provisions relating to the
protection of the environment and does not believe that continued compliance
would require any material capital expenditure.
PERSONNEL
---------
As of the date of this Report, the Registrant and its subsidiaries
employed 243 full-time and part-time employees in its long distance
telecommunication service, of whom 84 were engaged in sales activities, 22 in
customer service and support, 54 in technical and field services, 25 in data
processing, and 58 in general and administrative activities. The Registrant also
utilizes the services of approximately 220 independent sales agents. The
Registrant considers its relations with its employees to be satisfactory.
ITEM 2. Properties
----------
On November 15, 1993, and December 28, 1993, the Registrant entered
into leases for an aggregate of approximately 3,500 square feet of space at 744
Broad Street, Newark, New Jersey, for its upgraded switching equipment. The
lease ran from January 1, 1994 through December 31, 1998, with an option to
renew the lease through August 31, 2002, which has been exercised. The annual
rental of $54,720 also requires the tenant to pay a proportionate share of any
increase in the "Consumer Price Index", U. S. City Average over the base year.
12
<PAGE>
On December 1, 1993, the Registrant entered into a five-year lease,
which expired on November 30, 1998, for approximately 20,000 square feet of
space from a partnership in which two of the partners were directors and major
shareholders of the Registrant. Both of the partners are no longer directors.
The lease was amended on August 31, 1999, whereby the space was reduced to
12,295 square feet at an annual rate of $47,980. The lease provides a 120 day
written notice by either party to terminate. This space is used for warehousing
and office space for the technical support employees. The lease requires the
payment of any increase in operating expenses and real estate taxes over the
base year.
On February 22, 1994, the Registrant entered into a lease, subsequently
modified on April 15, 1994, for approximately 17,700 square feet of space at 150
Clove Road, Little Falls, New Jersey to be used as sales, executive and
administrative offices. The lease provided for a rent holiday until July 1995,
after which the annual rental would be approximately $360,000. The lease is for
five years and ten months and has been amended by a second lease modification
agreement dated February 9, 1995 whereby the Registrant leased approximately
6,700 additional square feet of space at the same location at an additional
annual rental of $121,707 for the first four years and $138,154 for the next
year and two months. The modified agreement also extended the term of the
existing lease for an additional two years to August 14, 2002 at a then annual
rental of $563,063. The lease requires the payment of the tenant's proportionate
share of operating expenses and real estate taxes increased over the base year.
There is an option for renewal, which can be renewed twice for five years each.
On January 30, 1997, the Registrant entered into a third modification
of its lease for approximately 16,640 square feet of additional office space at
its existing facility at 150 Clove Road, Little Falls, New Jersey. The annual
rental on the additional space was $357,760 per annum from July 1, 1997 through
February 14, 1998, is $366,800 per annum from February 15, 1998 through August
14, 2000, and will be $382,720 per annum from August 15, 2000 through August 14,
2002. In addition, the Registrant is obligated for its proportionate share of
increases in real estate taxes and operating expenses over the base year. There
is an option for renewal, which provides that the lease can be renewed twice for
five years each upon nine months notice.
On November 1, 1996, the Registrant entered into a lease for
approximately 8,300 square feet of space at 40 Rector Street, New York City, New
York, to be used for a second switching facility. The term of the lease is for
fifteen years and ten months from the date of commencement, which was March 1,
1997. Rental payments are $133,184 per annum for the first five years after
commencement, $166,480 per annum for the next five years, and $183,128 per annum
for five years and ten months. The lease requires the payment of the tenant's
proportional share of increased operating expenses and real estate taxes over
the base year.
On November 8, 1996, a subsidiary of the Registrant entered into a
lease for approximately 2,300 square feet of office space in New York City, New
York at an annual rental of approximately $75,900. The lease commenced February
1, 1997 and is for sixty three (63) months. The lease requires the payment of
the tenant's proportionate share of increased operating expenses and real estate
taxes over the base year.
On February 6, 1998, the Registrant entered into a lease for
approximately 5,000 square feet of space at 28 W. Flagler Street, Miami,
Florida. The term of the lease is 15 years, commencing February 1, 1998. The
annual rental is approximately $106,618, with an annual adjustment based on the
Revised Urban Wage Earners and Clerical Workers Index, capped at a maximum of 3%
increase over the prior years rental payment. In addition, the Registrant is
liable for its proportionate share of increases in real estate taxes and
operating expenses over the base year. The Registrant sublet this space on
January 1, 2000 for the balance of its term, to another tenant at an annual rate
of approximately $106,618, subject to adjustments.
On September 1, 1998, the Registrant entered into a five year lease,
commencing September 1, 1998 leasing 3,008 square feet of space at 500 Cypress
Creek Road, Fort Lauderdale, Florida. Rental payments were $48,128 per annum
from September 1, 1998 to August 31, 1999, $50,554 from September 1, 1999 to
August 31, 2000, $53,061 from September 1, 2000 to August 31, 2001, $55,708 from
September 1, 2001 to August 31, 2002 and $58,506 from September 1, 2002 to
August 31, 2003. The lease requires the payment of the tenant's proportional
share of increased operating expenses and real estate taxes over the base year.
In January, 2000 the Registrant entered into a modification of the lease whereby
the space was reduced to 1,200 square feet. Rental payments have been modified
to be $20,160 from February 15, 2000 to February 14, 2001, $21,168 from February
15, 2001 to February 14, 2002, $22,224 from February 15, 2002 to February 14,
2003 and $23,340 from February 15, 2003 to February 14, 2004. The Registrant has
recently sublet this space to another tenant.
On August 20, 1999, the Registrant entered into a three year lease,
commencing August 20, 1999 leasing 2,770 square feet of space at 20 Crossways
Park North, Woodbury, New York. Rental payments were $62,235 per annum from
October 1, 1999 to August 31, 2000, and are $64,818 from September 1, 2000 to
August 31, 2001 and $67,422 from September 1, 2001 to August 31, 2002. The lease
requires the payment of the tenant's proportional share of increased operating
expenses and real estate taxes over the base year.
On November 17, 1999, the Registrant entered into a three year lease,
commencing November 17, 1999 leasing 2,186 square feet of space at One Landmark
Square, Stamford, Connecticut. Rental payments are $50,278 per annum from
November 17,1999 to November 16,2000, are $51,371 from November 17,2000 to
November 16, 2001, and $52,464 from November 17, 2000 to November 16,2002. There
is an option to renew once for three
13
<PAGE>
years, with nine months prior written notice. The lease requires the payment of
the tenant's proportional share of increased operating expenses and real estate
taxes over the base year.
On October 11, 1999, the Registrant entered into a three year lease,
commencing October 11,1999 leasing 1,926 square feet of space at 1810 Chapel
Avenue West, Cherry Hill, New Jersey. Rental payments are $38,520 per annum from
October 11,1999 to October 31,2002. There is an option to renew once for three
years, with nine months prior written notice. The lease requires the payment of
the tenant's proportional share of increased operating expenses and real estate
taxes over the base year.
Certain of the leases contain options to renew for various periods at
rentals to be determined by the then prevailing fair market rental rates for
similar real estate in the area.
ITEM 3. Pending Legal Proceedings
-------------------------
The Registrant brought suit in Civil Court of the City of New York,
County of New York against a customer, Community Network Services, Inc. d/b/a
Telecommunity, for the recovery of an account receivable of $45,346 plus
interest, attorneys fees and damages. Defendant asserted a counter claim against
the Registrant in the Supreme Court of the State of New York, County of New York
alleging breach of contract and seeks compensatory and punitive damages of
$1,300,000. The Registrant believes the counter suit is without merit and is
vigorously defending this action.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of Fiscal 2000.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
14
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters
------------------------------------------------------------------------
COMMON STOCK
The Registrant's authorized capital stock consists solely of 20,000,000
shares of Common Stock. An increase in the number of authorized shares to
50,000,000 was approved at the Shareholder's Meeting held on February 23, 2000.
Holders of the Registrant's Common Stock are entitled to receive such dividends,
if any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. Each holder of Common Stock is
entitled to one vote for each share held. There is no right to cumulative
voting. Upon liquidation, dissolution, or winding up of the Registrant, the
holders of Common Stock are entitled to receive a pro rata share of all
remaining assets available for distribution to stockholders. The Common Stock
has no pre-emptive or other subscription rights, and there are no conversion or
redemption rights with respect to such shares.
Effective on July 1, 1996, the Registrant distributed 1,873,420
shares of Common Stock in connection with a 2-for-1 stock split of all
outstanding shares as of June 15, 1996. Effective on July 15, 1998, the
Registrant distributed 4,207,887 shares of Common Stock in connection with a
2-for-1 stock split of all outstanding shares as of June 30, 1998. As of the
date of this report, there were 9,489,324 shares of Common Stock issued and
outstanding, inclusive of 600,000 shares held by the Registrant's ESOP which the
Registrant is seeking to cancel, held by 740 persons, as reported by the
Registrant's transfer agent.
PRICE RANGE OF THE COMMON STOCK
The Registrant's Common Stock is traded in the over-the-counter market
on the NASDAQ National Market System under the Symbol TELU. The following table
sets forth, for the quarterly fiscal periods indicated, the high and low closing
sales prices for the Registrant's Common Stock in such market, as reported by
the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
FISCAL 2000 HIGH LOW
----------- ---- ---
<S> <C> <C>
February 1 thru April 30 19 15/16 16
May 1 thru July 31 18 3/4 11 1/2
August 1 thru October 31 14 5/8 10 15/16
November 1 thru January 31, 2000 15 3/4 12
FISCAL 1999
-----------
February 1 thru April 30 21 3/4 14 5/8
May 1 thru July 31 24 1/2 18 3/4
August 1 thru October 31 23 14 3/4
November 1 thru January 31,1999 22 14 7/16
</TABLE>
Registrant has not paid or declared any cash dividends during the past
two fiscal years and does not anticipate paying any in the foreseeable
future.
15
<PAGE>
ITEM 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Year ended January 31,
---------------------------------------------------------------------------
RESULTS OF OPERATIONS: 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 139,760 $ 137,283 $ 123,286 $ 89,326 $ 49,873
(Loss) earnings from
continuing operations $ (9,414) $ (3,418) $ 1,094 $ 492 1,555
Net (Loss) earnings $ (9,414) $ (3,418) $ 1,094 $ 492 $ 1,555
Weighted average
common shares
outstanding (a)
Basic 7,069 6,818 6,213 5,883 5,818
Diluted 7,069 6,818 6,842 6,739 6,526
(Loss) earnings per common and
common equivalent shares
Basic (Loss) earnings per share $ (1.33) $ (0.50) $ 0.18 $ 0.08 $ 0.27
Diluted (Loss) earnings per
share $ (1.33) $ (0.50) $ 0.16 $ 0.07 $ 0.24
Cash dividends per
common share None None None None None
Additions to property
& equipment $ 3,019 $ 4,727 $ 3,268 $ 6,397 $ 3,028
Depreciation and
amortization $ 2,985 $ 2,785 $ 2,028 $ 1,382 $ 1,026
FINANCIAL POSITION:
Working Capital $ 1,222 $ 1,261 $ 7,936 $ 5,419 $ 4,799
Property and equipment - net $ 13,317 $ 14,473 $ 12,406 $ 11,066 $ 6,011
Total assets $ 45,184 $ 45,692 $ 40,245 $ 31,029 $ 20,520
Long-term debt $ 997 $ 1,566 $ 2,092 $ 2,940 $ --
Shareholders' Equity $ 14,007 $ 16,442 $ 18,598 $ 14,772 $ 10,700
Common shares
outstanding (a) 7,944 7,605 6,679 5,891 5,854
</TABLE>
(a) All per share amounts have been restated to reflect the 2 for 1 stock split
distributed July 1, 1996, and the 2 for 1 stock split distributed on
July 15, 1998.
16
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
----------------------
The following discussion is presented to assist in assessing the
changes in financial condition and performance of the Registrant for the fiscal
year ended January 1, 1998 (Fiscal 1998), January 31, 1999 (Fiscal 1999) and
January 31, 2000 (Fiscal 2000). The following information should be read in
conjunction with the financial statements and related notes and other detailed
information regarding the Registrant included elsewhere in this report and
should not be construed to imply management's belief that the results, causes,
or trends presented will necessarily continue in the future. Certain information
contained below and elsewhere in this , including information with respect to
the Registrant's plans and strategy for its business, are "forward-looking
statements."
OVERVIEW
The Registrant is a leading regional facilities-based ICP servicing
both the commercial and wholesale marketplace. Total-Tel is an established
company that has been in existence since 1959. The Registrant began offering
interexchange telecommunications services in January, 1983. Gross revenues have
increased from approximately $50 million in the Fiscal year ended January 31,
1996 (Fiscal 1996) to approximately $140 million for Fiscal 2000. This growth
has been achieved through internal efforts, and not as a result of acquisitions.
The Registrant currently owns and operates two long-distance switches,
in New York City and Newark, New Jersey. The Registrant also has a NOC that
monitors and controls its network. The Registrant sells its services through
three sales groups: a field retail sales force, independent agent sales force,
and a wholesale sales team.
The Registrant's principal expenses consist of cost of sales and
selling, general and administrative (S,G&A) expenses. Cost of sales consist of
access fees, line installation expenses, switch expenses, NOC expenses,
depreciation, transport expenses, and local and long-distance expenses. S, G & A
expenses are comprised of selling and marketing costs, and general and
administrative costs.
RESULTS OF OPERATIONS
---------------------
FISCAL 2000 AS COMPARED TO FISCAL 1999
--------------------------------------
REVENUES
Net sales of telecommunications services and systems for the fiscal
year ended January 31, 2000 were approximately $139,760,000, an increase of
approximately $2,478,000, or 1.8% over the approximately $137,283,000 of net
sales in Fiscal 1999. These revenues were comprised of retail sales of
approximately $69,023,000 and wholesales revenues of approximately $70,737,000.
The Registrant billed approximately 1,242,942,000 minutes in Fiscal 2000 as
compared to approximately 978,971,000 minutes in Fiscal 1999, an increase of
263,971,000 minutes or 27.0%. Due to the competitive nature of the long distance
communications industry, the average price for a minute of both retail and
wholesale traffic continued to decrease. In Fiscal 2000, this decrease was
approximately 20%.
Net retail sales for Fiscal 2000 were approximately $69,023,000, a
decrease of approximately $3,533,000, or 4.9%, over the approximately
$72,556,000 billed in Fiscal 1999. Retail billed minutes were approximately
680,714,000, an increase of approximately 51,934,000 minutes, or 8.3%, over the
retail minutes of approximately 628,780,000 billed in Fiscal 1999. The average
price per minute has decreased approximately 12.2% as the industry continues to
experience decreased price per minute of usage.
Net wholesale (carrier) sales for Fiscal 2000 were approximately
$70,737,000, an increase of approximately $6,010,000, or 9.3%, over the
approximately $64,727,000 billed in Fiscal 1999. Billed wholesale minutes
amounted to approximately 562,227,000, an increase of approximately 212,036,000
minutes, or 60.5%, over the billed wholesale minutes of approximately
350,191,000 billed in Fiscal 1999. The sales mix continues to move toward higher
priced international traffic, from the lower priced domestic traffic.
International carrier traffic increased 184,428,000 minutes or approximately
94.5% to approximately 379,692,000 minutes. Domestic minutes increased
approximately 27,608,000 or approximately 17.8% to approximately 182,535,000
minutes. The wholesale price per minute fell 32.2% due to the continuing
competition in the industry, a trend which the Registrant believes will
continue.
COST OF SALES
Cost of sales for Fiscal 2000 were approximately $112,794,000, an
increase of approximately $1,294,000, or 1.2%, over the approximately
$111,500,000 of cost of sales in Fiscal 1999. Included in cost of sales are
direct line costs, usage charges and the direct costs of the Registrant's
switches and Network Operating Center
17
<PAGE>
("NOC"). The increase in cost of sales was primarily due to the increased amount
of retail sales minute volume, of approximately $3,824,000 and an increase in
wholesale cost of sales of approximately $3,500,000 offset by cost reductions
due to increased network efficiencies and competitive pricing of approximately
$5,240,000. The net increase in direct line and usage costs was offset by
reductions in the operating expenses of the switches and NOC: the close out of
the Miami switch, a decrease of approximately $227,000; decrease in salary,
wages and fringe benefits of approximately $525,000; decreased recruiting
expense of approximately $74,000 and decreased consulting expenses of
approximately $127,000 were offset, in part, by increases in equipment repairs
of approximately $80,000 and general operating expenses of approximately
$82,000.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses for Fiscal 2000 decreased
to approximately $27,990,000, a decrease of approximately $922,000, or 3.2%,
over the approximate $28,912,000 in Fiscal 1999. This decrease was primarily due
to a reduction in legal expenses of approximately $1,517,000 resulting from the
settlement of litigation; a decrease in consulting fees of approximately
$504,000; a decrease in data processing services of approximately $230,000
resulting from bringing the billing system in house; a reduction of travel
expenses of approximately $188,000 and a net decrease in spending on other
expenses such as office expenses, meetings contributions, telephone of
approximately $85,000. These decreases were offset by Increased spending on
salaries and wages of approximately $641,000 for the additional sales staff
needed to compete in the Northeast region; additional salary and wage expense of
approximately $267,000 resulting from an approximate 4.6% salary increases in
Fiscal 2000; increased fringe benefit and payroll taxes of approximately
$125,000 paralleling the increased salaries and wages; additional recruiting
expense of approximately $100,000 spent on hiring new sales and technical
personnel; an increase in depreciation and amortization expense of approximately
$278,000 related to the new ISP equipment and sales offices and additions in the
bad debt provision of approximately $196,000.
RESTRUCTURING EXPENSE
During the fourth quarter of Fiscal 1999, the Company recorded a
restructuring charge of approximately $2,368,000 related to the adoption by the
Company of a formal plan for restructuring its focus of operations. The
restructuring was adopted in an effort to concentrate the Company's efforts on
the Northeastern United States market. Elements of the Company's restructuring
plan included eliminating sales offices in Florida, Atlanta, Georgia, Washington
D.C. and the United Kingdom as well as the Miami switch.
The write downs incurred in connection with the restructuring included
a charge of approximately $1,280,000 associated with the planned disposal of the
Miami switch and switch site, a charge of approximately $723,000 associated with
the termination costs to reduce employee headcount and sales offices. A charge
of approximately $265,000 for the cost associated with the balance on the Fort
Lauderdale lease, and a charge of approximately $100,000 to write off line
installation costs associated with the Florida network. In the fiscal year
ending January 31, 1999, amounts paid included approximately $240,000 for
severance and termination costs. The balance of approximately $2,128,000 was
included on the consolidated balance sheet at January 31, 1999 as accrued
restructuring costs.
For Fiscal 2000, amounts applied against the accrual consisted of
approximately $1,280,000 for the write down of the Miami switch; approximately
$99,000 for the line installation costs; approximately $51,000 for payments made
on the Fort Lauderdale lease; approximately $327,000 for severance payments and
approximately $40,000 for payments made to shut down the U.K. operation.
Approximately $319,000 of the accrual was reversed in the Fiscal 2000. This
amount included an approximately $97,000 reduction in the severance accrual; a
reduction of approximately $20,000 for fringe benefits and an approximately
$202,000 reduction in the accrual on the Fort Lauderdale lease, due to revisions
in the lease.
STOCK COMPENSATION EXPENSE
Stock compensation expenses for Fiscal 2000 decreased to approximately
$204,000, a decrease of approximately $220,000, or 51.9%, from the approximately
$424,000 charged in Fiscal 1999. This decrease is due to the cancellation of
certain shares of Common Stock granted in prior years to employees who were
terminated in Fiscal 2000.
OTHER COMPENSATION
On September 21, 1999, the Registrant entered into an agreement with
Warren Feldman, Chairman of the Board of Directors and a shareholder of the
Registrant. As part of this agreement, a lump sum payment in the then amount of
$900,000 was made to Mr. Feldman in settlement of his employment agreement. The
Registrant paid $650,000 and Mr. Walt Anderson, a major shareholder, paid
$250,000. Mr. Feldman's Employment Agreement was to have been in effect until
December 31, 2001. The Registrant expensed the $900,000 in Fiscal 2000 with the
$250,000 being accounted for as a capital contribution.
Simultaneously, Revision LLC and Mr. Walt Anderson ("Revision/
Anderson") and the Registrant entered into Put Option agreements with Warren
Feldman, Sol Feldman ("the Feldmans") and Leon Genet, ("Genet") a director
of the Registrant. These Put Option agreements allowed the Feldmans and
Genet the right to sell their shares of the Registrant to Revision/Anderson at a
price of $16.00 per share and obligated Revision/Anderson to purchase the
18
<PAGE>
shares during an exercise period beginning on December 11, 1999 and ending on
February 10, 2000. Revision/Anderson purchased a portion of these shares in
January 2000. The Registrant has no obligation to purchase any shares from the
Feldmans or Genet. The closing market price of the Registrant's shares on
September 21, 1999, the date of the agreements, was $12.25, and the total number
of shares covered by the agreements was 1,208,137. Using a binomial valuation
model with an interest rate of 5% and a volatility rate of 50%, the fair value
of the Put Option agreements was determined to be $4.03 per share or $4,870,554.
The Registrant accounted for this non-cash transaction as a charge to expense
and a credit to paid-in capital during Fiscal 2000.
OTHER INCOME AND EXPENSE
Total other income and expense for Fiscal 2000 decreased approximately
$93,000. The components of other income and expense are interest expense,
interest income and other items. Interest income increased approximately $21,000
and interest expense decreased approximately $39,000. This was offset by reduced
other income of approximately $153,000, resulting from the elimination of
certain prepaid calling card activity in Fiscal 1999.
The net loss for Fiscal 2000 of approximately $9,414,000 represents an
increase in net loss of approximately $5,996,000 over the net loss of
approximately $3,418,000 reported in Fiscal 1999. The primary cause for the
additional loss was the other compensation expense of approximately $5,771,000
for the Warren Feldman settlement, of which approximately $5,121,000 was for
non-cash items. An income tax provision caused by a valuation allowance on the
net deferred tax asset increased income tax expense to approximately $2,704,000;
an increase of approximately $5,145,000 over the Fiscal 1999 benefit amount of
$2,441,000. Other income and expense decreased approximately $93,000.This was
offset by an increase in gross margin of approximately $1,184,000; savings in
selling, general and administrative expense of approximately $922,000; the
change in restructuring expense of approximately $2,687,000 and decrease in
stock compensation expense of approximately $220,000. For the foregoing reasons,
a loss per share of $1.33 (basic) was realized in Fiscal 2000, an increase in
the loss of $0.83 per common share (basic and diluted) from the loss per share
(basic and diluted) $0.50 posted in Fiscal 1999.
FISCAL 1999 AS COMPARED TO FISCAL 1998
--------------------------------------
REVENUES
Net sales of telecommunications services and systems for Fiscal 1999
were approximately $137,283,000, an increase of approximately $13,997,000, or
11.4% over the approximately $123,286,000 of net sales in Fiscal 1998. These
revenues were comprised of retail sales of approximately $72,556,000 and
wholesales revenues of approximately $64,727,000. The Registrant billed
approximately 978,971,000 minutes in Fiscal 1999 as compared to approximately
862,479,000 minutes in Fiscal 1998, an increase of 116,492,000 minutes or 13.5%.
Due to the competitive nature of the long distance communications industry, the
average price for a minute of domestic retail traffic continued to decrease. In
Fiscal 1999, this decrease was approximately 4%.
Net retail sales for Fiscal 1999 were approximately $72,556,000, an
increase of approximately $7,251,000, or 11.1%, over the approximately
$65,305,000 billed in Fiscal 1998. Retail billed minutes were approximately
628,780,000, an increase of approximately 64,866,000 minutes, or 11.5%, over the
retail minutes of approximately 564,914,000 billed in Fiscal 1998.
Net wholesale (carrier) sales for Fiscal 1999 were approximately
$64,727,000, an increase of approximately $6,746,000, or 11.6%, over the
approximately $57,981,000 billed in Fiscal 1998. Billed wholesale minutes
amounted to approximately 350,191,000, an increase of approximately 52,625,000
minutes, or 17.7%, over the billed wholesale minutes of approximately
297,566,000 billed in Fiscal 1998. There was a change in the sales mix from the
lower priced domestic traffic to higher priced international traffic.
International carrier traffic increased 86,719,000 minutes or approximately
79.9% to approximately 195,264,000 minutes. Domestic minutes decreased
approximately 34,093,000 or approximately 18.0% to approximately 154,927,000
minutes.
COST OF SALES
Cost of sales for Fiscal 1999 were approximately $111,500,000, an
increase of approximately $12,414,000, or 12.5%, over the approximately
$99,086,000 of cost of sales in Fiscal 1998. Included in cost of sales are
direct line costs, usage charges and the direct costs of the Registrant's
switches and Network Operating Center ("NOC"). The increase in cost of sales was
primarily due to sales volume increases, accounting for approximately
$10,667,000 of the total increase. Cost reductions due to access reform and
gained network efficiencies of approximately $800,000 were offset by the higher
price paid for the change in the carrier sales mix to higher cost wholesale
international traffic of approximately $800,000. The balance of the increase in
cost of sales was due to the addition of the Miami switch, approximately
$392,000; increase in salary, wages and fringe benefits of approximately
$936,000; increased depreciation expense of $444,000; increased recruiting
expense of approximately $102,000; increased consulting expenses of
approximately $127,000; and increases in other operations expenses of
approximately $50,000. These increases were offset by the elimination of the
services department that offered telephone equipment for sale. This saved
approximately $304,000 in costs. The increases
19
<PAGE>
in salaries and wages, recruiting and consulting were the result of the planned
expansion into the national market. As a result of management changes made late
in Fiscal 1999, a planned expansion has been curtailed and the expenses incurred
in Fiscal 1999 have been substantially reduced.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses for Fiscal 1999 increased
to approximately $28,912,000, an increase of approximately $6,829,000, or 30.9%,
over the approximately $22,083,000 in Fiscal 1998. This increase was primarily
due to expenses incurred in anticipation of the planned expansion of Registrant
into new markets and the "Revision" litigation. These expenses were one-time
charges to Registrant, and are not expected to be continued in the next fiscal
year. Among these charges, the legal expense related to the recently settled
"Revision" litigation amounted to approximately $1,700,000. Increased expenses
relating to the expansion plans included the cost of new sales offices and
recruiting costs in Florida, Georgia, Washington D.C., Boston and the United
Kingdom of approximately $895,000; increased consulting fees incurred to rebuild
the infrastructure of the registrant of approximately $506,000; recruiting fees
of approximately $198,000 incurred in hiring additional support staff. Increased
spending in Fiscal 1999 over Fiscal 1998 included increased salaries, wages and
fringe benefits of approximately $717,000; increased depreciation expense of
approximately $156,000; increased building rent of approximately $190,000;
increased utilities, telephone and insurance costs of approximately $122,000; an
increase in annual accounting services of approximately $86,000; increased
advertising and promotion of approximately $615,000; increased commission
expense, related to the increased sales volumes, of approximately $817,000;
increased cost of equipment rentals of approximately $111,000; increased travel
and entertainment expense of approximately $115,000; an increase in the amount
of donations to charitable causes of approximately $70,000: an increase in the
reserve for bad debts of approximately $462,000; and increases in other expenses
of approximately $69,000. Since the end of Fiscal 1999, the Registrant has
curtailed its expansion plans and taken steps to roll back to eliminate most of
the salaried positions created in Fiscal 1999.
RESTRUCTURING EXPENSE
During the fourth quarter of fiscal 1999, the Registrant recorded a
restructuring charge of approximately $2,368,000 related to the adoption by the
Registrant of a formal action plan for restructuring its focus of operations.
The restructuring was adopted in an effort to concentrate the Registrant's
efforts on the Northeastern United States market. Elements of the Registrant's
restructuring plan include eliminating the sales offices in Florida, Atlanta,
Georgia, Washington D.C. and the United Kingdom, as well as the Miami switch.
Asset write downs incurred in connection with the restructuring
included a charge of approximately $1,300,000 associated with the planned
disposal of the Miami switch and switch site, a charge of approximately $703,000
associated with the termination costs to reduce employee headcount and sales
offices, a charge of approximately $265,000 for the cost associated with the
balance of the Fort Lauderdale lease, and a charge of approximately $100,000 to
write off line installation costs associated with the Florida network.
STOCK COMPENSATION EXPENSE
Stock Compensation expenses for Fiscal 1999 decreased to approximately
$424,000, a decrease of approximately $145,000, or 25.5%, from the approximately
$569,000 charged in Fiscal 1998. This decrease is due to the cancellation of
certain shares of Common Stock granted in prior years to employees who were
terminated in the fiscal year ended January 31, 1999.
OTHER INCOME AND EXPENSE
Total other income and expense for Fiscal 1999 decreased to
approximately $62,000, a decrease of approximately $215,000, or 77.6%, from the
approximately $277,000 experienced in Fiscal 1998. Included in other income for
Fiscal 1998 was a one-time gain from insurance proceeds paid upon the death of a
former officer of Registrant. Interest income and interest expense, which are
two of the components included relatively constant from year to year.
Net loss for Fiscal 1999 of approximately $3,418,000 represents a
decrease of approximately $4,512,000 from the net income of approximately
$1,094,000 reported in Fiscal 1998. Despite an increase of approximately
$1,583,000 in gross margin to approximately $25,783,000, the added expense of
the Revision litigation, approximately $1,700,000; and the expenses relating to
the proposed national expansion of the Registrant (including new sales offices,
consulting, recruiting and headcount additions) totaling approximately
$4,500,000, were the main factors in the reduction of earnings. The recent
changes in the management of the Registrant have brought about an elimination of
a substantial portion of these expenses. For the foregoing reasons, a loss per
share of $0.50 (basic) was realized in Fiscal 1999, a decrease of $0.68 per
common share (basic) from the earnings per share (basic) $0.18 posted in Fiscal
1998.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At January 31, 2000, the Registrant had working capital of
approximately $1,222,000 as compared to approximately $1,261,000 at January 31,
1999, a decrease of $39,000. The decrease in working capital in Fiscal 2000 was
primarily attributable to an increase in accounts receivable of approximately
$4,930,000; recognition of charges against the restructuring reserve of
approximately $2,116,000; and an increase in prepaid expenses and other current
assets of approximately $668,000. This was offset by a decrease in cash and cash
equivalents of approximately $1,677,000; an increase in accounts payable and
accrued liabilities of approximately $4,614,000; a reduction in the deferred tax
asset of approximately $1,420,000 and an increase in the current portion of long
term debt of approximately $42,000. The current ratio of 1.0 to 1, remained
equivalent to the 1.0 to 1 ratio experienced in Fiscal 1999. The Registrant
continues to maintain a strong liquid position with cash and cash equivalents
and investments available for sale of approximately $4,924,000 representing
16.5% of current liabilities.
The cash flow statement of the Registrant for Fiscal 2000 indicated a
decrease in cash and cash equivalents of approximately $1,677,000. Non-cash
adjustments (depreciation, amortization, reserve for bad debt, restructuring,
non-cash compensation expense of approximately $11,786,000 and net changes in
assets and liabilities of approximately $2,311,000 added back to the net loss of
approximately $9,414,000 resulted in net cash provided by operations of
approximately $61,000. Cash used in investing activities amounted to
approximately $3,013,000, of which approximately $3,019,000 were used for the
purchase of capital additions and approximately $55,000 was used for the
purchase of additional circuits to build out the network. These additions were
partially offset by net repayments on notes receivable of approximately $45,000
and proceeds from the sale of fixed assets of approximately $17,000. The cash
flow from financial activities of approximately $1,272,000 consisted primarily
cash received from the exercise of stock options of approximately $1,799,000 and
offset by the repayment of bank borrowings of approximately $527,000.
CAPITAL EXPENDITURES
--------------------
Capital expenditures for Fiscal 2000 totaled approximately $3,019,000
and were financed from funds provided from Registrant's working capital and cash
derived from operations. The capital expenditures were used for the addition of
the IP network, approximately $663,000; upgrades to the Registrant's switches
and switch sites of approximately $842,000; software and hardware upgrades to
the Registrant's computer network of approximately $710,000; the addition of
Oracle financial and sales compensation systems of approximately $358,000;
hardware and software necessary to bring the billing system in house of
approximately $196,000 and furniture, fixtures and equipment for new sales
offices of approximately $250,000.
Capital expenditures for Fiscal 2001 are estimated at approximately
$4,100,000 and are expected to be financed from funds provided from existing
working capital, operations, vendor financing and a guarantee from Gold and
Appel, an affiliate of Mr. Anderson. Included in the capital expenditures are
approximately $2,900,000 for the upgrade of the current switch network and
approximately $1,200,000 for improvements to the Registrant's data processing
systems.
The Registrant has an Equipment Facility and Revolving Credit
Arrangement with a major New Jersey bank. The Registrant entered into
modifications of the arrangement in March 1998 and November 1998. The amended
and restated Equipment Facility and Revolving Credit agreement allowed for an
unsecured line of credit of $5,000,000 and $10,000,000 for the purchase of
machinery and equipment. The $10,000,000 facility for equipment was terminated
on April 30, 1999, in exchange for a waiver from the bank releasing the
Registrant from certain covenants. At January 31, 2000, the Registrant had bank
borrowings of $1,565,824.
INFLATION
Since inflation has slowed in recent years, the Registrant does not
believe that its business has been materially affected by the relatively modest
rate of price increases in the economy. The Registrant continues to seek
improvements in operations and efficiency through capital expenditures.
Expenditures to improve the signaling system, information systems and the local
area network are expected to result in operating costs savings which could
partially offset any cost increases which may occur in the future.
ENVIRONMENTAL MATTERS
---------------------
The Registrant is not a party to any legal proceedings or the subject
of any claim regarding environmental matters generally incidental to its
business. In the opinion of Management, compliance with the present
environmental protection laws should not have a material adverse effect on the
financial condition of the Registrant
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices. The
21
<PAGE>
Registrant's cash and investments exceed long-term debt; therefore, the exposure
to interest rate risk relates primarily to the marketable securities held by the
Registrant. The Registrant only invests in instruments with high credit quality
where a secondary market exists. The Company does not hold any derivatives
related to its interest rate exposure. The Company also maintains long-term debt
at fixed rates. Due to the nature and amounts of the Registrant's note payable,
an immediate 10% change in interest rates would not have a material effect in
the Registrant's results of operations over the next fiscal year. The
Registrant's exposure to adverse changes in foreign exchange rates is also
immaterial to the consolidated statements as a whole.
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The Financial Statements and Supplementary Data are included under Item
14 of this Report.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
22
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The directors and officers of the Registrant are as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ----- ---- --------
<S> <C> <C>
Walt Anderson 45 Chairman of the Board
Leon Genet 69 Director
Henry Luken 39 Director
Jay J. Miller 67 Director
Dennis Spina 53 Director
Sal Quadrino 53 Vice President, Acting Chief Operating Officer and
Chief Financial Officer
Thomas P. Gunning 62 Treasurer and Secretary
</TABLE>
The Registrant's directors all serve for one year terms or until their
successors are elected and qualify. Officers serve at the pleasure of the Board
of Directors.
Mr. Walt Anderson was elected a Director of the Registrant in February,
1999. He has been Manager of Revision LLC from June 1998 to the present;
President and Chairman of Entree International Ltd. (Financial Consulting
Services) from July, 1997 to the present; Chairman of Teleport UK Ltd.
(Satellite Communications) from May, 1996 to the present; Chairman of Espirit
Telecom Group plc. (Telecom Services) from October, 1992 to November, 1998 and
President and Chairman, Mid Atlantic Telecom (Telecom Services), from May, 1984
to December, 1993. Mr. Anderson is also a director of American Technology Labs
(Network Equipment), Aquarius Holdings Ltd. (Water Transport Systems), Cis-Lunar
Development (Diving Equipment), Rotary Rocket Corp. (Space Transportation
Systems), Net-Tel Holdings (Telecom Services), US WATS (Telecom Services) and
Chairman of World Exchange Corp. (Telcom Services)
Mr. Leon Genet has served as a Director since October, 1996. For more
than the past five years, he has been a partner in Genet Realty, a commercial
and industrial real estate brokerage firm. He serves as a member of the National
Commerce and Industry Board for the State of Israel Bonds Organization and is a
shareholder, director, and officer of LPJ Communications, Inc., which has earned
commissions from the Registrant on the same basis as other independent sales
representatives. See "Certain Relationships and Related Transactions".
Mr. Henry G. Luken, III was elected a Director of the Registrant in
February, 1999. Currently he is President of Mont Lake Properties, Inc., a real
estate development firm; a director of ACNTV, a home shopping company selling
through TV; Managing Agent of Henry IV LLC, an aircraft sales company. A
co-founder of Telco-EIC, he served as Chief Executive Officer and Treasurer from
July, 1993 to April, 1996, and Chairman from July, 1993 to October, 1997. Mr.
Luken has also served as Chairman of Tel-Labs, Inc. a telecommunications billing
firm ("Tel-Labs") since 1991, and as Chairman of Telco Development Group, Inc.,
a computer systems firm owned by Mr. Luken, since 1987, both of which entities
he founded.
Jay J. Miller, Esq. has served as a Director since 1983. He has been a
practicing attorney for more than 35 years in New York. He is Chairman of the
Board of AmTrust Pacific Ltd., a New Zealand real estate company. Mr. Miller has
performed legal services on behalf of the Registrant. See "Certain Relationships
and Related Transactions."
Mr. Dennis Spina was elected a Director, President and Chief Operating
Officer of the Registrant in February, 1999. In July 1999, Mr. Spina was
appointed Chief Executive Officer of the Registrant. Mr. Spina has resigned from
his position as President and Chief Executive Officer on March 17, 2000. He is
also a founder and President of Simex SA, a Mexican company engaged in office
cleaning services. He had been Vice Chairman and President of Internet Services,
RCN (telecommunications) from February, 1998 to December, 1998; Chief Executive
Officer, Erols Internet, Inc. (Internet Service Provider) from August, 1996 to
February, 1998 (Erols was acquired by RCN); Independent Consultant in the
service and distribution industry from January, 1996 to July, 1996; President
and Chief Executive Officer, International Service Systems (janitorial and
energy management) from November, 1994 to December, 1995; President and Chief
Executive Officer of Suburban Propane, Inc. (division of Hanson PLC) from
August, 1990 to October, 1994.
23
<PAGE>
Salvatore M. Quadrino was appointed Vice President and Chief Financial
Officer of The Registrant in May, 1999. Prior to coming to TotalTel, he was
Executive Vice President and Chief Administrative Officer of RCN, Inc. from
February, 1998. He previously served as Vice President, Treasurer and Chief
Financial Officer of Erol's Internet, Inc. from September, 1997 to February,
1998. (Erols was acquired by RCN); From October, 1996 to August, 1997, he worked
as an independent financial consultant in the service and distribution industry.
From October, 1994 to September, 1996, he served as President and Chief
Executive Officer of Suburban Propane, a division of Hanson PLC, which conducted
its initial public offering in March, 1996, and from March to October, 1996, he
served as a member of Suburban Propane's Board of Supervisors. Mr. Quadrino
served as Vice President and Chief Financial Officer of Suburban Propane from
October, 1990 to September, 1994, and as Vice President, Chief Financial Officer
and Treasurer of Petrolane from August, 1990 until its sale in July, 1993. Mr.
Quadrino is a Certified Public Accountant.
Thomas P. Gunning was appointed Vice President - Secretary / Treasurer
of the Registrant in May 1999. He was appointed Chief Financial Officer in
September, 1994 and served in that capacity until May 0f 1999. He was appointed
Secretary of the Registrant in January, 1995. He has served as Controller of the
Registrant since September, 1992. He is a Certified Public Accountant licensed
by the States of New York and New Jersey. From 1989 until joining the
Registrant, Mr. Gunning was the Senior Audit Manager at Rosenberg Selsman &
Company, a certified public accounting firm. From 1976 to 1989, he was Chief
Financial Officer of Flyfaire, Incorporated, a travel wholesale operator. Prior
to such time, Mr. Gunning held various positions in both public and private
accounting firms.
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of five persons,
one of whom was a member of management until his resignation as a President and
Chief Executive Officer on March 17, 2000 and four of whom are non-management
directors. During the fiscal year ended January 31, 2000, the Board held nine
meetings, each of which was attended by all of the directors then serving.
The Company's Board of Directors has Audit and Compensation Committees,
but does not have a Nominating Committee or a committee performing a similar
function. The Audit Committee currently consists of two non-management
directors, Messrs. Walt Anderson and Leon Genet. The Committee reviews, analyzes
and may make recommendations to the Board of Directors with respect to the
Company's financial statements and controls. The Committee has met and intends
to meet from time to time with the Company's independent public accountants to
monitor their activities. The Compensation Committee consists of Messrs. Henry
Luken and Jay J. Miller and is charged with reviewing and recommending the
compensation and benefits payable to the Company's senior executives.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
24
<PAGE>
ITEM 11. Executive Compensation
(a) The following table sets forth the compensation which the Registrant
paid during the fiscal years ended January 31, 2000, 1999, and 1998 to the Chief
Executive, and each Executive Officer of the Registrant whose aggregate
remuneration exceeded $100,000.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Name and Fiscal Year Annual Compensation Other Compensation
Principal Ended Annual Awards All Other
Position January 31 Salary ($) Bonus(s) Compensation($) Options (#) Compensations(s)
- - -------- ---------- ---------- -------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Warren H. 2000 $168,269 (2) $900,000 (3) $ 16,191 (4)
Feldman 1999 $221,154 (2) $260,785 $ 8,735 (5)
Chairman and 1998 $287,115 (2) $350,000 $ 15,325 (6)
Chief Executive
Officer (1)
Dennis Spina 2000 $305,769 $ 2,857 (7)
President and
Chief Executive
Officer (8)
Sal Quadrino 2000 $137,307
Vice President
and Chief Financial
Officer (9)
Thomas P. 2000 $140,000 $ 11,179 (10)
Gunning 1999 $124,230 $ 2,000 $ 10,161 (11)
Vice President, 1998 $ 116,600 $ 4,000 $ 8,265 (12)
Treasurer and
Secretary
</TABLE>
(1) Resigned from his position on October 7, 1999.
(2) Does not include an annual director's fee of $15,000.
(3) See ITEM 11-c - Other compensation
(4) The amounts shown represent the Registrant's contribution under its 401
(K) Deferred Compensation and Retirement Savings Plan of $5,048 and
$3,143 for the use of a Registrant vehicle for non-business purposes
and $8,000 term life insurance premiums.
(5) The amounts shown represent the Registrant's contribution under its 401
(K) Deferred Compensation and Retirement Savings Plan of $5,026 and
$3,429 for the use of a Registrant vehicle for non-business purposes
and $280 term life insurance premiums.
(6) The amounts shown represent the Registrant's contribution under its 401
(K) Deferred Compensation and Retirement Savings Plan of $4,688 and
$2,357 for the use of a Registrant vehicle for non-business purposes
and $8,280 term life insurance premiums.
(7) The amount shown represents $2,857 for the use of a Registrant vehicle
for non-business purposes.
(8) Resigned from his position on March 17, 2000.
(9) Mr. Quadrino joined the Registrant on April 20, 1999
(10) The amount shown represent the Registrant's contribution under its 401
(K) Deferred compensation and Retirement Savings Plan of $4,200 and
$2,179 for the use of a Registrant vehicle for non-business purposes
and $4,800 term life insurance premiums.
25
<PAGE>
(11) The amount shown represent the Registrant's contribution under its 401
(K) Deferred compensation and Retirement Savings Plan of $3,837 and
$1,524 for the use of a Registrant vehicle for non-business purposes
and $4,800 term life insurance premiums.
(12) The amount shown represent the Registrant's contribution under its 401
(K) Deferred compensation and Retirement Savings Plan of $3,468 and
$1,393 for the use of a Registrant vehicle for non-business purposes
and $3,404 term life insurance premiums.
(b) Compensation Pursuant to Plans
In October, 1987, the Registrant adopted its 1987 Stock Option Plan, in
October, 1996, adopted its 1996 Stock Option Plan and in February, 2000,adopted
its 1999 Equity Incentive Plan (the "Option Plans"). The Option Plans provide
that certain options granted thereunder are intended to qualify as "incentive
stock options" within the meaning of Section 422A of the United States Internal
Revenue Code, while non-qualified options may also be granted under the Option
Plans. Incentive stock options may be granted only to employees of the
Registrant, while non-qualified options may be granted to non-executive
directors, consultants and others as well as employees.
The Option Plans may be administered by the Compensation Committee of
the Registrant's Board of Directors. The Registrant has reserved 1,329,800
shares of Common Stock under the 1987 Option Plan, 600,000 shares of Common
Stock under the 1996 Option Plan and 750,000 shares of Common Stock under its
1999 Equity Incentive Plan for issuance to employees, officers, directors and
consultants of the Registrant. The shares underlying the options granted prior
to July 15, 1994 have been adjusted for a 10% stock dividend. The shares
underlying the options granted prior to July 1, 1996 have been adjusted to
reflect a 2-for-1 stock split, and options granted prior to July 1, 1998 have
been adjusted to reflect a 2-for-1 stock split.
No option may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, an
option may be exercised only by him. In the event of termination of employment
other than by death or disability, the optionee will have one month (subject to
extension not to exceed an additional two months) after such termination during
which he may exercise his option. Upon termination of employment of an optionee
by reason of death or permanent total disability, his option remains exercisable
for one year thereafter to the extent it was exercisable on the date of such
termination. No similar limitation applies to non-qualified options.
Options under the Option Plans must be granted within 10 years from the
effective date of the respective Option Plan. Incentive stock options granted
under the Option Plans cannot be exercised later than 10 years from the date of
grant. Options granted under the Option Plans permit payment of the exercise
price in cash or by delivery to the Registrant of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than his original shares.
Any option which expires unexercised or that terminates upon an
employee's ceasing to be employed by the Registrant become available again for
issuance under the Option Plans.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
26
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Options /SAR Grants in last Fiscal Year Potential realizable Value
at Assumed Annual rates
Individual Grants of stock Appreciation for
- - ---------------------------------------------------------------------------- Option term
Number of
Securities % of Total
Underlying Options/SARs
options / Granted to
SARs Employees in Exercise Base Expiration
Name Granted(#)(1) Fiscal Year Price Date 5% ($) 10% ($)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Spina 144,000 15.22% $19.00 February 3, 2002 $431,262 $905,616 (1)
Dennis Spina 144,000 15.22% $19.00 February 3, 2002 $431,262 $905,616 (2)
Salvatore Quadrino 50,000 5.29% $19.00 May 5, 2004 $204,731 $440,895 (3)
Salvatore Quadrino 50,000 5.29% $16.00 January 12, 2005 $172,405 $371,280 (4)
Thomas P. Gunning 10,000 1.06% $19.00 March 16, 2004 $ 40,946 $ 88,179 (5)
</TABLE>
(1) Stock option granted under the 1996 Plan. Vesting in six equal installments,
commencing six months from date of grant, with the exercise price increasing 6%
as to each installment.
(2) Stock option granted under the 1999 Plan. Vesting in six equal installments,
commencing six months from date of grant, with the exercise price increasing 6%
as to each installment.
(3) Stock option granted under the 1996 Plan. Vesting in four equal
installments, commencing one year from date of grant, with the exercise price
increasing 6% as to each installment.
(4) Stock option granted under the 1999 Plan. Vesting in four equal
installments, commencing one year from date of grant, with the exercise price
increasing 6% as to each installment.
(5) Stock option granted under the 1999 Plan. Vesting in four equal
installments, commencing one year from date of grant, with the exercise price
increasing 6% as to each installment.
On February 23, 2000, the Board of Directors approved the repricing of all
options with an exercise price greater than $14.25 to $14.25
The unvested portion of Dennis Spina's options was terminated with his
resignation on March 17, 2000.
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares
Acquired Value
Name on Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warren Feldman 261,000 $2,334,051 - - - -
Dennis Spina (1) - - 48,000 240,000 - -
Salvatore Quadrino (1) - - - 100,000 - -
Thomas Gunning (2) 12,000 $ 123,000 33,000 12,000 $461,887 -
</TABLE>
(1) The unexercisable options held by Messrs. Spina and Quadrino are at
an exercise price ranging from $16.00 to $21.50, which is greater
than the fair market value of $14.75 at January 31, 2000.
(2) The unexercisable options to purchase 12,000 shares were at an
exercise price greater than fair market value of $14.25 at January
31, 2000.
27
<PAGE>
(c) Other Compensation
On September 21, 1999 the Registrant entered into an agreement with
Warren Feldman, Chairman of the Board of Directors and a shareholder of the
Registrant. As part of this agreement, a lump sum in the then amount of $900,000
was paid to Mr. Feldman in settlement of his employment agreement. The
Registrant paid $650,000 and Mr. Walt Anderson, a major shareholder, paid
$250,000. Mr. Feldman's Employment Agreement was to have been in effect until
December 31, 2001. The Registrant expensed the $900,000 in Fiscal 2000 with the
$250,000 being accounted for as a capital contribution.
Simultaneously Revision LLC and Mr. Walt Anderson ("Revision/Anderson")
and the Registrant entered into put option agreements with Warren Feldman, Sol
Feldman ("the Feldmans") and Leon Genet, ("Genet") a director of the Registrant.
These Put Option agreements allow the Feldmans and Genet the right to sell their
shares of the Registrant to Revision/Anderson at a price of $16.00 per share and
obligate Revision/Anderson to purchase the shares during an exercise period
beginning on December 11, 1999 and ending on February 10, 2000. The Registrant
has no obligation to purchase any shares from the Feldmans or Genet. The closing
market price of the Registrant's shares on September 21, 1999, the date of the
agreements, was $12.25, and the total number of shares covered by the agreements
was 1,208,137. Using a binomial valuation model with an interest rate of 5% and
a volatility rate of 50%, the fair value of the Put agreements was determined to
be $4.03 per share or $4,870,554. The Registrant accounted for this non-cash
transaction as a charge to expense and a credit to paid-in capital during the
third quarter of Fiscal 2000.
(d) Compensation of Directors
Certain directors of the Registrant receive $15,000 per year
for services in such capacity.
(e) Employment Contracts,Termination of Employment and Change of
Control Arrangements
None.
28
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is certain information concerning persons who were
known by the Company to own beneficially or of record more than 5% of the issued
and outstanding shares of Common Stock of the Company as of April 26, 2000.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
of Beneficial Owner Owned (1) of Class
- - ------------------- --------------- ----------
<S> <C> <C>
Walt Anderson 3,603,104 (2)(3)(4) 45.4%
c/o 1023 31st Street, NW
Suite 300
Washington, D.C. 20007
Revision LLC 3,595,804 (2)(3)(4) 45.3%
c/o 1023 31st Street, NW
Suite 300
Washington, D.C. 20007
Total-Tel USA Communications, Inc. 600,000 (5) 7.6%
Employee Stock Ownership Plan
150 Clove Road
Little Falls, NJ 07424
Michael A. Karp 424,954 5.3%
3416 Sansom Street
Philadelphia, PA 19104
Thomas Cirrito 504,694 (6) 6.3%
7716 Carlton Place
Mc Lean, VA 22102
</TABLE>
(1) Except as otherwise set forth in the footnotes to this table, all
shares are beneficially owned and sole investment and voting power is
held by the persons named, to the best of the Company's knowledge.
(2) 3,595,804 of such shares are owned of record by Revision LLC. As the
sole manager and holder of 100% of the voting membership interests in
Revision LLC, Mr. Anderson has the sole power to vote and dispose of
such shares. Accordingly, Mr. Anderson may be deemed the beneficial
owner of such shares.
(3) Does not include 686,629 shares of Common Stock owned by the Foundation
for International Non-Governmental Development of Space, of which Mr.
Anderson is the President and a director. Mr. Anderson disclaims
beneficial ownership of such shares. Mr. Anderson and Revision LLC are
no longer subject to certain restrictions on the purchase of additional
shares.
(4) Mr. Walt Anderson and Revision LLC are parties to a Put Option
Agreement with Warren Feldman and his father, Solomon Feldman, which
entitles such persons and certain of their related parties to sell to
Revision LLC 315,796 shares of Common Stock. Mr. Anderson and Revision
LLC also are parties to a Put Option Agreement with Leon Genet that
entitles Mr. Genet to sell to Revision LLC 104,320 shares of Common
Stock. The rights of Mr. Feldman and Mr. Genet under their respective
Put Agreements must be exercised prior to February 10, 2000. Neither
Mr. Anderson nor Revision LLC has any right to require any party to
sell Common Stock to it pursuant to such Put Agreements, and Mr.
Anderson and Revision LLC therefore do not beneficially own the Common
Stock subject to sale pursuant to either of the Put Agreements. In
January 2000 Revision/Anderson purchased a portion of these shares.
(5) See the discussion of the Employee Stock Ownership Plan in Item 11-b
Compensation Pursuant to Plans.
(6) Atocha LP, of which Mr. Cerrito is general partner, owns 484,694 of
these shares.
29
<PAGE>
(b) Security Ownership of Management
The following table sets forth as of April 26, 2000, information
concerning the beneficial ownership of Common Stock by each director of
the Company, each nominee for election as a director and all directors
and officers of the Company as a group:
<TABLE>
<CAPTION>
Name of Beneficial Number of Shares Percentage
Owner Owned (1) of Class
- - ------------------ ---------------- ----------
<S> <C> <C>
Walt Anderson 3,603,104 (2)(3)(4) 44.6%
Revision LLC 3,595,804 (2)(3)(4) 44.5%
Leon Genet 41,120 (4) 0.5%
Henry Luken 196,835 2.4%
Jay J. Miller 400 (6)
Dennis Spina 98,005 (5) 1.2%
All directors and officers
as a group (7 in number) 4,006,764 49.5%
</TABLE>
(1) All shares are beneficially owned and sole investment and voting power
is held by the persons named above.
(2) 3,595,804 of such shares are beneficially owned by Revision LLC. As the
sole manager and holder of 100% of the voting membership interests in
Revision LLC, Mr. Anderson has the sole power to vote and dispose of
such shares. Accordingly, Mr. Anderson may be deemed the beneficial
owner of such shares.
(3) Does not include 686,629 shares of Common Stock owned by the Foundation
for International Non-Governmental Development of Space, of which Mr.
Anderson is the President and a director. Mr. Anderson disclaims
beneficial ownership of such shares. Mr. Anderson and Revision, LLC are
subject to certain restrictions on the purchase of additional shares.
(4) Mr. Walt Anderson and Revision LLC are parties to Put Agreement with
Warren Feldman and his father, Solomon Feldman, which currently
entitles such persons and certain of their related parties to sell to
Revision LLC 315,796 shares of Common Stock. Mr. Anderson and Revision
LLC also are parties to Put Agreement with Leon Genet that entitles Mr.
Genet to sell to Revision LLC 104,320 shares of Common Stock. The
rights of Mr. Feldman and Mr. Genet under their respective Put
Agreements must be exercised prior to February 10, 2000. Neither Mr.
Anderson nor Revision LLC has any right to require any party to sell
Common Stock to it pursuant to such Put Agreements, and Mr. Anderson
and Revision LLC therefore do not beneficially own the Common Stock
subject to sale pursuant to either of the Put Agreements.
(5) Includes options to purchase 96,000 shares of the Common Stock which
are exercisable currently or within 60 days hereof, the issuance of
one-half of which is subject to the approval of the 1999 Equity
Incentive Plan at the Meeting.
(6) Less than 1%.
30
<PAGE>
(c) Changes in Control
The Registrant knows of no contractual arrangement which may, at a
subsequent date, result in a change in control of the Registrant.
ITEM 13. Certain Relationships and Related Transactions
On December 1, 1993, the Registrant leased warehouse space in
Belleville, New Jersey, from a partnership in which two former directors and
major shareholders were partners. During the fiscal year ended January 31, 2000,
the Registrant paid rent of $62,848 to the partnership. The lease expired on
November 30, 1998 and has been renewed on a month to month basis at an annual
rate of $47,980, subject to 120-day prior written termination notice
requirement. Registrant believes such premises are leased on terms not less
favorable to Registrant than in an arm's length transaction.
Jay J. Miller, a Director of the Registrant, has provided various legal
services for the Registrant during Fiscal 2000. In Fiscal 2000, the Registrant
has paid $158,755 to Mr, Miller for services rendered and accrued for in Fiscal
1999 As of January 31, 2000 the Registrant had invoices payable to Mr. Miller
totaling $284,295. The Registrant believes that Mr. Miller's fees were
reasonable for the services performed and were no less favorable to the
Registrant than could have been obtained from an unrelated third party.
Leon Genet, a Director of the Registrant, has provided agent services
for Total-Tel through his wholly-owned Registrant, LPJ, Inc. During Fiscal 2000,
LPJ, Inc. was paid commissions of $123,418. The commissions paid to LPJ, Inc.
were computed on the same basis as other agents retained by the Registrant.
Walt Anderson, a Director of the Registrant, sits on the Board of
Directors' for several of the Registrant's competitors, as described in ITEM 10.
The Registrant both purchases and sells services from US Wats and
CTS/Worldexchange. Sales to US Wats and CTS/Worldexchange in Fiscal 2000 were
approximately $681,000 and $4,360,000, respectively. Purchases from US Wats and
CTS/Worldexchange were approximately $291,000 and $2,646,000, respectively. All
transactions were based on competitive terms obtained at an arm's length basis.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
31
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC.
AND SUBSIDIARIES
ITEM 14. Exhibits and Financial Statements Schedule Years Ended January 31,
2000, 1999, and 1998
INDEX
(a) (1) FINANCIAL STATEMENTS: The following consolidated financial
statements of Total-Tel USA Communications, Inc. and subsidiaries are included
at the end of this Report:
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
---------------------------------- ----
<S> <C>
Independent auditors' report F-1
Consolidated balance sheets - January 31, 2000
and 1999 F-2
Consolidated statements of (loss) earnings and
comprehensive (loss) income - years
ended January 31, 2000, 1999 and 1998 F-3
Consolidated statements of shareholders' equity -
years ended January 31, 2000, 1999, 1998 F-4
Consolidated statements of cash flows - years
ended January 31, 2000, 1999, 1998 F-5
Notes to consolidated financial statements F-7
(a) (2) SUPPLEMENTARY DATA FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K:
Schedule - years ended January 31, 2000, 1999 and 1998
II VALUATION AND QUALIFYING ACCOUNTS (Consolidated) F-24
</TABLE>
***************
Schedules other than those listed above are omitted because they are not
required, not applicable or the information has been otherwise supplied.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the twenty-seventh day
of April, 2000
TOTAL-TEL USA COMMUNICATIONS, INC.
(Registrant)
By: /S/ Walt Anderson
----------------------------
Walt Anderson
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.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/S/ Walt Anderson Chairman of the Board April 27, 2000
- - -------------------------
Walt Anderson
/S/ Leon Genet Director April 27, 2000
- - -------------------------
Leon Genet
/S/ Jay J. Miller Director April 27, 2000
- - -------------------------
Jay J. Miller
/S/ Henry G. Luken III Director April 27, 2000
- - -------------------------
Henry G. Luken III
/S/ Dennis Spina Director April 27, 2000
- - -------------------------
Dennis Spina
/S/ Salvatore M. Quadrino Vice President, Acting Chief April 27, 2000
- - ------------------------- Operating Officer, Chief Financial
Salvatore M. Quadrino Officer and Principal Accounting Officer
/S/ Thomas P. Gunning Vice President, Treasurer and April 27, 2000
- - ------------------------- Secretary
Thomas P. Gunning
</TABLE>
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Total-Tel USA Communications, Inc.
150 Clove Road
Little Falls, New Jersey 07424
We have audited the accompanying consolidated balance sheets of Total-Tel USA
Communications, Inc. and subsidiaries as of January 31, 2000 and 1999, and the
related consolidated statements of (loss) earnings and comprehensive (loss)
income, shareholders' equity, and cash flows for each of the three years in the
period ended January 31, 2000. Our audits also included the financial statement
schedule listed in the index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule 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 consolidated financial statements present fairly, in all
material respects, the financial position of Total-Tel USA Communications, Inc.
and subsidiaries as of January 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
April 17, 2000
(April 25, 2000 as to Note 18)
F-1
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,374,479 $ 6,051,892
Investments available for sale 549,580 549,612
Trade accounts receivable (net of allowance for doubtful accounts
of $1,827,260 and $1,230,483 in 2000 and 1999, respectively) 23,662,457 18,732,480
Deferred income taxes -- 1,419,642
Prepaid expenses and other current assets 2,565,031 1,896,612
------------ ------------
Total current assets 31,151,547 28,650,238
------------ ------------
PROPERTY AND EQUIPMENT - Net 13,316,655 14,473,261
------------ ------------
OTHER ASSETS:
Deferred line installation costs (net of accumulated amortization
of $634,123 and $521,914 in 2000 and 1999, respectively) 280,281 447,226
Other assets 435,639 488,175
Deferred income taxes -- 1,633,238
------------ ------------
Total other assets 715,920 2,568,639
------------ ------------
$ 45,184,122 $ 45,692,138
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,802,097 $ 20,699,873
Other current and accrued liabilities 3,073,937 3,037,255
Accrued restructuring costs 11,995 2,128,000
Salaries and wages payable 1,472,766 998,081
Current portion of long-term debt 568,653 526,361
------------ ------------
Total current liabilities 29,929,448 27,389,570
------------ ------------
OTHER LONG-TERM LIABILITIES 250,532 294,500
------------ ------------
LONG-TERM DEBT 997,171 1,565,884
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Common stock, par value $.05 per share; authorized
20,000,000 shares in 2000 and 1999, issued
9,489,324 shares in 2000 and, 9,114,774 in 1999 474,466 455,739
Additional paid-in capital 29,710,494 22,809,518
Retained (deficit) earnings (2,656,215) 6,757,987
------------ ------------
27,528,745 30,023,244
Unearned ESOP Shares (12,225,000) (12,225,000)
Treasury stock - at cost - 1,545,253 shares in 2000 and 1,509,870 shares in 1999 (1,458,550) (1,456,781)
Accumulated other comprehensive income 161,776 100,721
------------ ------------
Total shareholders' equity 14,006,971 16,442,184
------------ ------------
$ 45,184,122 $ 45,692,138
============ ============
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME
YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
NET SALES $ 139,760,497 $ 137,282,870 $ 123,286,028
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales 112,794,378 111,500,082 99,086,234
Selling, general and administrative 27,990,145 28,912,440 22,082,829
Restructuring charge (318,879) 2,367,910 --
Other compensation (Note 12) 5,770,554 -- --
Stock compensation 204,015 423,588 569,391
------------- ------------- -------------
Total costs and expenses 146,440,213 143,204,020 121,738,454
------------- ------------- -------------
OPERATING (LOSS) INCOME (6,679,716) (5,921,150) 1,547,574
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 115,119 93,708 101,865
Other income 1,105 154,491 358,729
Interest expense (147,092) (186,095) (183,623)
------------- ------------- -------------
Total other (expense) income (30,868) 62,104 276,971
------------- ------------- -------------
(LOSS) EARNINGS BEFORE INCOME TAXES (6,710,584) (5,859,046) 1,824,545
INCOME TAX PROVISION (BENEFIT) 2,703,618 (2,441,249) 730,544
------------- ------------- -------------
NET (LOSS) EARNINGS (9,414,202) (3,417,797) 1,094,001
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gain (loss) 61,055 (5,160) 10,253
------------- ------------- -------------
COMPREHENSIVE (LOSS) INCOME $ (9,353,147) $ (3,422,957) $ 1,104,254
============= ============= =============
BASIC (LOSS) EARNINGS PER COMMON SHARE $(1.33) $(0.50) $0.18
====== ====== =====
DILUTED (LOSS) EARNINGS PER COMMON SHARE $(1.33) $(0.50) $0.16
====== ====== =====
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
ADDITIONAL RECEIVABLE
COMMON PAID-IN RETAINED TREASURY FROM
STOCK CAPITAL EARNINGS STOCK SHAREHOLDER
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1997 $ 187,792 $ 7,054,370 $ 9,081,783 $ (1,547,251) $ (100,000)
Unrealized holding gain -- -- -- -- --
Exercise of employee stock options 19,267 1,399,004 -- (80) --
Remeasurement of employee stock options -- 433,126 -- -- --
Tax benefit due to exercise of nonqualified
stock options -- 769,988 -- -- --
Repayment of shareholder receivable -- -- -- -- 100,000
Net earnings -- -- 1,094,001 -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT JANUARY 31, 1998 207,059 9,656,488 10,175,784 (1,547,331) --
July 15, 1998 stock split 207,059 (207,059) -- -- --
------------ ------------ ------------ ------------ ------------
ADJUSTED BALANCE AT
JANUARY 31, 1998 414,118 9,449,429 10,175,784 (1,547,331) --
Unrealized holding loss -- -- -- -- --
Exercise of employee stock options 11,621 850,130 -- -- --
Issuance of employees stock grants -- 109,136 -- 90,550 --
Tax benefit due to exercise of nonqualified
stock options -- 205,823 -- -- --
Adoption of employee stock ownership plan 30,000 12,195,000 -- -- --
Net loss -- -- (3,417,797) -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT JANUARY 31, 1999 455,739 22,809,518 6,757,987 (1,456,781) --
Unrealized holding gain -- -- -- -- --
Exercise of employee stock options / grants 18,727 1,780,422 -- -- --
Capital contribution (NOTE 12) 250,000
Put Agreement (NOTE 12) 4,870,554
Forfeiture of stock grants -- -- (1,769) --
Net loss -- -- (9,414,202) -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT JANUARY 31, 2000 $ 474,466 $ 29,710,494 $ (2,656,215) $ (1,458,550) $ --
============ ============ ============ ============ ============
<CAPTION>
ACCUMULATED
UNEARNED OTHER
ESOP COMPREHENSIVE
SHARES INCOME TOTAL
<S> <C> <C> <C>
BALANCE AT JANUARY 31, 1997 $ -- $ 95,628 $ 14,772,322
Unrealized holding gain -- 10,253 10,253
Exercise of employee stock options -- -- 1,418,191
Remeasurement of employee stock options -- -- 433,126
Tax benefit due to exercise of nonqualified
stock options -- -- 769,988
Repayment of shareholder receivable -- -- 100,000
Net earnings -- -- 1,094,001
------------ --------- ------------
BALANCE AT JANUARY 31, 1998 -- 105,881 18,597,881
July 15, 1998 stock split -- -- --
------------ --------- ------------
ADJUSTED BALANCE AT
JANUARY 31, 1998 -- 105,881 18,597,881
Unrealized holding loss -- (5,160) (5,160)
Exercise of employee stock options -- -- 861,751
Issuance of employees stock grants -- -- 199,686
Tax benefit due to exercise of nonqualified
stock options -- -- 205,823
Adoption of employee stock ownership plan (12,225,000) -- --
Net loss -- -- (3,417,797)
------------ --------- ------------
BALANCE AT JANUARY 31, 1999 (12,225,000) 100,721 16,442,184
Unrealized holding gain -- 61,055 61,055
Exercise of employee stock options / grants -- -- 1,799,149
Capital contribution (NOTE 12) 250,000
Put Agreement (NOTE 12) 4,870,554
Forfeiture of stock grants -- -- (1,769)
Net loss -- -- (9,414,202)
------------ --------- ------------
BALANCE AT JANUARY 31, 2000 $(12,225,000) $ 161,776 $ 14,006,971
============ ========= ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $(9,414,202) $(3,417,797) $ 1,094,001
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization 2,985,359 2,784,883 2,027,557
Provision for doubtful accounts 1,074,916 878,628 416,713
Tax benefit of options exercised -- 205,823 769,988
Noncash stock compensation expense 5,324,569 423,588 569,391
Deferred income taxes 2,703,618 (2,952,266) 648,544
Restructuring (credit) charge, net of cash paid (318,879) 2,128,000 --
Loss (gain) on disposal of property and equipment 16,236 (4,852)
Change in assets and liabilities:
(Increase) decrease in assets:
Trade accounts receivable (6,004,893) 735,880 (6,830,049)
Prepaid expenses and other current assets (305,546) 696,497 (1,914,484)
Other assets 52,536 (55,900) 84,360
Increase (decrease) in liabilities:
Accounts payable 4,102,224 4,343,446 6,134,167
Other current and accrued liabilities and
salaries and wages payable and accrued
restructuring costs (110,787) 1,282,261 (592,746)
Other long-term liabilities (43,968) (37,254) 72,534
----------- ----------- -----------
Net cash provided by operating activities 61,183 7,015,789 2,475,124
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of short-term
investments available for sale -- 23,521 442,554
Purchases of property and equipment (3,018,710) (4,727,130) (3,267,833)
Proceeds from sale of property and equipment 17,216 7,147 10,920
Payments for deferred line installation costs (55,232) (281,008) (122,939)
Issuance of notes -- (406,100) --
Collections on notes receivable -- 406,100 --
Collection on notes receivable from employees 45,402 22,188 232,499
----------- ----------- -----------
Net cash used in investing activities (3,011,324) (4,955,282) (2,704,799)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 1,799,149 1,061,437 1,418,191
Additional borrowings -- -- 770,000
Repayment on bank borrowings (526,421) (486,956) (1,130,799)
----------- ----------- -----------
Net cash provided by financing activities 1,272,728 574,481 1,057,392
----------- ----------- -----------
</TABLE>
(Continued)
F-5
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $(1,677,413) $ 2,634,988 $ 827,717
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 6,051,892 3,416,904 2,589,187
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,374,479 $ 6,051,892 $ 3,416,904
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 147,092 $ 186,901 $ 187,211
=========== =========== ===========
Income taxes $ -- $ 66,603 $ 752,761
=========== =========== ===========
(Concluded)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
- - -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Total-Tel USA Communications, Inc. ("Total-Tel"), with its wholly-owned
subsidiaries Total-Tel, Inc., Total-Tel USA, Inc., Total-Tel Southeast
Inc., Total-Tel Carrier Services, Inc., Total-Tel Sarasota, Inc., and
Total-Tel Services, Inc. (collectively, the "Company") operates as a switch
based resale common carrier providing twenty-four hour, seven day a week,
domestic and international long distance telecommunications service to
customers throughout the United States. The Company's principal customers
are primarily businesses and other common carriers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Total-Tel USA Communications, Inc. and its subsidiaries,
all of which are wholly-owned. All intercompany transactions and balances
have been eliminated in the consolidated financial statements.
REVENUE RECOGNITION - The Company's revenues are recognized in the period
in which the service is provided, based on the number of minutes of
telecommunications traffic carried, times a rate per minute.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization is being provided by use of the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the term of the lease or the
useful lives of the asset.
The estimated useful lives of the principal classes of assets are as
follows:
<TABLE>
<CAPTION>
CLASSIFICATION YEARS
<S> <C>
Machinery and equipment 5 - 10
Office furniture, fixtures and equipment 7 - 10
Vehicles 3 - 5
Leasehold improvements 2 - 10
Computer equipment and software 5 - 7
</TABLE>
DEFERRED LINE INSTALLATION COSTS - The Company defers charges from other
common carriers which cover the cost of installing telephone transmission
facilities (lines). Amortization of these costs is provided using the
straight-line method over the estimated life (five years) of the lines.
USE OF ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
F-7
<PAGE>
CONCENTRATIONS OF CREDIT RISK - The Company sells its telecommunications
services and products primarily to small to medium size businesses. The
Company performs ongoing credit evaluations of its customers as it
generally does not require collateral. Allowances are maintained for
potential credit losses and such losses have been within management's
expectations.
EARNINGS PER SHARE - Basic earnings per share is represented by net
earnings (loss) available to common shareholders divided by the
weighted-average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or stock options were exercised or converted into
common stock during the period, if dilutive (see Note 15).
STOCK SPLIT - On July 15, 1998, the Company distributed 4,207,887 shares
of common stock in connection with a 2 for 1 stock split in the form of a
stock dividend of all outstanding shares as of June 30, 1998 (including
approximately 66,700 shares attributable to stock options exercised during
1999 prior to the split). All per share and number of shares data have
been restated to reflect these stock splits.
AUTHORIZED COMMON STOCK - On February 23, 2000, the Company's shareholders
approved an increase in the number of authorized shares of Common Stock
from 20,000,000 to 50,000,000 shares
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents. Cash and cash equivalents consist of cash on hand,
demand deposits and money market accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS - For cash and cash equivalents, the
carrying value is a reasonable estimate of its fair value. The estimated
fair value of publicly traded financial instruments is determined by the
Company using quoted market prices, dealer quotes and prices obtained from
independent third parties. For financial instruments not publicly traded,
fair values are estimated based on values obtained from independent third
parties or quoted market prices of comparable instruments. The fair value
of the debt was determined based on interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities for debt issues that are not traded on quoted market
prices. However, judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates are not
necessarily indicative of the amounts that could be realized in a current
market exchange.
The carrying values and fair values of financial instruments are as
follows:
<TABLE>
<CAPTION>
2000 1999
----------------------------- ------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $4,374,479 $4,374,479 $6,051,892 $6,051,892
Investments available for sale 549,580 549,580 549,612 549,612
Liabilities:
Debt 1,565,824 1,565,824 2,092,245 2,092,245
</TABLE>
F-8
<PAGE>
LONG-LIVED ASSETS - The Company accounts for the impairment of long-lived
assets and for long-lived assets to be disposed of by evaluating the
carrying value of its long-lived assets in relation to the operating
performance and future undiscounted cash flows of the underlying
businesses when indications of impairment are present. Long-lived assets
to be disposed of, if any, are evaluated in relation to the net realizable
value.
NEW ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," in June 1998 was amended by SFAS No. 137 and is effective for
fiscal years beginning after June 2000. This statement establishes
accounting and reporting standards for derivative instruments, including
certain instruments embedded in other contracts, and hedging activities.
Management does not believe that this pronouncement will have any material
impact on the financial position and results of operations of the Company
as it does not engage in these activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements", which must be adopted by March 31, 2000. At this time,
management has not determined the effect, if any, that the implementation
of SAB 101 will have on the Company's financial position and results of
operations.
3. SEGMENT REPORTING
The Company sells telecommunication services to two distinct segments: a
retail segment, consisting primarily of small to medium size businesses
within the Northeastern United States, and a wholesale segment, with sales
to other telecommunications carriers throughout North America and Europe.
In addition to direct costs, each segment is allocated a proportion of the
Company's operating expenses, including utilization of its switch and
facilities. The allocation of expenses is based upon the minutes of use
flowing through the Company's switching network. There are no intersegment
sales. Assets are held at the consolidated level and are not allocable to
the operating segments. The Company evaluates performance on operating
results of the two business segments. The other compensation expense of
$5,770,554 has been allocated to the segments based on the percentage of
sales.
Summarized financial information concerning the Company's reportable
segments is shown in the following table.
F-9
<PAGE>
<TABLE>
<CAPTION>
RETAIL WHOLESALE TOTAL
<S> <C> <C> <C>
2000
Net Sales $ 69,023,194 $ 70,737,303 $ 139,760,497
Gross margin 20,712,262 6,253,857 26,966,119
Operating (loss) income before other compensation (3,905,664) 2,996,502 (909,162)
Operating (loss) income after other compensation (6,760,900) 81,184 (6,679,716)
1999
Net Sales $ 72,555,692 $ 64,727,178 $ 137,282,870
Gross margin 22,143,818 3,638,970 25,782,788
Operating income (loss) (4,985,480) (935,670) (5,921,150)
1998
Net Sales $ 65,304,679 $ 57,981,349 $ 123,286,028
Gross margin 21,300,071 2,899,723 24,199,794
Operating income (loss) 1,820,306 (272,732) 1,547,574
</TABLE>
4. INVESTMENT SECURITIES
Investments available for sale consist of:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------- ---------------------------------------------
GROSS UNREALIZED MARKET GROSS UNREALIZED MARKET
---------------------- ---------------------
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds $ 25,000 $ -- $ -- $ 25,000 $ 25,000 $ -- $ -- $ 25,000
Mutual funds 292,104 7,226 $284,878 286,900 2,400 -- 289,300
Common stock 70,700 169,002 -- 239,702 70,700 164,612 -- 235,312
-------- -------- -------- -------- -------- -------- ------- --------
$387,804 $169,002 $ 7,226 $549,580 $382,600 $167,012 $ -- $549,612
======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
The deferred tax on the net unrealized gains at January 31, 2000, and 1999
were $0 and $66,291, respectively; resulting in net amounts of $161,776
and $100,721 in Accumulated Other Comprehensive Income.
Maturity dates of the bond as of January 31, 2000 is as follows:
<TABLE>
<CAPTION>
MATURING WITHIN COST MARKET VALUE
<S> <C> <C>
After 1 year through 5 years $ 25,000 $ 25,000
-------- --------
$ 25,000 $ 25,000
======== ========
</TABLE>
F-10
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Machinery and equipment $13,795,682 $14,646,464
Office furniture, fixtures and equipment 2,362,982 1,883,903
Leasehold improvements 1,203,042 1,158,427
Vehicles 200,317 224,282
Computer equipment and software 5,578,022 3,870,049
Leasehold improvements in progress 149,725 --
Machinery and equipment in progress 1,314,602 1,272,650
----------- -----------
24,604,372 23,055,775
Less accumulated depreciation and amortization 11,287,717 8,582,514
----------- -----------
$13,316,655 $14,473,261
=========== ===========
</TABLE>
Depreciation and amortization expense related to property and equipment
for the years ended January 31, 2000, 1999 and 1998 was $2,862,151,
$2,652,796, and $1,921,530, respectively.
6. INCOME TAXES
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Federal:
Current $ -- $ 276,691 $ 60,000
Deferred 1,893,850 (2,190,605) 517,544
State income taxes:
Current -- 234,326 22,000
Deferred 809,768 (761,661) 131,000
----------- ----------- -----------
$ 2,703,618 $(2,441,249) $ 730,544
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Valuation
allowances are provided against assets which are not likely to be
realized.
F-11
<PAGE>
The income tax effects of significant items comprising the Company's net
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
2000 1999
CURRENT LONG-TERM CURRENT LONG-TERM
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 363,930 $ -- $ 296,423 $ --
Accrued compensation expense -- 587,176 -- 1,276,044
Unamortized lease incentive -- 100,060 -- 117,623
Restructuring reserve 4,910 -- 849,924 --
Accrued expenses 112,920 -- 273,295 --
Net operating loss carryforward -- 3,805,318 -- 1,577,970
Put agreement -- 512,688 --
Alternative minimum tax credit -- 172,589 -- 593,944
----------- ----------- ----------- -----------
Total gross deferred tax assets 481,760 5,177,831 1,419,642 3,565,581
Less: Valuation allowance (481,760) (3,221,121) -- --
----------- ----------- ----------- -----------
Total net deferred tax asset -- 1,956,710 1,419,642 3,565,581
Deferred tax liabilities:
Property and equipment -- (1,892,100) -- (1,865,639)
Other -- (64,610) -- (66,704)
----------- ----------- ----------- -----------
Total deferred tax liabilities -- (1,956,710) -- (1,932,343)
----------- ----------- ----------- -----------
Net deferred tax asset (liability) $ -- $ -- $ 1,419,642 $ 1,633,238
=========== =========== =========== ===========
</TABLE>
F-12
<PAGE>
A reconciliation from the U.S. statutory tax rate of 34% to the effective
tax rate for income taxes on the consolidated statements of (loss)
earnings is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Computed expense at statutory rates $(2,281,599) $(1,992,076) $ 620,345
(Reductions) increase in taxes resulting from:
Tax-exempt interest income (3,320) (4,776) (14,300)
State taxes (benefit), net of federal
income tax benefit (191,230) (350,215) 118,000
Insurance proceeds on officer's death -- -- (114,400)
Put agreement 1,219,549 -- --
Valuation allowance 3,702,881 -- --
Other 257,337 (94,182) 120,899
----------- ----------- -----------
Actual (benefit) expense $ 2,703,618 $(2,441,249) $ 730,544
=========== =========== ===========
</TABLE>
At January 31, 2000, for Federal income tax purposes, the Company had net
operating loss carryforwards of approximately $8.3 million which will
begin to expire in stages in the year 2020, and alternative minimum tax
credit carryforwards of approximately $173,000. The alternative minimum
tax credit does not expire.
7. LEASE COMMITMENTS
The Company rents various facilities under lease agreements classified as
operating leases. Several of the underlying agreements contains certain
incentives eliminating payments at the inception of the lease. Lease
incentives are amortized on a straight-line basis over the entire lease
term. Under terms of these leases, the Company is required to pay its
proportionate share of increases in real estate taxes, operating expenses
and other related costs.
The Company leases warehouse space in Belleville, New Jersey from a
partnership in which two of the partners were directors and major
shareholders of the Company. Both partners are no longer directors. During
the fiscal years ended January 31, 2000, 1999 and 1998, the Company paid
rent of $62,848, $65,482, and $60,450, respectively to the partnership.
The lease expired on November 30, 1998, and has been renewed subject to
termination with a 120-days prior written notice by either party. The
lease was amended on August 31, 1999 at an annual rate of $47,980.
F-13
<PAGE>
Future minimum annual rentals on these leases as of January 31, 2000 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
<S> <C>
2001 $ 1,549,914
2002 1,584,002
2003 1,077,409
2004 363,167
2005 330,640
2006 and thereafter 2,117,671
-----------
$ 7,022,803
===========
</TABLE>
Rental expense for the years ended January 31, 2000, 1999 and 1998 was
approximately $1,377,000, $1,615,000, and $1,047,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company has established a savings incentive plan for substantially all
employees of the Company which is qualified under section 401(k) of the
Internal Revenue Code. The savings plan provides for contributions to an
independent trustee by both the Company and its participating employees.
Under the plan, employees may contribute up to 15% of their pretax base
pay. The Company matches 50% of the first 6% of participant contributions.
Participants vest immediately in their own contributions and over a period
of six years for the Company's contributions. Company contributions were
approximately $125,000, $192,000, and $165,000, for the years ended
January 31, 2000, 1999 and 1998, respectively.
9. STOCK OPTION PLANS
The Company has three stock option plans authorizing the granting of
either Incentive Stock Options or Nonqualified Stock Options. The 1987
Stock Option Plan (the "1987 Plan") provided for the issuance of an
aggregate of not more than 1,329,800 shares of the Company's Common Stock.
The 1996 Stock Option Plan (the "1996 Plan") provides for the issuance of
an aggregate of not more than 600,000 shares of the Company's Common
Stock. The 1999 Equity Incentive Plan (the "1999 Plan") provides for the
issuance of an aggregate of not more than 750,000 shares of the Company's
Common Stock.
Incentive Stock Options granted pursuant to the Plans must have an
exercise price equal to the fair market value of the Company's Common
Stock at the time the option is granted, except that the price shall be at
least 110% of the fair market value where the option is granted to an
employee who owns more than 10% of the combined voting power of all
classes of the Company's voting stock. Nonqualified Stock Options granted
pursuant to the Plans must have an exercise price equal to at least 50% of
the fair market value of the Company's Common Stock at the time the option
is granted. Incentive Stock Options may be granted only to employees.
Nonqualified Stock Options may be granted to employees as well as
directors, independent contractors and agents, as determined by the Board
of Directors. All options available to be granted under the 1987 Plan were
granted prior to September 1, 1997. All options available to be granted
under the 1996 Plan, totaling 58,750 at January 31, 2000, must be granted
by October 10, 2006. All options available to be granted under the 1999
Plan, totaling 229,000 at January 31, 2000, must be granted by February
23, 2009. At January 31, 2000 shares under the 1999 Plan had not been
registered by the Company. The options currently outstanding have
F-14
<PAGE>
terms that expire between five and ten years from the date of grant and
vest over a period of three to four years from the date of the grant.
Information regarding options under the 1987 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
PRICE EXERCISE
PER SHARE OUTSTANDING EXERCISABLE PRICE
<S> <C> <C> <C> <C>
January 31, 1997 balance $0.51 - $4.81 1,293,344 1,246,344 $1.96
------------- --------- --------- -----
Became Exercisable -- -- 47,000 --
Exercised $0.51 - $4.75 (722,544) (722,544) $1.61
Cancelled $2.82 - $4.75 (12,000) (12,000) $3.85
------------- --------- --------- -----
January 31, 1998 balance $0.51 - $4.81 558,800 558,800 $2.36
Exercised $1.36 - $4.75 (248,800) (248,800) $3.17
------------- --------- --------- -----
January 31, 1999 balance $0.51 - $4.81 310,000 310,000 $1.77
Exercised $0.51 - $4.81 (211,000) (211,000) $2.25
------------- --------- --------- -----
January 31, 2000 balance $0.51 - $1.00 99,000 99,000 $0.75
============= ========= ========= =====
</TABLE>
F-15
<PAGE>
Information regarding options under the 1996 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
PRICE EXERCISE
PER SHARE OUTSTANDING EXERCISABLE PRICE
<S> <C> <C> <C> <C>
January 31, 1997 balance $ -- -- -- $ --
-------------- --------- ------- ------
Granted $7.25 - $10.00 464,000 -- $ 8.41
Became Exercisable $7.25 - $10.00 -- 67,250 --
Exercised $7.25 (21,750) (21,750) $ 7.25
Cancelled $7.25 (72,250) (1,750) $ 7.25
-------------- --------- ------- ------
January 31, 1998 balance $7.25 - $10.00 370,000 43,750 $ 8.70
-------------- --------- ------- ------
Granted $14.63- $21.50 263,900 -- $17.18
Became Exercisable $7.25 - $10.00 -- 141,250 $ 8.03
Exercised $7.25 (10,000) (10,000) $ 7.25
Cancelled $7.25 - $21.50 (281,800) -- $12.64
-------------- --------- ------- ------
January 31, 1999 balance $7.25 - $21.50 342,100 175,000 $ 8.00
Granted $19.00 261,500 -- $19.00
Became Exercisable $14.63- $21.50 -- 87,683 $17.70
Exercised $7.25 - $14.63 (165,500) (165,500) $ 7.91
Cancelled $7.25 - $21.50 (94,100) -- $16.84
-------------- --------- ------- ------
January 31, 2000 balance $10.00- $21.50 344,000 97,183 $18.00
============== ========= ======== ======
</TABLE>
Information regarding options under the 1999 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
PRICE EXERCISE
PER SHARE OUTSTANDING EXERCISABLE PRICE
<S> <C> <C> <C> <C>
January 31, 1999 balance $ -- -- -- $ --
------------- --------- -------- ------
Granted $16.00-$19.00 684,500 -- $17.58
Became Exercisable $19.00 -- 48,000 $19.00
Cancelled $16.00-$19.00 (163,500) -- $17.41
------------- --------- -------- ------
January 31, 2000 balance $16.00-$19.00 521,000 48,000 $17.63
============= ========= ======== ======
</TABLE>
F-16
<PAGE>
The following table summarizes information about options outstanding as of
January 31, 2000 under the 1987, 1996 and 1999 Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE
<S> <C> <C> <C> <C> <C>
$ 0.51 - $ 1.00 99,000 1.09 years $ 0.75 99,000 $ 0.75
$10.00 15,000 1.59 years $10.00 15,000 $10.00
$14.63 - $16.00 295,100 3.43 years $15.71 22,900 $14.63
$18.25 - $21.50 554,900 3.04 years $19.07 107,283 $19.09
------- ------ ------- ------
$ 0.51 - $21.50 964,000 3.06 years $16.03 244,183 $10.68
======= ====== ======= ======
</TABLE>
Compensation expense related to the Nonqualified Stock Options was $0,
$6,006, $136,265 for the years ended January 31, 2000, 1999 and 1998,
respectively.
Compensation expense related to the remeasurement of Nonqualified and
Incentive Stock Options was $0, $0, and $433,126 for the years ended
January 31, 2000, 1999 and 1998, respectively.
The Company has adopted the disclosure-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's plans been determined based on the fair value at the grant date
for awards in the fiscal years ended January 31, 2000, 1999 and 1998,
consistent with the provisions of SFAS No. 123, the incremental effect on
the Company's net (loss) earnings and basic and diluted earnings per share
would have been $715,391, $0.10 and $0.10 for 2000; $280,260, $0.04 and
$0.04 for 1999 and $162,935, $0.03 and $0.02 for 1998.
The fair value of the option grants is estimated based on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 2000, 1999 and
1998: dividend yield of 0.00% for the three years; expected volatility of
46.11%, 64.00% and 67.82%, respectively; risk-free interest rate of 6.02%,
5.29% and 6.53% respectively; and expected lives of 3 to 5 years for each
of the three years.
On February 23, 2000, the Board of Directors passed a resolution allowing
the Company to re-price all outstanding options granted under the 1996
Plan and the 1999 Plan. All Outstanding options at prices ranging from
$14.63 to $21.50 per share were re-priced to $14.25 per share. All other
terms and conditions, including vesting periods remain unchanged.
10. STOCK GRANTS
The Company, at the discretion of the Board of Directors, awards from time
to time to management personnel shares of its Common Stock at par value.
These shares vest over a period of three to five years. The Company
awarded 1,000 shares, 220,850 shares, and 30,000 shares of its Common
Stock and recorded compensation expense of $204,015, $417,582 and $122,625
for the years ended January 31, 2000, 1999 and 1998, respectively.
Shares cancelled by the Company due to termination or resignation of the
recipients for the years ended January 31, 2000, 1999 and 1998 totaled
35,383, 111,900 and 1,800, which amounts have been excluded from the above
compensation expense.
F-17
<PAGE>
11. LONG-TERM DEBT
On August 23, 1996, the Company entered into an Equipment Facility and
Revolving Credit Agreement (the "Facility") with a major New Jersey bank.
This Facility provided the Company with an unsecured line of credit of
$4,000,000 and a $6,000,000 facility for the purchase of machinery and
equipment, primarily telecommunications switching equipment, and is
secured by the Company's machinery and equipment.
The Company had drawn down $2,000,000 of the $6,000,000 in the fiscal year
ended January 31, 1997. In the fiscal year ended January 31, 1998, the
Company converted the balance to a term loan (the "term loan") payable in
monthly installments of $55,923 including principal and interest payable
over a term of 60 months. The remaining balance on this term loan as of
January 31, 2000 was $1,565,824, of which $568,653 was classified as
current. The interest rate on the term loan is 7.71%. The term loan is
secured by the assets of the Company.
During 2000, the Company had its bank extend a letter of credit in favor
of its landlord for a deposit on a lease totaling $89,440.
On March 16, 1998, the Company entered into an Amended and Restated
Equipment Facility and Revolving Credit Agreement (the "Amended Facility")
with the same bank. This Amended Facility increases the unsecured line of
credit to $8,000,000 and the Facility for the purchase of machinery and
equipment to $5,000,000.
On November 1, 1998, the Company entered into an Amendment to the Amended
and Restated Credit Agreement (the "Second Amended Facility") with the
same bank. This Amendment increased the Facility for the purchase of
machinery and equipment to $10,000,000 and decreased the unsecured line of
credit to $5,000,000. The Company currently has no amounts borrowed under
the Second Amended Facility. The interest under the Second Amended
Facility is at the bank's prime rate or, at the Company's option, 225
basis points above the LIBOR rate.
The Second Amended Facility requires the Company to meet certain
covenants. Among the covenants contained in the Second Amended Facility
are ratios and balances as to minimum tangible net worth, current ratio,
debt to net worth, debt service coverage, and fixed charge coverage (all
as defined). Other covenants include the level of capital expenditures,
acquisitions of capital stock, the incurrence of new long-term
indebtedness (as defined), and new liens on assets, as well as the
maintenance of certain other ratios. At January 31, 1999, the Company was
not in compliance with the covenants of the Second Amended Facility
concerning minimum tangible networth and debt service coverage. On April
30, 1999, the Company obtained a waiver on the covenants in default from
the bank and in connection therewith, the $10 million facility for the
purchase of machinery and equipment was terminated. At January 31, 2000,
the Company was not in compliance with the covenants of the Second Amended
Facility concerning minimum tangible net worth and the Debt to Equity
ratio (see Note 18).
F-18
<PAGE>
Scheduled maturities of notes payable during the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JANUARY 31,
<S> <C>
2001 $ 568,653
2002 615,053
2003 382,118
----------
$1,565,824
==========
</TABLE>
12. OTHER COMPENSATION
On September 21, 1999, the Company entered into an agreement with Warren
Feldman, Chairman of the Board of Directors and a shareholder of the Company. As
part of this agreement, a lump sum in the amount of $900,000 was paid to Mr.
Feldman in settlement of his employment agreement. The Company paid $650,000 and
Mr. Walt Anderson, a major shareholder, paid $250,000. Mr. Feldman's Employment
Agreement would have been in effect until December 31, 2001. The Company
expensed the $900,000 with the $250,000 being accounted for as a capital
contribution.
Simultaneously Revision LLC and Mr. Walt Anderson ("Revision/Anderson") and the
Company entered into put option agreements with Warren Feldman, Sol Feldman
("the Feldmans") and Leon Genet, ("Genet") a director of the Company. These Put
Option agreements allow the Feldmans and Genet the right to sell their shares of
the Company to Revision/Anderson at a price of $16.00 per share and obligate
Revision/Anderson to purchase the shares during an exercise period beginning on
December 11, 1999 and ending on February 10, 2000. The Company has no obligation
to purchase any shares from the Feldmans or Genet. The closing market price of
the Company's shares on September 21, 1999, the date of the agreements, was
$12.25, and the total number of shares covered by the agreements was 1,208,137.
Using a binomial valuation model with an interest rate of 5% and a volatility
rate of 50%, the fair value of the Put Option agreements was determined to be
approximately $4.03 per share or $4,870,554. The Company accounted for this
non-cash transaction as a charge to expense and a credit to paid-in capital
during the current fiscal year.
13. RESTRUCTURING
During the fourth quarter of fiscal 1999, the Company recorded a restructuring
charge of approximately $2,368,000 related to the adoption by the Company of a
formal plan for restructuring its focus of operations. The restructuring was
adopted in an effort to concentrate the Company's efforts on the Northeastern
United States market. Elements of the Company's restructuring plan included
eliminating the sales offices in Florida, Atlanta, Georgia, Washington D.C. and
the United Kingdom as well as the Miami switch.
The write downs incurred in connection with the restructuring included a charge
of approximately $1,280,000 associated with the planned disposal of the Miami
switch and switch site, a charge of approximately $723,000 associated with the
termination costs to reduce employee headcount and sales offices. A charge of
approximately $265,000 for the cost associated with the balance on the Fort
Lauderdale lease, and a charge of approximately $100,000 to write off line
installation costs associated with the Florida network. In the fiscal year
ending January 31, 1999, amounts paid included approximately $240,000 for
severance and termination costs. The balance of approximately $2,128,000 was
included on the balance sheet at January 31, 1999 as accrued restructuring
costs.
F-19
<PAGE>
The January 31, 1999 reserve included an amount of approximately $1,280,000 for
the abandonment of the Miami switch (total book value of approximately
$1,713,000 less the fair value of approximately $433,000). The fair value of the
switch equipment retained was based on the best estimates of the replacement
cost of the switch hardware which could be used in the Companies other switch
sites. Also included in the reserve were amounts for the severance of
approximately 25 employees of approximately $427,000, a reserve for the balance
of amounts due on the Fort Lauderdale lease of approximately $265,000, a reserve
to close the UK office of approximately $57,000 and line installation costs of
approximately $99,000.
The balance in the reserve at January 31, 2000, of approximately $12,000,
consists of the settlement of the lease in Fort Lauderdale Florida. For the
fiscal year ending January 31, 2000 amounts aggregating approximately $1,797,000
applied against the accrual consisted of approximately $1,280,000 for the write
down of the Miami switch, approximately $99,000 for the line installation costs,
approximately $51,000 for payments made on the Fort Lauderdale lease,
approximately $327,000 for severance payments and approximately $40,000 for
payments made to shut down the U.K. operation. Additionally, an aggregate of
approximately $319,000 which is reflected as a credit through the restructuring
charge line in the fiscal 2000 consolidated financial statements consisted of
approximately $97,000 reduction in the severence accrual, approximately $20,000
for the reduction of the fringe benefit accrual and $202,000 reduction in the
accrual on the Fort Lauderdale lease, due to revisions in the lease. The
salvageable components of the switch were relocated to the company's New York
City switch in the third quarter of fiscal 2000.
14. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a law suit, filed by one of its customers for
alleged breach of contract, which seeks compensatory and punitive damages of
$1,300,000. The Company believes that the suit is without merit and intends to
vigorously defend it. However, the outcome cannot be determined at this time.
The Company is involved in various legal and administrative actions arising in
the normal course of business. While the resolution of any such actions may have
an impact on the financial results for the period in which it is resolved, the
Company believes that the ultimate disposition of these matters will not have a
material adverse effect upon its consolidated results of operations, cash flows
or financial position.
The Company has commitments with several vendors for the purchase of
telecommunications services.
15. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net (loss) earnings by the
weighted average number of shares of common stock outstanding during each year.
Diluted (loss) earnings per share was computed on the assumption that all stock
options converted or exercised during each year or outstanding at the end of
each year were converted at the beginning of each year or at the date of
issuance or grant, if dilutive.
F-20
<PAGE>
The reconciliation of the earnings and common shares included in the
computation of basic earnings per common share and diluted earnings per
common share for the years ended January 31, 2000, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------------------- ------------------------------------------
EARNINGS SHARES PER-SHARE EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Net (Loss) Earnings $(9,414,202) $(3,417,797)
----------- -----------
Basic (Loss) Earnings
Per Share: $(9,414,202) 7,068,875 $ (1.33) (3,417,797) 6,817,701 $(0.50)
Effect of Dilutive
Securities:
Stock Options -- --
----------- --------- ------- ----------- --------- ------
Diluted (Loss) Earnings
Per Share $(9,414,202) 7,068,875 $ (1.33) $(3,417,797) 6,817,701 $(0.50)
=========== ========= ======= =========== ========= ======
<CAPTION>
1998
------------------------------------------
EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Net (Loss) Earnings $1,094,001
----------
Basic (Loss) Earnings
Per Share: 1,094,001 6,213,404 $0.18
Effect of Dilutive
Securities:
Stock Options 628,946
---------- --------- -----
Diluted (Loss) Earnings
Per Share $1,094,001 6,842,350 $0.16
========== ========= =====
</TABLE>
Outstanding stock options to purchase shares of Common stock were not
included in the computation of diluted earnings per share for the fiscal
years ended January 31, 2000 and 1999 because to do so would have been
antidilutive. For 1998 there were no items whose effect would have been
antidulitive.
F-21
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Amounts in thousands except per share data.
<TABLE>
<CAPTION>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1997 1997 1997 1998
<S> <C> <C> <C> <C>
Net sales $26,333 $36,152 $29,919 $30,882
Operating income (loss) 1,048 480 577 (557)
Net earnings (loss) 623 258 316 (103)
Basic earnings (loss) per common share 0.10 0.04 0.05 (0.02)
Diluted earnings (loss) per common share 0.09 0.04 0.05 (0.02)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1998 1998 1998 1999
<S> <C> <C> <C> <C>
Net sales $31,882 $33,556 $41,260 $30,585
Operating income (loss) 411 368 (1,504) (5,196)
Net earnings (loss) 263 277 (927) (3,031)
Basic earnings (loss) per common share 0.04 0.04 (0.12) (0.44)
Diluted earnings (loss) per common share 0.03 0.04 (0.12) (0.44)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1999 1999 1999 2000
<S> <C> <C> <C> <C>
Net sales $33,530 $36,617 $36,988 $32,625
Operating income (loss) 519 590 (5,954) (1,834)
Net earnings (loss) 296 339 (5,539) (4,510)
Basic earnings (loss) per common share 0.04 0.05 (0.77) (0.63)
Diluted earnings (loss) per common share 0.04 0.05 (0.77) (0.63)
</TABLE>
17. EMPLOYEE STOCK OWNERSHIP PLAN
On September 1, 1998, the Company established the Total-Tel USA
Communications, Inc. Employee Stock Ownership Plan (the "ESOP Plan").
Concurrently with the establishment of the nonleveraged ESOP Plan, the
Company contributed 600,000 shares of its Common Stock to the ESOP Plan.
The common shares were recorded at fair value at the date contributed to
the ESOP, totaling approximately $12.3 million, with an offset to Unearned
ESOP Shares in the Statement of Shareholders' Equity. The ESOP Plan is
administered through a trust by a trustee designated by the Board of
Directors. No shares have been allocated from the ESOP Plan as of January
31, 2000.
In February 1999, the Company's Board of Directors authorized the
termination of the ESOP Plan. On November 26, 1999 the Company filed a
request for a determination letter with the Internal Revenue Service
("IRS"). Upon IRS approval, the ESOP will be terminated.
F-22
<PAGE>
18. SUBSEQUENT EVENT
On April 25, 2000 the Company obtained a waiver on the covenants in
default from the bank in connection with the Second Amended Facility
******
F-23
<PAGE>
TOTAL-TEL USA COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(CONSOLIDATED)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
CHARGED CHARGED TO
BALANCE AT (CREDITED) TO OTHER BALANCE
BEGINNING COST AND ACCOUNTS- DEDUCTIONS- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31,
2000:
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $ 1,230,483 $ 1,074,916 $ -- $ 478,139 $ 1,827,260
Valuation reserve on deferred tax asset $ 3,702,881 $ 3,702,881
Allowances not deducted:
Restructuring reserve $ 2,128,000 $ (318,879) $ -- $ 1,797,126 $ 11,995
YEAR ENDED JANUARY 31,
1999:
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $ 866,421 $ 878,628 $ -- $ 514,566 $ 1,230,483
Allowances not deducted:
Restructuring reserve $ -- $ 2,367,910 $ -- $ 239,910 $ 2,128,000
YEAR ENDED JANUARY 31,
1998:
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts $ 1,053,670 $ 416,713 $ -- $ 603,962 $ 866,421
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - ----------- ------------------------
<S> <C>
(3)(a) Certificate of Incorporation, as amended. Incorporated by
reference to Exhibits 2-A, 2-B, 2-C and 2-D to Registration
Statement No. 2-15546 and Registrant's proxy statement relating
to its 1987 Annual Stockholder's Meeting.
(3)(b) By-Laws of Registrant. Incorporated by reference to Exhibit A to
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1972.
(3)(c) Amended Certificate of Incorporation to change the name of the
Corporation from Faradyne Electronics Corp. to Total-Tel USA
Communications, Inc., dated November 4, 1991. Incorporated by
reference to Exhibit 3 (c) to Registrant's Annual Report on Form
10-K for the year ended January 31, 1992.
(3)(d) By-Law Amendments incorporated by reference to Form 8K filed on
April 7, 1998.
(3)(e) Shareholder Rights plan filed by reference to Form 8K, on April
12, 1998.
(10)(a) Lease of premises at 140 Little Street, Belleville, New Jersey,
between Mansol Realty Registrant and Mansol Ceramics Registrant,
dated March 30, 1960. Incorporated by reference to Exhibit 13 (e)
to Registration Statement No. 2-17546.
(10)(a)(1) Assignment of lease from Mansol Realty Registrant to Mansol
Realty Associates. Incorporated by reference to Exhibit 10 (a)
(1) to Registrant's Annual Report on Form 10-K for the year ended
January 31, 1982.
(10)(b) Extension Agreement re: Lease of premises at 140 Little Street
dated October 31, 1974. Incorporated by reference to Exhibit 10
(b) to Registrant's Annual Report on Form 10-K for the year ended
January 31, 1981.
(10)(c) Lease of premises at 471 Cortland Street, Belleville, New Jersey,
between Birnfeld Associates and Mansol Ceramics Registrant, dated
October 31, 1974. Incorporated by reference to Exhibit 10 (c) to
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1981.
(10)(d) Lease Modification Agreement re: Lease of premises at 471
Cortland Street dated July 24, 1980. Incorporated by reference to
Exhibit 10 (d) to Registrant's Annual Report on Form 10-K for the
year ended January 31, 1981.
(10)(e)(i) Term Loan Agreement and Term Note both dated April 22, 1983
between Mansol Ceramics Registrant and United Jersey Bank in the
principal amount of $1,192,320. Incorporated by reference to
Exhibit 10 (e) to Registrants Annual Reporton Form 10-K for the
year ended January 31, 1983.
(10)(e)(ii) Installment Note and Equipment Loan and Security Agreement of
Mansol Ceramics Registrant and Guaranty of Registrant, dated
August 1, 1988, in connection with extension of the maturity date
of the loan referenced to in Exhibit 10 (e) (i).
(10)(f) Lease of premises at 17-25 Academy Street, Newark, New Jersey
between Mansol Ceramics Registrant and Rachlin & Co., dated April
29, 1983. Incorporated by reference to Exhibit 10 (f) to
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1984.
(10)(g) Lease Modification Agreement re: Lease of Premises at 471
Cortland Street dated July 24, 1985. Incorporated by reference to
Exhibit 10 (g) to Registrant's Annual Report on Form 10-K for the
year ended January 31, 1986.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - ----------- ------------------------
<S> <C>
(10)(h) Master Lease Agreement between Mansol Ceramics Registrant and
Fidelcor Services, Inc. dated December 30, 1985. Incorporated by
reference to Exhibit 10 (h) to Registrant's Annual Report on Form
10-K for the year ended January 31, 1986.
(10)(i) Deed, Mortgage and Mortgage Note between William and Fred
Schneper as Grantees and Borrowers and Mansol Ceramics Registrant
as Grantor and Lender, dated July 26, 1985 re: property located
in Hanover Township, New Jersey. Incorporated by reference 10 (i)
to Registrant's Annual Report on Form 10-K for the year ended
January 31, 1986.
(10)(j) Lease of premises at 140 Little Street, Belleville, New Jersey,
between Mansol Realty Association and Mansol Ceramics Registrant,
dated July 31, 1986. Incorporated by reference to Exhibit 10 (j)
to Registrant's Annual Report on Form 10-K for the year ended
January 31, 1987.
(10)(k) 1987 Stock Option Plan. Incorporated by reference to Registrant's
proxy statement relating to its 1987 Annual Stockholders'
Meeting.
(10)(k)(1) Amendment to the 1987 Stock Option Plan. Incorporated by
reference to Registrant's Form S-8 dated November 13, 1995.
(10)(l) Renewal of Lease and Extension to additional space at 17-25
Academy Street, Newark, New Jersey (a/k/a 1212 Raymond Boulevard,
Newark, New Jersey) between Mansol Ceramics Registrant and
Rachlin & Co. Incorporated by reference to Exhibit 10 (l) to
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1988. (See also Exhibit 10 (f)).
(10)(m) Agreement, dated June 13, 1989, between Mansol Ceramics
Registrant and Bar-lo Carbon Products, Inc. providing for the
sale of Ceramics' Carbon fixtures division. Incorporated by
reference to Exhibit 10 (m) to Registrant's Annual Report on Form
10-k for the year ended January 31, 1990.
(10)(n) Modification of Note and Mortgage from William Schneper, Fred
Schneper and Leon Schneper (Mortgagor) to Mansol Ceramics
Registrant (Mortgagee) dated August 1, 1990, extending the term
of the Note and Mortgage and modifying the interest provision.
(10)(o) Asset Purchase Agreement between Registrant, Mansol Ceramics
Registrant and Mansol Industries Inc. dated May 22, 1990,
including Subordinated Term Promissory Note and Security
Agreement, covering sale of assets and business of Manufacturing
Division of Mansol Ceramics Registrant. Incorporated by reference
to Exhibits 1, 2 and 3 to Registrant's Current Report on Form 8-K
dated May 22, 1990.
(10)(p) Modification of Loan between Mansol Industries, Inc. (borrower)
and Mansol Ceramics Registrant (Lender) dated January 31, 1992,
allowing for the deferral of the principal for twelve months
through and including the period ending June 22, 1992 in
consideration for personal guarantees from Borrower. Incorporated
by reference to Exhibit 10 (p) to Registrant's Annual Report on
Form 10-K for the year ended January 31, 1992.
(10)(q) Lease of premises at 470 Colfax Avenue, Clifton, New Jersey,
between Total-Tel USA Communications, Inc. and Broadway Financial
Investment Services, Inc. dated March 25, 1991. Incorporated by
reference to Exhibit 10 (q) to Registrant's Annual Report on Form
10-K for the year ended January 31, 1992.
(10)(r) Lease of premises at 744 Broad Street, Newark, New Jersey between
Total-Tel USA Inc. and Investment Property Services, Inc. dated
November 15, 1993. Incorporated by reference to Exhibit 10 (r) to
the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - ----------- ------------------------
<S> <C>
(10)(s) Lease of premises at 744 Broad Street, Newark, New Jersey between
Total-Tel USA, Inc. and Investment Property Services, Inc. dated
December 28, 1993. Incorporated by reference to Exhibit 10 (s) to
the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1994
(10)(t) Lease of premises at 471 Cortland Street, Belleville, New Jersey,
between Total-Tel USA Inc. and Birnfeld Associates - Belleville
dated December 1, 1993. Incorporated by reference to Exhibit 10
(t) to the Registrant's Annual Report on Form 10-K for the year
ended January 31, 1994.
(10)(u) Lease of premises at 150 Clove Road, Little Falls, New Jersey,
between Total-Tel USA Inc. and the Prudential Insurance
Registrant of America dated February 22, 1994. Incorporated by
reference to Exhibit 10 (u) to the Registrant's Annual Report on
Form 10-K for the year ended January 31, 1994.
(10)(v) Lease modification to the lease of the premises at 150 Clove
Road, Little Falls, New Jersey between TotalTel, Inc. and The
Prudential Registrant of America dated May 18, 1994. Incorporated
by reference to Exhibit 10 (v) to the Registrant's Annual Report
on Form 10-K for the year ended January 31, 1995.
(10)(w) Second lease modification to the lease of the premises at 150
Clove Road, Little Falls, New Jersey between TotalTel, Inc. and
Theta Holding Registrant, L. P., successor to the Prudential
Insurance Registrant of America dated February 9, 1995.
Incorporated by reference to Exhibit 10 (w) to the Registrant's
Annual Report on Form 10-K for the year ended January 31, 1995.
(10)(x) Third lease modification to the lease of the premises at 150
Clove Road, Little Falls, New Jersey between TotalTel, Inc. and
Theta Holding Registrant, L. P., successor to the Prudential
Insurance Registrant of America dated January 31, 1997.
Incorporated by reference to exhibit (10)(x) to the registrants
Annual Report on Form 10-K for the year ended January 31, 1997.
(10)(y) Equipment Facility and Revolving Credit Agreement dated August
23, 1996 between Total-Tel USA Communications, Inc., TotalTel,
Inc., Total-Tel USA, Inc., and Total-Tel Carrier Services, Inc.
and the Summit Bank in the amount of $10,000,000. Incorporated by
referral to Exhibit (10)(y) to the Registrants Annual Report on
Form 10K for the year ended January 3, 1997.
(10)(z) Lease of premises at 500 Fifth Avenue, New York City, New York
between TotalTel, Inc. and 1472 Broadway, Inc. dated November 8,
1996. Incorporated by reference to Form 10K for the year ended
January 31, 1997.
(10)(AA) Lease of premises at 40 Rector Street, New York City, New York
between Total-Tel USA Communications, Inc. and 40 Rector Street
Registrant dated November 1, 1996. Incorporated by reference to
Form 10K for the year ended January 31, 1997.
(10)(AB) 1996 Stock Option Plan, Incorporated by reference to Registrant's
Proxy Statement relating to its 1996 Annual Stockholder Meeting.
(10)(AC) Lease of premises of 28 West Flagler Street, Miami, Florida
between TotalTel, Inc. and Mosta Corporation, Inc. dated February
6, 1998. Incorporated by reference to Form 10K for the year ended
January 31, 1998.
(10)(AD) Amended Equipment Facility and Revolving Credit Agreement dated
August 23, 1996 between Total-Tel USA Communications, Inc.,
TotalTel, Inc., Total-Tel USA, Inc., and Total-Tel Carrier
Services, Inc. and the Summit Bank in the amount of 13,000,000.
Incorporated by reference to Form 10K for the year ended
January 31, 1997.
(10)(AE) Amendment to the Amended Facility and Revolving Credit Agreement
dated November 1, 1998 between Total_Tel USA Communications,
Inc., TotalTel, Inc., Total-Tel USA, Inc., and Total-Tel Carrier
Services, Inc. and the Summit Bank in the amount of 13,000,000.
Incorporated by reference to Form 10K for the year ended January
1, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - ----------- ------------------------
<S> <C>
(10)(AF) Lease of premises of 20 Crossways Park North, Woodbury, New York,
between TotalTel, Inc. and Industrial and Research Associates
Company, dated August 20, 1999.
(10)(AG) Lease of premises of One Landmark Square, Stamford, Connecticut.
between TotalTel, Inc. and Reckson Operating Partnership, LLP,
dated November 17, 1999.
(10)(AH) Lease of premises of 1810 Chapel Avenue West, Cherry Hill, New
Jersey between TotalTel, Inc. and Commerce Center Holdings, Inc.,
dated December 6, 1999.
(10)(AI) The 1999 Equity Incentive Plan. Incorporated by reference to the
Registrant's Proxy Statement relating to its 1999 Annual
Shareholder Meeting.
(22) Subsidiaries of Registrant. Incorporated by reference to Exhibit
22 to Registrant's Annual Report on Form 10-K for the year ended
January 31, 1996.
(23) Consent of Deloite and Touche, LLP
(27) Financial Data Schedules.
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.................................. 'SS'
The degree symbol shall be expressed as................................... [d]
<PAGE>
EXHIBIT (10)(AF)
INDUSTRIAL & RESEARCH ASSOCIATES CO.
LANDLORD
WITH
TOTAL TEL USA COMMUNICATIONS INC.
TENANT
AGREEMENT OF LEASE
PREMISES -- SUITE 410
20 CROSSWAYS PARK NORTH
WOODBURY, NEW YORK 11797
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- - ------- ----
<S> <C> <C>
I DEMISE 1
II TERM 2
III BASIC RENT-- ADDITIONAL RENT 4
IV UTILITIES AND SERVICES 7
V LANDLORD'S WORK, REPAIR AND MAINTENANCE 9
VI CHANGES AND ALTERATIONS -- SURRENDER OF
DEMISED PREMISES 11
VII COMPLIANCE WITH ORDERS, ORDINANCES, ETC. 13
VIII MECHANIC'S LIENS 14
IX INSPECTION OF DEMISED PREMISES BY LANDLORD 15
X RIGHT TO PERFORM COVENANTS 16
XI DAMAGE OR DESTRUCTION 17
XII CONDEMNATION 20
XIII BANKRUPTCY OR OTHER DEFAULT 22
XIV CUMULATIVE REMEDIES -- NO WAIVER 31
XV SUBORDINATION 32
XVI QUIET ENJOYMENT 33
XVII NOTICES 34
XVIII DEFINITION OF CERTAIN TERMS, ETC. 35
XIX INVALIDITY OF PARTICULAR PROVISIONS 36
XX COVENANTS TO BIND AND BENEFIT RESPECTIVE PARTIES 37
XXI INSURANCE 38
XXII USE, ASSIGNMENT OR SUBLETTING 39
XXIII RULES AND REGULATIONS 41
XXIV LANDLORD'S LIABILITY 42
XXV ENTIRE AGREEMENT 43
XXVI CERTIFICATES 44
XXVII SECURITY 45
XXVIII BROKER 46
XXIX SIGNS 47
XXX HOLDING OVER 48
XXXI TEMPORARY SPACE 49
XXXII OPTION TO RENEW 50
</TABLE>
EXHIBITS
--------
Demised Premises "A" & "A-1"
Building Site Plan "B"
Work Letter "C"
Cleaning Specifications "D"
Rules & Regulations "E"
<PAGE>
THIS INDENTURE OF LEASE made the 12th day of May, 1999, by and
between INDUSTRIAL & RESEARCH ASSOCIATES CO., a co-partnership, with offices at
7600 Jericho Turnpike, Woodbury, New York 11797, hereinafter referred to as the
"LANDLORD" and TOTAL TEL USA COMMUNICATIONS INC., with offices at 150 Clove
Road, Little Falls, New Jersey 07424, hereinafter referred to as the "TENANT".
W I T N E S S E T H
WHEREAS, the LANDLORD is the owner in fee of the premises
hereinafter demised
NOW, THEREFORE, LANDLORD and TENANT covenant and agree as
follows:
ARTICLE I
DEMISE
Section 1.1 The LANDLORD, for and in consideration of the
rents, covenants and agreements, hereinafter reserved and contained herein,
hereby leases and TENANT does hereby take and hire, upon and subject to the
covenants and conditions hereinafter expressed which the TENANT agrees to keep
and perform, the premises shown on the floor plan annexed hereto as Exhibit "A",
hereinafter called the "Demised Premises" consisting of 2,770 square feet
rentable in the building as shown on the Plan annexed hereto and marked Exhibit
"B", situated at 20 Crossways Park North, Woodbury, New York 11797, together
with the right to use, in common with other tenants of the LANDLORD in this and
other buildings, the parking area shown on Exhibit "B" (hereinafter called
"parking area") for the parking of automobiles of employees, customers, invitees
or licensees of the TENANT and other tenants of the LANDLORD.
1
<PAGE>
ARTICLE II
TERM
Section 2.1 The basic term of this Lease (hereinafter referred
to as the "Term") shall commence upon the date the LANDLORD gives notice to the
TENANT that the LANDLORD has substantially completed the work set forth on the
Work Letter attached hereto as Exhibit "C". The term "substantially completed"
as used herein shall be deemed to mean so complete as to allow the TENANT to
enter the Demised Premises and conduct its normal business operations therein
even though there may be minor items of decoration or construction to be
completed. At the time of the commencement of the Lease the LANDLORD shall have
received a temporary or permanent Certificate of Occupancy for the Demised
Premises (unless any work to be done therein, by the TENANT, shall prevent the
issuance of either such Certificate of Occupancy) and the air conditioning,
heating, plumbing and electrical systems in the Demised Premises and the
elevator in the building shall be in good working order and the said Demised
Premises shall be free of debris.
Section 2.2 The term of this Lease shall be for three (3)
years.
The term "Lease year" as used herein or "year" as used herein,
shall mean a twelve (12) month period. The first Lease year shall commence on
the date of the term hereof, but if such date of commencement shall be a date
other than the first day of a month, the first Lease year shall commence on the
first day of the month following the month in which the term of the Lease
commences. Each succeeding Lease year during the term hereof shall commence on
the anniversary date of the first Lease year.
2
<PAGE>
Section 2.3 Immediately following the determination of the
commencement date of the term of this Lease, the LANDLORD and the TENANT, at the
request of either party, shall execute an agreement in recordable form, setting
forth both the dates of the commencement of the term of this Lease and the date
of the termination hereof.
Section 2.4 The parties expect that the term of this Lease
will commence ninety (90) days after the execution of this Lease. In the event,
however, that the LANDLORD is unable to substantially complete the work set
forth on Exhibit "C" by reason of strikes, inability to obtain materials,
governmental regulations, acts of God or other matters beyond LANDLORD'S
reasonable control then, and in that event, the provisions of Section "2.1"
shall control the commencement of the term hereof.
Section 2.5 Notwithstanding anything to the contrary contained
herein, in the event that the LANDLORD cannot deliver TENANT'S permanent Demised
Premises within ninety (90) days of TENANT'S occupancy of TENANT'S temporary
demised premises, TENANT shall have the option of canceling this Lease
Agreement. TENANT shall provide one week of prior notice of TENANT'S intention
to cancel. TENANT shall move out of TENANT'S Demised Premises at the end of such
seven-day period and LANDLORD shall return all monies received from the TENANT.
Upon TENANT vacating the temporary demised premises and the return of any monies
paid to the LANDLORD, neither party shall have any further obligation to the
other. In the event the TENANT shall remain in the temporary Demised Premises
beyond such seven-day period, TENANT shall pay a per diem rent of $130.19.
3
<PAGE>
ARTICLE III
BASIC RENT -- ADDITIONAL RENT
Section 3.1 The TENANT shall pay to the LANDLORD an Annual
Basic Rent to INDUSTRIAL & RESEARCH ASSOCIATES CO. at P.O. Box 9020, Hicksville,
New York 11802-9020, in equal monthly installments in advance of or on the first
day of each month without notice and demand and without abatement, deduction or
set-off of any amount whatsoever as per the following schedule:
<TABLE>
<CAPTION>
TERM ANNUAL RENT MONTHLY RENT
---- ----------- ------------
<S> <C> <C>
Lease Year 1 $62,325.00 $5,193.75
Lease Year 2 $64,818.00 $5,401.50
Lease Year 3 $67,421.80 $5,618.48
</TABLE>
The fractional rent, if any, from the rent commencement date (as above provided)
to the date of the first day of the following month shall be paid by the TENANT
to the LANDLORD within five (5) days after the rent commencement date. The
LANDLORD acknowledges receipt of $5,713.13 representing the rent and electrical
charges (as indicated in Section 4.2 of this Lease) for the first full month for
which rent is due hereunder.
Section 3.2 As additional rent during each and every Lease
year during the term hereof and any renewals the TENANT shall pay to the
LANDLORD its proportionate share of any increase in real estate taxes over the
1998/99 School Tax and the 1999 Town Tax.
A. TENANT'S proportionate share of any such increase shall be
determined by multiplying any such increase by a fraction, the numerator of
which shall be the total gross rentable area of the Demised Premises (i.e.,
2,770 square feet) and the denominator of which shall be the total gross
rentable area of the building of which the Demised Premises form a part (i.e.,
55,000 square feet), i.e., 5.04%.
4
<PAGE>
B. TENANT shall similarly pay its proportionate share as
determined in sub-paragraph "A" above of any ad valorem assessments, or
impositions against the real property of which the Demised Premises form a part
and its proportionate share of any taxes which shall be imposed in lieu of any
ad valorem real property tax as the same is presently considered, except that
TENANT shall not be obligated to pay any portion of any assessment or
impositions (whether payable in installments or otherwise) which have become a
lien prior to the commencement of the term of this Lease. In the event that
there shall be any general or special assessments or impositions against the
said real property which the TENANT is obligated to pay a proportionate share,
the LANDLORD agrees that if the said assessments or impositions may be paid in
installments that the LANDLORD will elect to pay the same in installments and
the TENANT shall only be responsible to pay its proportionate share of those
installments which cover the period of the term of the Lease.
Section 3.3 In the event that LANDLORD or any major tenant of
the building should contest any taxes or assessments levied against the
building, the TENANT agrees to cooperate but is not obligated to contribute to
any expenses incurred by the LANDLORD in any such proceeding or action. In the
event that there shall be any refunds of taxes by reason of any such action or
proceeding, the TENANT shall be entitled to receive back its proportionate share
of the net refund (after deducting therefrom the cost of the action or
proceeding including, without limitation, reasonable fees for experts, court
costs, attorneys, etc.). In no event shall TENANT be entitled to any refund in
excess of the amount of taxes paid by the TENANT for the year for which such
refund was made.
Section 3.4 Rent and Additional Rent shall be payable in
lawful money of the United States to the LANDLORD at P.O. Box 9020, Hicksville,
New York 11802-9020, or at such other place as the LANDLORD may from time to
time designate, in advance, without notice, demand, offset or deduction except
as specifically set forth herein. In the event any payment of Basic Rent or
Additional Rent shall not be made to LANDLORD within ten days after the due date
thereof, there shall be added to the
5
<PAGE>
amount a sum equal to five percent of the unpaid items to help defray LANDLORD'S
additional costs for additional bookkeeping and other costs in connection
therewith.
Section 3.5 Any payment to LANDLORD provided for herein, for
which no specific time period is set forth within which it is to be paid, must
be paid within fifteen (15) days of receipt of notice that same is due.
6
<PAGE>
ARTICLE IV
UTILITIES AND SERVICES
Section 4.1 Throughout the term of this Lease, LANDLORD shall
supply and TENANT shall pay for TENANT'S electricity used in the Demised
Premises and for the common areas for normal lighting. The TENANT shall use no
electric equipment in the Demised Premises other than normal typewriters,
desktop computers, fax machines, copiers and other normal small office machines.
If the TENANT introduces equipment onto the premises other than other normal
small office business machines, TENANT shall reimburse LANDLORD for the
additional cost of electricity necessary for same.
Section 4.2 LANDLORD shall supply, at LANDLORD'S own expense,
water to the building of which the Demised Premises form a part for normal
office building consumption.
Section 4.3 The cost of electricity to the TENANT, during the
term of this Lease, shall be the sum of $6,232.50 per year payable in equal
monthly installments of $519.38 in advance.
Section 4.4 The LANDLORD covenants to provide and pay for
heat, air-conditioning, elevator service and electricity to the building between
the hours of 8:00 a.m. and 6:00 p.m., Monday through Friday and Saturday between
the hours of 8:00 a.m. to 1:00 p.m. However, if one of the days above is a
"Holiday", the above services shall not be in operation. The term "Holidays"
shall mean New Year's Day, Washington's Birthday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas, and such other Holidays as may, from
time to time, be nationally recognized.
Section 4.5 The LANDLORD covenants to provide and pay for
cleaning services by LANDLORD'S cleaner as per the Cleaning Specifications
attached hereto and made a part hereof as Exhibit "D".
7
<PAGE>
Section 4.6 LANDLORD agrees that TENANT'S move into or out of
the Building may take place on Saturdays, Sundays and Holidays, and that during
the period while TENANT is in the process of moving into the Building, LANDLORD,
at TENANT'S expense, shall furnish a Supervisor from LANDLORD'S staff during the
move-in period. TENANT agrees to give at least seven days' prior written notice
to LANDLORD of the date of any such move, and the time thereof and TENANT shall
use the loading areas and service elevator designated by LANDLORD for such
moving and deliveries, and to otherwise abide by the Rules established by
LANDLORD as respect deliveries to or moving into or out of the Demised Premises.
TENANT shall supply, at TENANT'S cost and expense, protective coverings to
protect the floors and walls of the Building when moving into or out of the
Demised Premises or when receiving or sending any bulky or heavy materials.
8
<PAGE>
ARTICLE V
LANDLORD'S WORK, REPAIR AND MAINTENANCE
Section 5.1 The LANDLORD agrees, at its own cost and expense,
to do the work relating to the Demised Premises in accordance with the Work
Letter attached hereto, as Exhibit "C".
Section 5.2 TENANT may have its workmen commence work in the
Demised Premises prior to the substantial completion of LANDLORD'S work,
provided that such workmen do not, in any manner, interfere with or impede
LANDLORD'S workers. In the event that TENANT'S workers shall interfere with or
impede LANDLORD'S workers, then upon notice from LANDLORD, TENANT will
immediately remove its workers from the Demised Premises. TENANT'S entry into
the Demised Premises for the purpose of making TENANT'S installations shall not
be deemed a waiver of any of the TENANT'S rights under the Lease, nor shall the
same be deemed an acceptance of the work to be done by the LANDLORD hereunder.
Section 5.3 The TENANT covenants throughout the term of this
Lease, at the TENANT'S sole cost and expense, to take good care of the interior
of the Demised Premises and keep the same in good order and condition and to
make all repairs therein except as provided in Section "5.4" hereof.
Section 5.4 The LANDLORD covenants throughout the term of this
Lease, at the LANDLORD'S sole cost and expense, to make all structural repairs
to the building in which the Demised Premises are located and shall also
maintain and keep in good repair the building's sanitary, electrical, heating,
air conditioning and other systems servicing or located, in or passing through
the Demised Premises, other than
(i) To any systems, facilities and equipment installed on
behalf of the TENANT; and
9
<PAGE>
(ii) To any of the improvements to the interior of the Demised
Premises undertaken and completed by the TENANT; and
(iii) Any repairs which are necessitated by any act or
omission of the TENANT, its agents, servants, employees or invitees, which
repairs TENANT shall make at its own cost and expense. In the event the LANDLORD
makes any repairs which are necessitated by any act or omission of the TENANT,
its affiliates, employees or invitees, LANDLORD shall submit a copy of the bill
for same and shall charge the TENANT an additional ten percent (10%) overhead
and ten percent (10%) profit along with such bill.
Section 5.5 Except as expressly provided otherwise in this
Lease, there shall be no allowance to the TENANT or diminution of rent and no
liability on the part of the LANDLORD by reason of inconvenience, annoyance or
injury to business arising from the making of any repairs, alterations,
additions or improvements in or to any portion of the building, on the Demised
Premises, in the parking area, or in and to the fixtures, appurtenances and
equipment thereof. The LANDLORD agrees to do any work to be done by it in such a
manner as not to unreasonably interfere with the TENANT'S use of the Demised
Premises.
10
<PAGE>
ARTICLE VI
CHANGES AND ALTERATIONS -- SURRENDER OF DEMISED PREMISES
Section 6.1 The TENANT shall have the right, at any time and
from time to time, during the term of this Lease to make such nonstructural
changes and alterations to the Demised Premises as the TENANT shall deem
necessary or desirable. However, all changes and alterations must be made with
the written consent of the LANDLORD, which shall not be unreasonably withheld or
delayed, and any alterations affecting HVAC, plumbing and electrical work,
including lighting, must be done by the LANDLORD at TENANT'S sole cost and
expense.
Section 6.2 The TENANT agrees not to place any signs on the
roof or on or about the inside or outside of the building in which the Demised
Premises are situated, except for signs inside of the Demised Premises which may
not be seen from the outside, except as noted in Article XXIX of this Lease.
Section 6.3 All improvements and alterations made or installed
by or on behalf of the TENANT, shall immediately, upon completion of
installation thereof, be and become the property of the LANDLORD without payment
therefor by the LANDLORD.
Section 6.4 The TENANT shall, upon the expiration or earlier
termination of this Lease, surrender to the LANDLORD the Demised Premises,
together with all alterations and replacement thereto, in good order and
condition, except for reasonable wear and tear or damage by fire or casualty.
If the TENANT shall make any alterations or changes or
additions to the Demised Premises, after the commencement of the term of this
Lease, and LANDLORD shall desire the same to be removed upon the expiration of
the term hereof, then upon LANDLORD'S giving notice to the TENANT of its desire
to have the same removed, the TENANT will remove the same prior to the
expiration of the term hereof at TENANT'S sole cost and expense and TENANT will,
at its own cost and expense, restore the premises to the condition which they
were in just prior to the commencement of the term hereof, normal wear and tear
and damage by fire excepted.
11
<PAGE>
Section 6.5 In connection with any alterations to the Demised
Premises done by TENANT including decorating, prior to any work being commenced,
TENANT shall supply to LANDLORD: (i) liability insurance from the Contractor
doing the work in an amount not less than Three Million Dollars, naming LANDLORD
as an additionally named insured; (ii) evidence that all workers doing work in
the Demised Premises are covered by Workmen's Compensation Insurance; (iii) an
agreement from TENANT'S contractor to remove all debris from the premises shown
on Exhibit "B" after 6:00 P.M. at the end of each day's work. In the event
TENANT'S contractor shall fail to remove debris on a daily basis, as hereinabove
provided, LANDLORD may order said contractors off the premises and refuse them
access to the Building thereafter.
12
<PAGE>
ARTICLE VII
COMPLIANCE WITH ORDERS, ORDINANCES, ETC.
Section 7.1 The TENANT covenants throughout the term of this
Lease and any renewals hereof, at the TENANT'S sole cost and expense, to comply
with all laws and ordinances and the orders and requirements of all federal,
state and municipal governments and appropriate departments, commissions, boards
and officers thereof, other than common areas, which hereafter may be applicable
to the TENANT'S use or occupancy of the Demised Premises.
Section 7.2 The TENANT shall have the right to contest by
appropriate legal proceedings, in the name of the TENANT or the LANDLORD or
both, but without cost or expense to the LANDLORD, the validity of any law,
ordinance, order or requirement of the nature referred to in Section "7.1"
hereof. Provided such noncompliance does not subject the LANDLORD to any
criminal liability for failure so to comply therewith, the TENANT may postpone
compliance therewith until the final determination of any proceedings, provided
that all such proceedings shall be prosecuted with all due diligence and
dispatch, and if any lien or charge is incurred by reason of noncompliance, the
TENANT may nevertheless make the contest aforesaid and delay compliance as
aforesaid, provided that the TENANT indemnifies the LANDLORD against any loss or
injury by reason of such noncompliance or delay therein.
Section 7.3 LANDLORD covenants and agrees that at the time of
the commencement of the term of this Lease, the Demised Premises shall comply
with all laws, ordinances and regulations applicable thereto.
13
<PAGE>
ARTICLE VIII
MECHANIC'S LIENS
Section 8.1 The TENANT covenants not to suffer or permit any
mechanic's liens to be filed against the fee interest of the LANDLORD nor
against TENANT'S Leasehold interest in the Demised Premises by reason of work,
labor, services or materials supplied or claimed to have been supplied to the
TENANT or any contractor, subcontractor or any other party or person acting at
the request of the TENANT, or anyone holding the Demised Premises or any part
thereof through or under the TENANT. TENANT agrees that in the event any
mechanic's lien shall be filed against the fee interest of the LANDLORD or
against the TENANT'S Leasehold interest the TENANT shall, within thirty (30)
days after receiving notice of the filing thereof, cause the same to be
discharged of record by payment, deposit, bond or order of a court of competent
jurisdiction or otherwise.
If TENANT shall fail to cause such lien to be discharged or
bonded with the period aforesaid, then, in addition to any other right or
remedy, LANDLORD may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due, by procuring the discharge of such lien by
deposit by bonding proceedings, and in any such event, LANDLORD shall be
entitled, if LANDLORD so elects, to compel the prosecution of any action for the
foreclosure of such lien by the lienor and to pay the amount of the judgment in
favor of the lienor with interest, costs and allowances. Any amount so paid by
LANDLORD and all reasonable costs and expenses incurred by LANDLORD or the fee
owner in connection therewith, including, but not limited to premiums on any
bonds filed and attorneys' fees, shall constitute Additional Rental payable by
TENANT to LANDLORD within ten days of demand therefor.
14
<PAGE>
ARTICLE IX
INSPECTION OF DEMISED PREMISES BY LANDLORD
Section 9.1 The TENANT agrees to permit the LANDLORD and the
authorized representatives of the LANDLORD to enter the Demised Premises at all
reasonable times during TENANT'S usual business hours for the purpose of (a)
inspecting the same, and (b) making any necessary repairs to the Demised
Premises.
Section 9.2 The LANDLORD is hereby given the right, during
TENANT'S usual business hours, to enter the Demised Premises to exhibit the same
for the purpose of sale or mortgage and, during the last six (6) months of the
initial term or at anytime if the TENANT defaults in any of the terms, covenants
and conditions of this Lease, to exhibit the same to prospective tenants for the
purposes of renting.
Section 9.3 With regard to Sections 9.1 and 9.2, LANDLORD
shall endeavor to give reasonable notice to TENANT of LANDLORD'S intention to
inspect the premises or to make repairs.
15
<PAGE>
ARTICLE X
RIGHT TO PERFORM COVENANTS
Section 10.1 The TENANT covenants and agrees that if the
TENANT shall, at any time, fail to make any payment or perform any other act on
its part to be made or performed under this Lease, the LANDLORD, after the
expiration of any time limitation set forth in this Lease (except in cases of
emergency) may, but shall not be obligated to, make such payment or perform such
other act to the extent the LANDLORD may deem desirable, and in connection
therewith to pay expenses and employ counsel. All sums so paid by the LANDLORD
and all expenses in connection therewith shall be deemed Additional Rent
hereunder and be payable to the LANDLORD on the first day of the next month and
the LANDLORD shall have the same rights and remedies for the nonpayment thereof
as in the case of default in the payment of the basic rent reserved hereunder.
16
<PAGE>
ARTICLE XI
DAMAGE OR DESTRUCTION
Section 11.1 A. If the Demised Premises or any part thereof
shall be damaged by fire or other casualty, TENANT shall give immediate notice
thereof to LANDLORD and this Lease shall continue in full force and effect
except as hereinafter set forth.
B. If the Demised Premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto shall
be repaired by and at the expense of LANDLORD to the extent that said damages
include those installations originally installed by LANDLORD as promptly as
practical.
C. If the Demised Premises are totally damaged or
rendered wholly unusable by fire or other casualty, then the LANDLORD shall have
the right to elect not to restore the same as hereinafter provided.
D. If the Demised Premises are rendered wholly
unusable or (whether or not the Demised Premises are damaged in whole or in
part) if the building shall be so damaged that LANDLORD shall decide to demolish
it or not to rebuild it, then, in any of such events, LANDLORD may elect to
terminate this Lease or rebuild by written notice to TENANT given within ninety
(90) days after such fire or casualty specifying a date for the expiration of
the Lease or rebuilding, which date shall not be more than sixty (60) days after
the giving of such notice. Upon the date specified in a notice of termination,
the term of this Lease shall expire as fully and completely as if such date were
the date set forth above for the termination of this Lease and TENANT shall
forthwith quit, surrender and vacate the premises without prejudice however, to
LANDLORD'S rights and remedies against TENANT under the Lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by TENANT which were on account of any period
subsequent to such date shall be returned to TENANT. Unless LANDLORD
17
<PAGE>
shall serve a termination notice as provided for herein, LANDLORD shall make the
repairs and restorations under the conditions of "B" and "C" hereof, with all
reasonable expedition subject to delays due to adjustment of insurance claims,
labor troubles and causes beyond LANDLORD'S reasonable control.
E. Nothing contained hereinabove shall relieve TENANT
from liability that may exist as a result of damage from fire or other casualty
caused by TENANT. Notwithstanding the foregoing, each party shall look first to
any insurance in its favor before making any claim against the other party for
recovery for loss or damage resulting from fire or other casualty, and to the
extent that such insurance is in force and collectable to the extent permitted
by law, LANDLORD and TENANT each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. LANDLORD and TENANT'S insurance policies shall
contain a clause providing that such a release or waiver shall not invalidate
the insurance and also, provided that such policy can be obtained without
additional premiums. In the event that there are additional premiums for such
waiver of subrogation, the party in whose favor such waiver is intended shall
have the option to either pay the additional premium or waive the condition that
the other's policy contain the same. TENANT acknowledges that LANDLORD will not
carry insurance on TENANT'S furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances removable by TENANT and agrees that
LANDLORD will not be obligated to repair any damage thereto or replace the same.
F. TENANT hereby waives the provisions of Section 227
of the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
Section 11.2 The TENANT shall not knowingly do or permit to be
done any act or thing upon the Demised Premises, which will invalidate or be in
conflict with fire insurance policies covering the building of which Demised
Premises form a part, and fixtures and property therein. The TENANT shall, at
its expense, comply with all rules, orders, regulations or requirements of the
New York Board of Fire Underwriters,
18
<PAGE>
or any other similar body, which may be applicable to the TENANT'S use and
occupancy of the Demised Premises, provided that the necessity for such
compliance results from the use and occupancy of the Demised Premises by the
TENANT, and shall not do, or permit anything to be done, in or upon the Demised
Premises or bring or keep anything therein, or use the Demised Premises in a
manner which shall increase the rate of fire insurance on the building of which
the Demised Premises form a part, or on the property located therein, over that
in effect when the Lease commenced, unless the TENANT shall reimburse the
LANDLORD, as additional rent hereunder, for that part of all insurance premiums
thereafter paid by the LANDLORD, which shall have been charged because of such
failure or use by the TENANT, and shall make such reimbursement upon the first
day of the month following receipt of notice of such outlay by the LANDLORD and
evidence of the payment thereof.
Section 11.3 Notwithstanding anything to the contrary
contained in this Lease, during any period after damage or destruction and until
the premises have been restored, the TENANT shall be entitled to an abatement of
rent and additional rent for the unusable portion of the Demised Premises, on a
square foot basis. If the Lease is terminated, all rent and additional rent
shall cease as of the day of any such damage and destruction.
19
<PAGE>
ARTICLE XII
CONDEMNATION
Section 12.1 If the whole of the Demised Premises shall be
taken for any public or quasi-public use by any lawful power or authority by
exercise of the right of condemnation or eminent domain, or by agreement between
LANDLORD and those having the authority to exercise such right (hereinafter
called "Taking"), the term of this Lease and all rights of TENANT hereunder,
except as hereinafter provided, shall cease and expire as of the date of vesting
of title as a result of the Taking and the rent or additional rent paid for a
period after such date shall be refunded to TENANT upon demand.
Section 12.2 In the event of a Taking of less than the whole
of the Demised Premises, or the whole or part of the parking area, this Lease
shall cease and expire in respect of the portion of the Demised Premises and/or
the parking area taken upon vesting of title as a result of the Taking, and, if
the Taking results in the portion of the Demised Premises remaining after the
Taking being inadequate, in the judgment of TENANT, for the efficient,
economical operation of the TENANT'S business conducted at such time in the
Demised Premises, TENANT may elect to terminate this Lease by giving notice to
LANDLORD of such election not more than forty-five (45) days after the actual
Taking by the condemning authority, stating the date of termination, which date
of termination shall be not more than thirty (30) days after the date on which
such notice to LANDLORD is given, and upon the date specified in such notice to
LANDLORD, this Lease and the term hereof shall cease and expire. If TENANT does
not elect to terminate this Lease aforesaid:
(i) The new rent payable under this Lease shall be
the product of the basic rent payable under this Lease multiplied by a fraction,
the numerator of which is the net rentable area of the Demised Premises
remaining after the Taking, and the denominator of which is the net rentable
area of the Demised Premises immediately preceding the Taking, and
20
<PAGE>
(ii) The net award for the Taking shall be paid to
and first used by LANDLORD, subject to the rights of any mortgagee, to restore
the portion of the Demised Premises and the building remaining after the Taking
to substantially the same condition and tenantability (hereinafter called the
"Pre-Taking Condition") as existed immediately preceding the date of the Taking.
Section 12.3 In the event of a Taking of less than the whole
of the Demised Premises which occurs during the period of one (1) year next
preceding the date of expiration of the term of this Lease, LANDLORD or TENANT
may elect to terminate this Lease by giving notice to the other party to this
Lease of such election, not more than forty-five (45) days after the actual
Taking by the condemning authority, stating the date of termination, which date
of termination shall not be more than thirty (30) days after the date on which
such notice of termination is given, and upon the date specified in such notice,
this Lease and the term hereof shall cease and expire all rent and additional
rent paid under this Lease for a period after such date of termination shall be
refunded to TENANT upon demand. On or before such date of termination, TENANT
shall vacate the Demised Premises, and any of TENANT'S property remaining in the
Demised Premises subsequent to such date of termination shall be deemed
abandoned by TENANT and shall become the property of LANDLORD.
Section 12.4 In the event of a Taking of the Demised Premises
or any part thereof, and whether or not this Lease is terminated, TENANT shall
have no claim against LANDLORD or the condemning authority for the value of the
unexpired term of this Lease, but:
(i) TENANT may interpose and prosecute in any
proceedings in respect of the Taking, independent of any claim of LANDLORD, a
claim for the reasonable value of TENANT'S fixtures and
(ii) A claim for TENANT'S moving expenses.
21
<PAGE>
ARTICLE XIII
BANKRUPTCY OR OTHER DEFAULT
Section 13.1 A. Events of Bankruptcy, The following shall be
Events of Bankruptcy under this Lease:
(i) TENANT'S becoming insolvent, as the term is
defined in Title 11 of the United States Code, entitled
Bankruptcy, 11 U.S.C. Sec. 101 et seq. (The "Bankruptcy Code")
or under the insolvency laws of New York State;
(ii) The appointment of a Receiver or Custodian for
any or all of TENANT'S property or assets;
(iii) The filing of a voluntary petition under the
provisions of the Bankruptcy Code or Insolvency Laws;
(iv) The filing of an involuntary petition against
TENANT as the subject debtor under the Bankruptcy Code or
Insolvency Laws, which is either not dismissed within sixty
days of filing, or results in the issuance of an order for
relief against the debtor, whichever is later; or,
(v) TENANT'S making or consenting to an assignment
for the benefit of creditors of a common law composition of
creditors.
B. Landlord's Remedies
(i) Termination of Lease. Upon the occurrence of an
Event of Bankruptcy, LANDLORD shall have the right to
terminate this Lease by giving thirty days prior written
notice to TENANT, provided, however, that this Section "13.1
(B) (i)" shall have no effect while a case in which TENANT is
the subject debtor under the Bankruptcy Code is pending,
unless TENANT or its Trustee in Bankruptcy is unable to comply
with the provisions of Sections "13.1 (B) (v)" and "13.1 (B)
(vi)" below. If TENANT or its Trustee is unable to comply with
Sections "13.1 (B) (v)" and "13.1
22
<PAGE>
(B) (vi)" below, this Lease shall automatically cease and
terminate, and TENANT shall be immediately obligated to quit
the premises upon the giving of notice pursuant to this
Section "13.1 (B) (i)". Any other notice to quit, or notice of
LANDLORD'S intention to re-enter is hereby expressly waived.
If LANDLORD elects to terminate this Lease, everything
contained in this Lease on the part of LANDLORD to be done and
performed shall cease without prejudice, subject, however to
the right of LANDLORD to recover from TENANT all rent and any
other sums accrued up to the time of termination or recovery
of possession by LANDLORD, whichever is later, and any other
monetary damages or loss of reserved rent sustained by
LANDLORD.
(ii) Suit for Possession. Upon termination of this
Lease, pursuant to Section "13.1 (B) (i)", LANDLORD may
proceed to recover possession under and by virtue of the
provisions of the laws of the State of New York, or by such
other proceedings, including re-entry and possession, as may
be applicable.
(iii) Reletting of Premises. Upon termination of this
Lease, pursuant to Section "13.1 (B) (i)", the premises may be
relet by LANDLORD for such rent and upon such terms as are not
unreasonable under the circumstances, and if the full rental
reserved under this Lease (and any of the costs, expenses, or
damages indicated below) shall not be realized by LANDLORD,
TENANT shall be liable for all damages sustained by LANDLORD,
including, without limitation, deficiency in rent, reasonable
attorneys' fees, brokerage fees, and expenses of placing the
premises in the first class rentable condition. LANDLORD, in
putting the premises in good order or preparing the same for
re-rental may, at LANDLORD'S option, make such alterations,
repairs, or replacements in the premises as LANDLORD, in
LANDLORD'S sole judgment, considers advisable and necessary
for the purpose of reletting the premises, and the
23
<PAGE>
making of such alterations, repairs, or replacements shall not
operate or be construed to release TENANT from liability
hereunder as aforesaid. LANDLORD shall, in no event, be liable
in any way whatsoever for failure to relet the premises, or in
the event that the premises are relet, for failure to collect
the rent thereof under such reletting, and in no event shall
TENANT be entitled to receive any excess, if any, of such net
rent collected over the sums payable by TENANT to LANDLORD
hereunder.
(iv) Monetary Damages. Any damage or loss of rent
sustained by LANDLORD as a result of an Event of Bankruptcy
may be recovered by LANDLORD, at LANDLORD'S option, at the
time of the reletting, or in separate actions, from time to
time, as said damage shall have been made more easily
ascertainable by successive relettings, or in a single
proceeding deferred until the expiration of the term of this
Lease (in which event TENANT hereby agrees that the cause of
action shall not be deemed to have accrued until the date of
expiration of said term) or in a single proceeding prior to
either the time of reletting or the expiration of the term of
this Lease, in which event TENANT agrees to pay LANDLORD the
difference between the present value of the rent reserved
under this Lease on the date of breach, discounted at eight
percent per annum, and the fair market rental value of the
Demised Premises on the date of breach. In the event TENANT
becomes the subject debtor in a case under the Bankruptcy Code
the provisions of this Section "13.1 (B) (iv)" may be limited
by the limitations of damage provisions of the Bankruptcy
Code.
(v) Assumption or Assignment by Trustee. In the event
TENANT becomes the subject debtor in a case pending under the
Bankruptcy Code, LANDLORD'S right to terminate this Lease
pursuant to this Section "13.1" shall be subject to the rights
of the Trustee in Bankruptcy to assume or assign this Lease.
The Trustee shall not have the right to
24
<PAGE>
assume or assign this Lease unless the Trustee: (a) promptly
cures all defaults under this Lease, (b) promptly compensates
LANDLORD for monetary damages incurred as a result of such
default, and (c) provides adequate assurance of future
performance.
(vi) Adequate Assurance of Future Performance.
LANDLORD and TENANT hereby agree in advance that adequate
assurance of future performance, as used in Section
"13.1(B)(v)" above, shall mean that all of the following
minimum criteria must be met:
(a) The Trustee must pay to LANDLORD, at the time the
next payment of rent is then due under this Lease, in addition
to such payment of rent, an amount equal to the next three
months rent due under this Lease, said amount to be held by
LANDLORD in escrow until either the Trustee or TENANT defaults
in its payment of rent or other obligations under this Lease
(whereupon LANDLORD shall have the right to draw such escrow
funds) or until the expiration of this Lease (whereupon the
funds shall be returned to the Trustee or TENANT);
(b) The TENANT or Trustee must agree to pay to the
LANDLORD, at any time the LANDLORD is authorized to and does
draw on the funds escrowed pursuant to Section "13.1
(B)(vi)(a)" above, the amount necessary to restore such escrow
account to the original level required by said provision;
(c) TENANT must pay its estimated pro-rata share of
the cost of all services provided by LANDLORD (whether
directly or through agents or contractors, and whether or not
the cost of such service is to be passed through to TENANT) in
advance of the performance or provision of such services;
25
<PAGE>
(d) The Trustee must agree that TENANT'S business
shall be conducted in a first class manner, and that no
liquidating sales, auctions, or other non-first class business
operations shall be conducted on the premises;
(e) The Trustee must agree that the use of the
premises as stated in this Lease will remain unchanged;
(f) The Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights
of other tenants of the LANDLORD.
(vii) Failure to Provide Adequate Assurance. In the
event TENANT is unable to:
(a) cure its defaults; or
(b) reimburse LANDLORD for its monetary damages; or
(c) pay the rent due under this Lease, on time (or
within five days of the due date); or
(d) meet the criteria and obligations imposed by
Section "13.1 (B)(vi)" above; then TENANT agrees in advance
that it has not met its burden to provide adequate assurance
of future performance, and this Lease may be terminated by
LANDLORD in accordance with Section "13.1 (B)(i)" above.
Section 13.2 Default of TENANT
A. Events of Default. The following shall be Events of Default
under this Lease.
(i) TENANT'S failure to pay any monthly installment of base annual
rent or any other item of additional rent when due hereunder.
(ii) TENANT'S failure to make any other payment required under this
Lease if such failure shall continue beyond ten days after LANDLORD'S
notice that the same has not been paid.
26
<PAGE>
(iii) TENANT'S violation or failure to perform any of the other
terms, conditions, covenants or agreements herein made by TENANT if such
violation or failure continues for a period of five days after LANDLORD'S
written notice thereof to TENANT.
(iv) In the event of any violation or failure to perform a covenant
as contemplated in Section '13.2(A)(iii)', and if such covenant cannot be
performed within the said five day period, then and in that event, providing
TENANT has promptly commenced to cure such violation and is diligently
proceeding with the cure the time within which TENANT may cure the same shall be
extended to such reasonable time as may be necessary to cure the same with all
due diligence.
B. If an Event of Default as hereinabove specified in Section
'13.2(A)(i), (ii) or (iii)' shall occur, and shall not be cured within the time
period specified in LANDLORD'S notice, or as to a default provided for in
Section '13.2(A)(iv)' if TENANT has commenced a cure but fails to diligently
proceed with same after five (5) days notice from LANDLORD then:
(i) LANDLORD may give TENANT a ten day notice of its intention
to end the term of this Lease, and thereupon, at the expiration of said ten day
period, this Lease shall expire as fully and completely as if the day were the
date herein originally fixed for the expiration of the term, and TENANT shall
then quit and surrender the premises to LANDLORD but TENANT shall continue to
remain liable as hereinafter provided; or, (ii) LANDLORD, without prejudice to
any other right or remedy of LANDLORD, held hereunder or by operation of law,
and notwithstanding any waiver of any breach of a condition or Event of Default
hereunder may, at its option and without further notice, re-enter the Demised
Premises or dispossess TENANT and any legal representative or successor of
TENANT or other occupant of the premises by summary proceedings or other
appropriate suit, action or proceeding or otherwise and remove his, her or its
effects and hold the Demised Premises as if this Lease had not been made; and
TENANT hereby expressly waives the service of notice of intention to re-enter or
to institute legal proceedings to that end.
27
<PAGE>
Section 13.3 Notwithstanding such default, re-entry,
expiration and/or dispossession by summary proceedings or otherwise, as provided
in Section '13.2' above, TENANT shall continue liable during the full period
which would otherwise have constituted the balance of the term hereof, and shall
pay as liquidated damages at the same times as the Basic Annual Rent and
Additional Rent and other charges become payable under the terms hereof, a sum
equivalent to the Basic Annual Rent and Additional Rent and other charges
reserved herein (less only the net proceeds of reletting as hereinafter
provided), and LANDLORD may rent the Demised Premises either in the name of
LANDLORD or otherwise, reserving the right to rent the Demised Premises for a
term or terms which may be less than or exceed the period which would otherwise
have been the balance of the term of this Lease without releasing the original
TENANT from any liability, applying any monies collected, first to the expense
of resuming or obtaining possession, next to restoring the premises to a
rentable condition, and then to the payment of any customary brokerage
commissions and reasonable legal fees in connection with the reletting of the
Demised Premises and then to the payment of the Basic Annual Rent, Additional
Rent and other charges due and to grow due to LANDLORD hereunder, together with
reasonable legal fees of LANDLORD therefore.
Section 13.4 LANDLORD and TENANT do hereby mutually waive
trial by jury in any action, proceeding or counterclaim brought by either
LANDLORD or TENANT against the other with regard to any matters whatsoever
arising out of or in any way connected with this Lease, the relationship of
LANDLORD and TENANT, and TENANT'S use or occupancy of the Demised Premises,
provided such waiver is not prohibited by any laws of the State of New York. Any
action or proceeding brought by either party hereto against the other, directly
or indirectly, arising out of this agreement (except for a summary proceeding),
shall be brought in a court in the County in which the Demised Premises are
located and all motions in any such action shall be made in such County.
28
<PAGE>
Section 13.5 TENANT hereby agrees that in any action or
summary proceeding commenced by the LANDLORD to recover possession of the
Demised Premises, whether by reason of non-payment or the holding over after
expiration of its term, TENANT will not interpose any counterclaim or set-off of
whatever nature or description in any such proceedings and TENANT will not seek
to consolidate or join for trial any such action or proceeding with any other
action or proceeding to which it is a party or over which it has control. This
provision shall not, however, be construed as a waiver of TENANT'S right to
assert such claims in any separate action brought by TENANT.
Section 13.6 If TENANT shall default in the observance or
performance of any term or covenant on TENANT'S part to be observed or performed
under or by virtue of any of the terms or provisions in this article of this
Lease, LANDLORD may immediately or at any time thereafter and, without notice,
perform the same for the account of TENANT, and if LANDLORD makes any
expenditures or incurs any obligations for the payment of money in connection
therewith including, but not limited to, attorneys' fees in instituting,
prosecuting or defending any action or proceeding such sums paid or obligations
incurred with interest and costs shall be deemed to be additional rent hereunder
and the sum shall be due immediately upon LANDLORD incurring same and may be
included as an item of additional rent in any summary proceeding instituted by
LANDLORD.
Section 13.7 In the event of any default by the TENANT
hereunder and the LANDLORD shall commence any action or other proceeding against
the TENANT in which the LANDLORD shall be successful, or which shall be settled
by the payment of a sum of money to the LANDLORD by the TENANT, the TENANT
agrees to reimburse the LANDLORD for attorneys' fees in connection with such
action or proceeding which shall be deemed additional rent and may be included
by LANDLORD in any summary proceeding instituted to recover possession of the
Demised Premises.
29
<PAGE>
Section 13.8 In the event that TENANT fails to pay, promptly
when due, any installment of rent or additional rent, or any other payment
required pursuant to the terms of this Lease then, in addition to all of the
other rights and remedies reserved to the LANDLORD herein, the LANDLORD may,
upon giving TENANT ten (10) days' notice, require that all future payments of
rent and additional rent shall be paid by certified check or bank check only.
The failure of TENANT to comply with the terms and provisions of this paragraph
shall be deemed to constitute a breach of a material and substantial covenant of
this Lease.
30
<PAGE>
ARTICLE XIV
CUMULATIVE REMEDIES -- NO WAIVER
Section 14.1 The specific remedies to which the LANDLORD or
the TENANT may resort under the terms of this Lease are cumulative and are not
intended to be exclusive of any other remedies or means of redress of which they
may be lawfully entitled in case of any breach or threatened breach by either of
them of any provision of this Lease. The failure of the LANDLORD or TENANT to
insist in any one or more cases upon the strict performance of any of the
covenants of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of such covenant or
option. A receipt by the LANDLORD of rent with knowledge of the breach of any
covenant thereof shall not be deemed a waiver of such breach, and no waiver,
change, modification or discharge by either party hereto of any provision in
this Lease shall be deemed to have been made or shall be effective unless
expressed in writing and signed by both the LANDLORD and TENANT. In addition to
the other remedies in this Lease provided, the LANDLORD and TENANT each shall be
entitled to restraint by injunction of any violation, or attempted or threatened
violation, of any of the covenants, conditions or provisions of this Lease or to
a decree compelling performance of any such covenants, conditions or provisions.
31
<PAGE>
ARTICLE XV
SUBORDINATION
Section 15.1 It is hereby expressly agreed that this Lease and
all rights of the TENANT hereunder shall be subject and subordinate at all times
to any mortgages and any renewals, replacements, extensions of modifications
thereof which may now be or shall hereafter become liens on the Demised Premises
or the land and building of which the same form a part. The TENANT agrees that,
at any time upon five (5) days' written notice, the TENANT will execute and
deliver to the LANDLORD a subordination agreement confirming the provisions of
this article. Failure of TENANT to execute and deliver such agreement shall not
affect the subordination provided for hereunder.
Section 15.2 This Lease is specifically made subordinate to a
mortgage given to an institutional lender and notwithstanding whether or not any
formal subordination agreement is executed, this Lease shall, at all times, be
subordinate to any replacements, extensions, modifications or consolidations
thereof. LANDLORD shall use commercially reasonable efforts to obtain
mortgagee's standard non-disturbance agreement for the benefit of the TENANT
from any current or future mortgagee.
32
<PAGE>
ARTICLE XVI
QUIET ENJOYMENT
Section 16.1 The LANDLORD covenants and agrees that the
TENANT, upon paying the basic rent and all other charges herein provided and
observing and keeping the covenants, agreements and conditions of this Lease on
its part to be kept, shall and may peaceably and quietly hold, occupy and enjoy
the Demised Premises during the term of this Lease.
33
<PAGE>
ARTICLE XVII
NOTICES
Section 17.1 All notices, demands and requests which may or
are required to be given by either party to the other shall be in writing. All
notices, demands and requests by the LANDLORD to the TENANT shall be deemed to
have been properly given if sent by United States registered or certified mail,
postage prepaid or overnight carrier, such as Federal Express, addressed to the
TENANT at the Demised Premises or Temporary Demised Premises, or at such other
place as the TENANT may from time to time designate in a written notice to the
LANDLORD. All notices, demands and requests by the TENANT to the LANDLORD shall
be deemed to have been properly given if sent by United States registered or
certified mail, or overnight carrier, such as Federal Express, postage prepaid,
addressed to the LANDLORD at the address first above written, or at such other
place as the LANDLORD may from time to time designate in a written notice to the
TENANT. Notices to either party may be given by the attorney for either party
with the same force and effect as if given by either party. Notices, demands and
requests which shall be served upon LANDLORD or TENANT in the manner aforesaid
shall be deemed to have been served or given for all purposes under this Lease
two days after the time such notice, demand or requests shall be received or
returned by Post Office or by an overnight carrier, such as Federal Express, as
having been "refused" or "undeliverable".
34
<PAGE>
ARTICLE XVIII
DEFINITION OF CERTAIN TERMS, ETC.
Section 18.1 The captions of this Lease are for convenience
and reference only and, in no way, define, limit or describe the scope or
intention of this Lease or in any way affect this Lease.
Section 18.2 The term "TENANT" as referred to hereunder shall
refer to this TENANT and any successor or assignee of this TENANT.
Section 18.3 The term "LANDLORD" as used hereunder shall mean
only the owner for the time being of the land and building of which the Demised
Premises form a part, so that in the event of any sale or sales, or in the event
of a Lease of said land and building, this LANDLORD shall be and hereby is
entirely free and relieved of all covenants and obligations of LANDLORD
hereunder and it shall be deemed and construed without further agreement between
the parties, or their successors in interest, that the purchaser or lessee of
the building has agreed to carry out all of the terms and covenants and
obligations of the LANDLORD hereunder.
35
<PAGE>
ARTICLE XIX
INVALIDITY OF PARTICULAR PROVISIONS
Section 19.1 If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
36
<PAGE>
ARTICLE XX
COVENANTS TO BIND AND BENEFIT RESPECTIVE PARTIES
Section 20.1 It is further covenanted and agreed by and
between the parties hereto that the covenants and agreements herein contained
shall bind and inure to the benefit of the LANDLORD, its successors and assigns,
and the TENANT, its successors and assigns, subject to the provisions of this
Lease.
37
<PAGE>
ARTICLE XXI
INSURANCE
Section 21.1 TENANT shall, at all times during the term
hereby, carry Public Liability Insurance for the Demised Premises naming
LANDLORD as an additional insured with limits of $3,000,000.00 for injury to
persons and $250,000.00 for property damage.
Section 21.2 Prior to taking possession, TENANT shall deliver
to the LANDLORD a certificate of the insurance company licensed to do business
in the State of New York with a Bests rating of A, certifying that the aforesaid
liability policy is in full force and effect. A certificate evidencing the
renewal of such liability insurance policy shall be delivered to the LANDLORD at
least twenty (20) days before the expiration thereof and each such renewal
certificate shall include the LANDLORD as an additional insured. TENANT may
carry aforesaid insurance as a part of a blanket policy provided, however that a
certificate thereof naming the LANDLORD as an additional insured is delivered to
the LANDLORD as aforesaid. Such policy of insurance or certificate shall also
provide that said insurance may not be canceled unless ten (10) days' notice is
given to the LANDLORD prior to such cancellation and that the insurance as to
the interest of the LANDLORD shall not be invalidated by any act or neglect of
the TENANT.
Section 21.3 TENANT shall, prior to doing any work in the
Demised Premises, obtain any and all permits necessary therefore and will
provide Worker's Compensation Insurance and Liability Insurance in the limits
provided for in Section "21.1" hereof.
38
<PAGE>
ARTICLE XXII
USE, ASSIGNMENT OR SUBLETTING
Section 22.1 The TENANT agrees to use the premises for general
offices and for no other purpose. TENANT shall not permit occupancy of the
Demised Premises which in the aggregate exceeds one person for every two hundred
square feet of usable area.
Section 22.2 Unless the LANDLORD shall have given its consent
thereto, this Lease may not be assigned nor may the Demised Premises be sublet
in whole or in part. Such approval will not be unreasonably withheld. In
determining the reasonableness, the LANDLORD shall take into consideration the
use to which the sub-tenant will put the space and the nature of the
sub-tenant's business in order to maintain the integrity of the building as a
whole.
Section 22.3 Notwithstanding anything herein to the contrary,
LANDLORD shall have the right of first refusal to recapture the Leased premises
or any part thereof, prior to any sublet or assignment. In the event TENANT
shall desire to assign or sublet this Lease, TENANT shall provide written notice
of same to LANDLORD. LANDLORD shall, within thirty (30) days of receipt of such
notice, notify TENANT as to whether or not LANDLORD desires to recapture the
Demised Premises. In the event that LANDLORD shall elect to recapture the
Demised Premises or any part thereof, it shall be deemed that the space is
recaptured by the LANDLORD on the thirtieth (30th) day following LANDLORD'S
notice to TENANT of its election. Within said thirty (30) day period, TENANT
shall remove all of TENANT'S effects and personal property therefrom. If
LANDLORD shall elect not to recapture the Demised Premises or any part thereof,
TENANT may, after prior written consent of the LANDLORD, assign or sublet the
Demised Premises subject to Section 22.4.
39
<PAGE>
Section 22.4 In the event that any sub-tenant should hold over
in the premises beyond the expiration of the term of this Lease, the TENANT
hereunder shall be responsible to the LANDLORD for all Basic Annual Rent and
Additional Rent until the premises are delivered to the LANDLORD in the
condition provided for in this Lease.
Section 22.5 TENANT shall pay LANDLORD'S reasonable legal fees
with reference to approving any assignment and assumption agreement.
40
<PAGE>
ARTICLE XXIII
RULES AND REGULATIONS
Section 23.1 The TENANT agrees that it will abide by the rules
and regulations attached hereto as Exhibit "E" and any reasonable amendments or
additions thereto, provided the same are uniform as to all tenants.
41
<PAGE>
ARTICLE XXIV
LANDLORD'S LIABILITY
Section 24.1 In the event that the LANDLORD shall default
under the terms of this Lease and the TENANT shall recover a judgment against
the LANDLORD by reason of such default or for any reason arising out of the
tenancy or use of the premises by the TENANT or the Lease of the premises to the
TENANT, the LANDLORD'S liability hereunder shall be limited to the LANDLORD'S
interest in the land and building of which the Demised Premises form a part and
no further and the TENANT agrees that in any proceeding to collect such
judgment, the TENANT'S right to recovery shall be limited to the LANDLORD'S
interest in the building of which the Demised Premises form a part.
42
<PAGE>
ARTICLE XXV
ENTIRE AGREEMENT
Section 25.1 This instrument contains the entire agreement
between the parties hereto and the same may not be changed, modified or altered
except by a document in writing executed and acknowledged by the parties hereto.
43
<PAGE>
ARTICLE XXVI
CERTIFICATES
Section 26.1 Upon request by the LANDLORD, the TENANT agrees
to execute any certificate or certificates evidencing the commencement date of
the term of the Lease and the fact that the Lease is in full force and effect,
if such is the case, and that there are no set-offs or other claims against the
LANDLORD or stating those claims which the TENANT might have against the
LANDLORD.
Section 26.2 Upon request by the LANDLORD, the TENANT agrees
to execute a memorandum of this Lease in recordable form which memorandum shall
set forth the commencement dates of the Lease and the subordination of the Lease
to a permanent first mortgage to be held by an institutional lender.
44
<PAGE>
ARTICLE XXVII
SECURITY
Section 27.1 TENANT shall deposit with LANDLORD the sum of
$11,850.99 as security for the faithful performance and observance by TENANT of
the terms, provisions and conditions of this Lease. It is agreed that in the
event TENANT defaults in respect of any of the terms, provisions and conditions
of this Lease, including, but not limited to, the payment of rent and additional
rent, LANDLORD may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which TENANT is in default of for any reason of TENANT'S
default in respect of any of the terms, covenants and conditions of this Lease,
including, but not limited to, any damages or deficiency in the reletting of the
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by LANDLORD. In the event that TENANT shall fully
and faithfully comply with all of the terms, provisions, covenants and
conditions of this Lease, the security shall be returned to TENANT after the
date fixed as the end of the Lease and without deduction or charge after
delivery of entire possession of the Demised Premises to LANDLORD. In the event
of a sale of the land and building, LANDLORD shall have the right to transfer
the security to the vendee and LANDLORD shall thereupon be released by TENANT
from all liability for the return of such security; and the TENANT agrees to
look to the new LANDLORD solely for the return of said security; and it is
agreed that the provisions hereof shall apply to every transfer or assignment
made of the security to a new LANDLORD. TENANT further covenants that it will
not assign or encumber or attempt to assign the monies deposited herein as
security and that neither LANDLORD nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
Provided that the TENANT is not in default under the terms,
covenants and conditions of the Lease, TENANT shall be entitled to a credit of
$6,173.86 in the twenty-fifth (25th ) month of the Lease, leaving a remaining
security of $5,713.13 after such credit.
45
<PAGE>
ARTICLE XXVIII
BROKER
Section 28.1 TENANT represents that it dealt only with Whitman
Realty Group Inc., as broker in connection with this transaction and TENANT
agrees to indemnify LANDLORD against any claims or expenses which the LANDLORD
may incur by reason of the TENANT having dealt with any other broker in
connection with this transaction.
46
<PAGE>
ARTICLE XXIX
SIGNS
Section 29.1 At no cost to the TENANT, TENANT shall be allowed
to use one line on the building directory in the lobby of the building.
Section 29.2 TENANT, at TENANT'S sole cost and expense, may
have installed building standard signage on the entrance doors and the outside
directory.
47
<PAGE>
ARTICLE XXX
HOLDING OVER
Section 30.1 TENANT covenants that it will vacate the Premises
immediately upon the expiration or sooner termination of this Lease. If the
TENANT retains possession of the Premises or any part thereof after the
termination of the term, the TENANT shall pay the LANDLORD Annual Basic Rent at
150% of the monthly rate specified in Section 3.1 for the time the TENANT thus
remains in possession and, in addition thereto, shall pay the LANDLORD for all
damages, consequential as well as direct, sustained by reason of the TENANT'S
retention of possession. If the TENANT remains in possession of the Premises, or
any part thereof, after the termination of term, such holding over shall, at the
election of the LANDLORD expressed in a written notice to the TENANT and not
otherwise, constitute a renewal of this Lease for one year. The provisions of
this Section do not exclude the LANDLORD'S rights of re-entry or any other right
hereunder, including without limitation, the right to refuse 150% of the monthly
rent and instead to remove TENANT through summary proceedings for holding over
beyond the expiration of the term of this Lease.
48
<PAGE>
ARTICLE XXXI
TEMPORARY SPACE
Section 31.1 Upon execution of this Lease, TENANT may occupy
1,920 square feet adjacent to TENANT'S proposed Demised Premises as noted as
Exhibit "A-1", at no cost and expense, until the LANDLORD delivers the new
Demised Premises to the TENANT. TENANT hereby agrees that TENANT will vacate the
temporary demised premises upon substantial completion of the work as noted in
the Work Letter attached hereto as Exhibit "C". In the event that TENANT does
not vacate the temporary demised premises upon substantial completion of Suite
410 within ten days of such completion, TENANT shall pay an additional rent of
$130.19 per diem for each day that the TENANT does not vacate the temporary
demised premises.
LANDLORD shall provide the following work in the temporary
Demised Premises:
1. Clean carpet.
2. Remove Formica cabinets along window wall.
3. Remove one low wall in private office.
4. Touch-up paint where necessary as determined by LANDLORD.
49
<PAGE>
ARTICLE XXXII
OPTION TO RENEW
Section 32.1 TENANT shall have the option to renew this Lease
for one (1) three (3) year period provided:
1. TENANT is not in default under the terms, covenants and
conditions of the Lease at the time of notification.
2. TENANT provides nine (9) months prior written notice of
TENANT'S intention to renew.
3. The rental rate for the option period shall be:
<TABLE>
<CAPTION>
Term Annual Rent Monthly Rent
---- ----------- ------------
<S> <C> <C>
Option Year 1 $70,108.70 $5,842.39
Option Year 2 $72,906.40 $6,075.53
Option Year 3 $75,814.90 $6,317.91
</TABLE>
4. All other terms, covenants and conditions shall remain the
same.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
INDUSTRIAL & RESEARCH ASSOCIATES
BY: [SIGNATURE ILLEGIBLE]
____________________________________
TOTAL TEL USA COMMUNICATIONS INC.
BY: [SIGNATURE ILLEGIBLE]
____________________________________
51
<PAGE>
[FLOOR PLANS]
EXHIBIT "A"
<PAGE>
EXHIBIT "A-1"
[FLOOR PLANS]
<PAGE>
[AREA MAP]
EXHIBIT "B"
<PAGE>
TOTAL TEL USE COMMUNICATIONS INC.
WORK LETTER
Tenant shall accept the Demised Premises as-is, except Landlord shall:
1. Repair damange caused by removal of light boxes and sign box.
2. Clean carpets. If required, replace carpet in President's office with
building standard $15.50 per square yard installed.
3. Paint and repair vinyl where necessary as determined by Landlord.
EXHIBIT "C"
<PAGE>
EXHIBIT "D"
CLEANING SPECIFICATIONS
The following is a summary of duties to be performed by LANDLORD'S personnel
during their tour of duty at the above mentioned location including the Demised
Premises:
HOURS:
Our employees will report to work at the close of regular office hours
after 5 p.m., five nights each week, with the exception of all legal
holidays. At the termination of their duties, they will extinguish all
lights, close all windows, set electrical protection devices, and lock all
doors.
GENERAL CLEANING-FIVE NIGHTS WEEKLY:
Sweep all composition flooring with treated dust mops, if any.
Empty all waste and trash receptacles. Remove contents to receptacles
provided by the building for further disposal.
Empty and clean all ashtrays.
Wash and rinse terrazzo floors, main lobby and entrance area with neutral
cleaner, if any.
Vacuum all carpeting in building. Spot clean if necessary.
Sweep staircase and landing. Wash as necessary.
Spot clean fingermarks from walls, doors, trim, light switches and fire
exits.
PERIODIC CLEANING:
Perform hi-dusting of all walls, overhead pipes, ledges, air-conditioning
louvers and ducts twice each year.
Sweep entrances to building daily.
Police parking lot and remove paper and debris twice each week.
WINDOW CLEANING:
Wash all windows in the building on the outside and inside every four
months. First floor lobby once every month.
Clean glass entrance doors daily.
All safety regulations will be rigidly adhered to as prescribed by New York
Labor Department. Ladders and safety belts are constantly inspected to
prevent accidents.
Clean and sanitize water fountains.
Wash and clean all glass, directory board glass, telephone booths and
entrance doors.
<PAGE>
Keep all metals and Formica interiors and exteriors of all elevator walls,
doors and frames in a clean condition.
Maintain all walls in main lobby and hallways in a clean condition.
Clean all lights and glass in lobby once every week.
Our personnel will be instructed to submit to our office any condition of
faulty equipment, plumbing, locks, electrical appliances, evidence of
vermin or any other irregularities.
LAVATORIES-FIVE NIGHTS WEEKLY:
Sweep, wash and disinfect all lavatory floors throughout the entire
building each night.
Empty all wastepaper and sanitary disposal cans and remove to a designated
area for removal.
Scour and disinfect all toilet bowls, urinals and hand basins.
Wash and disinfect and dry all toilet seats.
Maintain all metal pipes, bright work, mirrors, shelves, cabinets and
dispensers in a clean condition.
Keep toilet partitions and tile walls in a clean condition.
Refill all toilet tissue, hand soap, hand towels and sanitary napkin
dispensers as required.
Machine scrub and rinse all tile washroom floors, as required, each month.
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
TENANT and TENANT'S servants, employees, agents, visitors and licensees
shall observe faithfully and comply strictly with the rules and regulations, as
follows:
1. The sidewalks, entrances, passages, courts, elevators, stairways,
corridors or halls of the building, shall not be obstructed or encumbered by any
TENANT or used for any purpose other than ingress and egress to and from the
Demised Premises.
2. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of the LANDLORD. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
conjunction with, any window or door of the Demised Premises, without the prior
written consent of the LANDLORD. The TENANT shall install such blinds or
draperies as the LANDLORD shall designate, which shall be of a quality, type,
design and color and attached in a manner designated by the LANDLORD.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any TENANT of any part of the
outside of the Demised Premises or the windows thereof, or building without the
prior written consent of the LANDLORD. In the event of the violation of the
foregoing by the TENANT, LANDLORD may remove same without any liability, and may
charge the expense incurred by such removal to the TENANT or TENANTS violating
this rule.
4. The doors between the Demised Premises and the halls, passageways or
other public places in the building, shall not be covered or obstructed by any
TENANT, nor any bottles, parcels or other articles be placed on the window
sills.
1
<PAGE>
5. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the building, not placed in the halls, corridors
or vestibules.
6. The water and wash closets and other plumbing fixtures shall not be
used for any other purposes other than those for which they were constructed,
and no sweepings, rubbish, rags or other substances shall be thrown therein.
7. No TENANT shall mark, paint, drill into or in any way deface any
part of the exterior of the Demised Premises, or the building of which they form
a part. No boring, cutting or stringing of wires on the exterior of the Demised
Premises shall be permitted except with the prior written consent of the
LANDLORD, and as the LANDLORD may direct. LANDLORD agrees that such consent
and/or direction shall not be unreasonably withheld or delayed.
8. No bicycles or vehicles of any kind shall be brought into or kept in
or about the Demised Premises, and no cooking shall be done or permitted by any
TENANT on the Demised Premises, except that TENANT or TENANT'S employees may
make coffee, tea, etc., in the employees' lounge area. No TENANT shall allow the
smoking of cigarettes, cigars and/or pipes by employees or invitees within the
building or within the Demised Premises. In addition, no TENANT shall allow the
smoking of cigarettes by employees or invitees in public hallways, corridors or
vestibules within the building. No TENANT shall cause any objectionable odors to
be produced upon and to permeate from the Demised Premises.
9. No space in the building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
10. No TENANT shall make any disturbing noises or disturb or interfere
with occupants of this or neighboring buildings or premises, whether by the use
of any musical instruments, radio, talking machines, unmusical noises,
whistling, singing or in any other way. No TENANT shall throw anything out of
the doors, windows, or skylights, or down the passageways.
2
<PAGE>
11. No TENANT or any of the TENANT'S servants, employees or agents,
shall at any time bring or keep upon the Demised Premises any inflammable,
explosive fluid, chemical or substance.
12. Each TENANT must, upon the termination of his tenancy, restore to
the LANDLORD all keys of stores, offices, and toilet rooms, either furnished to
or otherwise procured by, such TENANT.
13. No TENANT shall engage or pay any employees on the Demised Premises
except those actually working for such TENANT on the Demised Premises.
14. The LANDLORD reserves the right to exclude from the building,
between the hours of 6:00 p.m. and 8 a.m. and at all hours on Sundays and legal
holidays all persons who do not present a pass to the building signed by the
LANDLORD. The LANDLORD will furnish passes to persons for whom any TENANT
requests same in writing. Each TENANT shall be responsible for all persons for
whom he requests such pass and shall be liable to the LANDLORD for all acts of
such persons. TENANT shall not, however, be responsible for the building or
liable for any acts of others in respect to the building.
15. Each TENANT before closing and leaving the Demised Premises at any
time shall see that the windows are closed.
16. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
17. The requirements of TENANTS will be attended to only upon
application at the office of the building. Employees of the LANDLORD shall not
perform any work or do anything outside of their regular duties, unless under
special instruction from the office of the LANDLORD.
18. Canvassing, soliciting and peddling in the buildings is prohibited
and each TENANT shall use its best efforts to prevent the same.
19. There shall not be used in any space, or in the public halls of any
building, either by any TENANT or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
3
<PAGE>
20. No aerial shall be erected on the roof or exterior walls of the
Demised Premises, or on the grounds.
21. TENANT agrees to comply with all such rules and regulations upon
ten (10) days notice to TENANT from LANDLORD, unless same shall be submitted to
arbitration, according to the rules of the American Arbitration Association (New
York) with a single arbitrator.
22. No radio or television or other similar device shall be installed,
in each instance, without the LANDLORD'S consent in writing. No aerial shall be
erected on the roof or exterior walls of the premises, or on the ground.
23. No TENANT shall cover the floors of the Demised Premises with any
material other than carpeting of a similar grade to the originally installed by
the LANDLORD.
24. TENANT agrees to comply with all such rules and regulations upon
notice to TENANT from LANDLORD or upon posting of same in such place within the
building as LANDLORD may designate.
25. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any TENANT, nor shall any changes be made in existing
locks or the mechanics thereof. Each TENANT must, upon the termination of his
tenancy, restore to the LANDLORD all keys of offices and toilet rooms, either
furnished to or otherwise procured by such TENANT and in the event of the loss
of any keys, so furnished, such TENANT shall pay to the LANDLORD the cost
thereof.
26. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the LANDLORD or its agents may determine from time to time. The LANDLORD
reserves the rights to inspect all freight to be brought into the building and
to exclude from the building all freight which violates any of these Rules and
Regulations or the lease of which these Rules and Regulations are a part. This
shall not apply to accounting security boxes used by the TENANT.
4
<PAGE>
EXHIBIT (10)(AG)
RECKSON OPERATING PARTNERSHIP, L.P.
LANDLORD
AND
TOTAL-TEL USA COMMUNICATIONS, INC.
TENANT
LANDMARK SQUARE
STAMFORD, CONNECTICUT
--------------------
LEASE
--------------------
DATED: NOVEMBER 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- - -------- ----
<S> <C> <C>
1. Demise, Premises, Term, Rents 1
2. Use 2
3. Preparation of the Demised Premises 4
4. When Demised Premises Ready for Occupancy 4
5. Security Deposit 5
6. Adjustments of Rent for Changes in Real Estate Taxes 6
7. Adjustments of Rent for Changes in Operating Costs 8
8. Subordination, Attornment, Notice to Lessors and Mortgages 10
9. Quiet Enjoyment 11
10. Assignment, Mortgaging, Subletting 11
11. Compliance with Laws and Requirements of Public Authorities 16
12. Insurance 16
13. Rules and Regulations 18
14. Alterations and Tenant's Property 18
15. Repairs and Maintenance 20
16. Electrical Energy 21
17. Heat, Ventilation and Air Conditioning 21
18. Landlord's Other Services 22
19. Access, Changes in Building Facilities, Name 23
20. Shoring, Notice of Accidents, Etc. 24
21. Non-Liability and Indemnification 25
22. Destruction or Damage 26
23. Eminent Domain 28
24. Surrender 29
25. Conditions of Limitation 29
26. Re-Entry by Landlord-Default Provisions 31
27. Damages 32
28. Waivers 33
29. No Other Waivers or Modification 34
30. Curing Tenant's Defaults 35
31. Consents-Broker 35
32. Notices 36
33. Estoppel Certificate, Memorandum 36
34. No Other Representations, Construction, Governing Law 37
35. Parties Bound 37
36. Certain Definitions and Constructions 37
37. Subordination and Miscellaneous 40
38. Relocation 40
39. Tenant's Authority to Enter into Lease 40
40. Parking 40
41. Rider 42
</TABLE>
<PAGE>
LEASE
Lease dated as of November 9, 1999, between RECKSON OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, having an address at One Landmark Square,
Stamford, Connecticut 06901 (hereafter referred to as "Landlord"), and the
lessee, TOTAL-TEL USA COMMUNICATIONS, INC., a New Jersey corporation, having its
principal place of business at Overlook at Great Notch, 150 Clove Road, Little
Falls, New Jersey 07424 (hereinafter referred to as the "Tenant").
ARTICLE 1
DEMISE, PREMISES, TERM, RENTS
1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
that certain space in the premises hereinafter described, in the building
(referred to herein as the "Building") known as One Landmark Square in the City
of Stamford, Connecticut (the "City"), for the term hereinafter stated, for the
rents hereinafter reserved and upon and subject to the conditions (including
limitations, restrictions and reservations) and covenants hereinafter provided.
Each party hereto expressly covenants and agrees to observe and perform all of
the conditions and covenants herein contained on its part to be observed and
performed.
1.02 Landlord and Tenant hereby agree and stipulate that for purposes of this
Lease, the space consists of a total of approximately 2,186 rentable square feet
on the third (3rd) floor in the Building which is outlined on the floor plan(s)
annexed as Exhibit "A" and hereby made a part hereof. The premises constitute
and are hereinafter called the "Demised Premises."
1.03 The term of this Lease, for which the Demised Premises are hereby leased,
shall commence on a date (the "Commencement Date"), which shall be (i) the day
on which the Demised Premises are ready for occupancy (as defined in Article 4),
or (ii) the day Tenant or anyone claiming under or through Tenant shall take
possession of any part of the Demised Premises, whichever occurs earlier, and
shall end at noon of the last day of the calendar month in which occurs the end
of a three (3) year period from the Commencement Date (the "Expiration Date") or
shall end on such earlier date upon which the term may expire or be cancelled or
terminated pursuant to any of the conditions or covenants of this Lease or
pursuant to law. Promptly following the Commencement Date, Landlord shall send
to Tenant a notice fixing the Commencement Date.
1.04 Tenant shall pay to Landlord without notice or demand and without
abatement, deduction or setoff, in lawful money of the United States of America,
at the office of the Landlord or at such other place as Landlord may designate,
the fixed rent and additional rent reserved under this Lease for each year of
the term thereof, which payments shall consist of:
(a) Fixed rent (the "fixed rent") as follows:
<TABLE>
<CAPTION>
FIXED BASE RENT MONTHLY FIXED ANNUAL FIXED
LEASE YEARS PER RSF RENT AMOUNT RENT AMOUNT
----------- --------------- ------------ ------------
<S> <C> <C> <C>
1 $23.00 $4,189.33 $50,278.00
2 $23.50 $4,280.92 $51,371.00
3 $24.00 $4,372.00 $52,464.00
</TABLE>
payable in equal monthly installments in advance on the first day of
each and every calendar month during the term of this Lease, and
-1-
<PAGE>
(b) Additional rent (the "additional rent") consisting of all other
sums of money as shall become due from and payable by Tenant to Landlord
hereunder (for default in payment of which Landlord shall have the same remedies
as for a default in payment of fixed rent).
1.05 Tenant shall pay to Landlord as additional rent the real estate taxes
attributable to the value of improvements made to the Demised Premises by or on
behalf of Tenant in excess of building standard improvements in connection with
the fit-up of the Demised Premises for Tenant. For purposes of this Section, the
amount of the per square foot assessment attributable to the excess improvements
shall be the amount in excess of average square foot assessment then being used
by the tax assessor's office for the fit-up of space within the Building or, if
that is not applicable, to fit-up of similar space in a similar building in
Stamford, Connecticut. The real estate taxes resulting from such assessment(s)
shall be computed separately and billed to Tenant, and shall be payable by
Tenant as additional rent within ten (10) days of the rendition of the bill, at
each time that real estate taxes are payable by Landlord with respect to the
Demised Premises during the term of this Lease.
If Tenant substantially renovates or alters the Demised Premises or any
part thereof after the initial fit-up, Tenant shall pay Landlord the real estate
taxes attributable to the increased assessment resulting from such renovation or
alteration, in excess of the then assessment for building standard. The real
estate taxes resulting from such excess assessment shall be computed separately
and billed to Tenant and shall be payable by Tenant as additional rent within
ten (10) days of the rendition of a bill at each time that real estate taxes are
payable by Landlord with respect to the Demised Premises during the term of the
Lease.
1.06 Tenant shall pay the fixed rent and additional rent herein reserved
promptly as and when the same shall become due and payable. If the Commencement
Date shall occur on a day other than the first day of a calendar month, the
fixed rent for such calendar month shall be prorated for the period from the
Commencement Date to the last day of the calendar month and shall be due and
payable on the Commencement Date. Notwithstanding the provisions of the next
preceding sentence or of Section 4.01(a), Tenant shall pay the first full
calendar monthly installment of fixed rent on the execution of this Lease. If
Tenant shall fail to pay when the same is due any fixed rent or additional rent,
such unpaid amounts shall bear interest at the annual rate equal to two
percentage points (2%) above the Prime Rate of Citibank, N.A., New York, New
York.
ARTICLE 2
USE
2.01 Tenant shall use and occupy the Demised Premises for executive offices,
sales offices and/or general offices for the conduct of any lawful and reputable
business not prohibited by Section 2.02, or any rule or regulation of
governmental authority, and for no other purposes.
2.02 The use of the Demised Premises for the purposes specified in this Article
shall not in any event be deemed to include, and Tenant shall not use, or permit
the use of, the Demised Premises or any part thereof for:
(a) sale of, or traffic in, any spirituous liquors, wines, ale or beer
kept in the Demised Premises;
(b) sale at retail of any other products or materials kept in the
Demised Premises, by vending machines or otherwise, or demonstrations
to the public, except as may be specifically agreed to by Landlord in
writing;
-2-
<PAGE>
(c) manufacturing, printing or electronic data processing, except for
the operation of normal business office reproducing or printing
equipment, electronic data processing equipment and other business
machines for Tenant's own requirements at the Demised Premises;
provided only that such use shall not exceed that portion of the
mechanical or electrical capabilities of the Building equipment
allocable to the Demised Premises;
(d) the rendition of medical, dental or other diagnostic or therapeutic
services;
(e) the conduct of a public auction of any kind;
(f) a restaurant, bar, or the sale of confectionery, tobacco,
newspapers, magazines, soda, beverages, sandwiches, ice cream, baked
goods or similar items, or the preparation, dispensing or consumption
of food and beverages in any manner whatsoever.
2.03 Tenant shall not suffer or permit the Demised Premises or any part thereof
to be used in any manner, or anything to be done therein, or suffer or permit
anything to be brought into or kept therein, which would in any way (i) violate
any of the provisions of any grant, lease or mortgage to which this Lease is
subordinate, (ii) violate any laws or requirements of public authorities, (iii)
make void or voidable any fire or liability insurance policy then in force with
respect to the Building, (iv) make unobtainable from reputable insurance
companies authorized to do business in the State of Connecticut at standard
rates any fire insurance with extended coverage, or liability, elevator or
boiler or other insurance required to be furnished by Landlord under the terms
of any lease or mortgage to which this Lease is subordinate, (v) cause, or in
Landlord's opinion be likely to cause, physical damage to the Building or any
part thereof, (vi) constitute a public or private nuisance, (vii) impair in the
opinion of the Landlord the appearance, character or reputation of the Building,
(viii) discharge objectionable fumes, vapors or odors into the Building air
conditioning system or into Building flues or vents not designed to receive them
or otherwise in such manner as may unreasonably offend other occupants, (ix)
impair or interfere with any of the Building services or the proper and economic
heating, cleaning, air conditioning or other servicing of the Building or the
Demised Premises or impair or interfere with or tend to impair or interfere with
the use of any of the other areas of the Building by, occasion or discomfort,
annoyance or inconvenience to, Landlord or any of the other tenants or occupants
of the Building, or (x) cause Tenant to default in any of its other obligations
under this Lease. The provisions of this Section, and application thereof, shall
not be deemed to be limited in any way to or by the provisions of the following
Sections of this Article or any of the Rules and Regulations referred to in
Article 13 or Exhibit "C" attached hereto, except as may therein be expressly
otherwise provided.
2.04 If any government license or permit, other than a Certificate of Occupancy,
shall be required for the proper and lawful conduct of Tenant's business in the
Demised Premises, or any part thereof and if failure to secure such license or
permit would in any way affect Landlord, then Tenant, at its expense, shall duly
procure and thereafter maintain such license or permit and submit the same to
inspection by Landlord. Tenant shall at all times comply with the terms and
conditions of each such license or permit, but in no event shall failure to
procure and maintain same by Tenant affect Tenant's obligations hereunder.
2.05 Tenant shall not at any time use or occupy or suffer or permit anyone to
use or occupy the Demised Premises, or do or permit anything to be done in the
Demised Premises, in violation of the Certificate of Occupancy for the Demised
Premises or for the Building.
2.06 Tenant shall not place a load upon any floor of the Demised Premises
exceeding the floor load per square foot which such floor was designed to carry
and which is allowed by certificate, rule, regulation, permit or law. Landlord
reserves the right to prescribe the weight and position of all safes and vaults,
which must be placed by Tenant, at Tenant's expense. Business machines and
mechanical equipment shall be placed and
-3-
<PAGE>
maintained by Tenant, at Tenant's expense, in such manner as shall be sufficient
in Landlord's judgment to absorb and prevent vibration, noise and annoyance.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.01 Prior to the Commencement Date, Landlord will substantially perform all the
work in the Demised Premises as set forth in the attached Exhibit "D" (the "Work
Letter"), upon the terms and conditions specified in the Work Letter.
3.02 Landlord's agreement to do the work in the Demised Premises shall not
require it to incur overtime costs and expenses and shall be subject to
unavoidable delays due to acts of God, governmental restrictions, strikes, labor
disturbances, shortage of materials and supplies and for any other causes or
events beyond Landlord's reasonable control.
3.03 Landlord may afford Tenant and its employees, agents and contractors access
to the Demised Premises, at reasonable times prior to the Commencement Date and
at Tenant's sole risk and expense, for the sole purpose of installing telephone
and data wiring at the Demised Premises in preparation for Tenant's occupancy.
Access for such purposes shall not be deemed to constitute possession or
occupancy accelerating the Commencement Date or Tenant's obligation to pay fixed
rent under this Lease.
3.04 If Tenant employs or uses any contractor or subcontractor other than
Landlord in the performance of any work in connection with Tenant's initial
occupancy, all of Tenant's duties and obligations set forth in Sections 14.05
and 14.06 (relating to Tenant's duties and obligations in making alterations)
shall be applicable to and binding upon Tenant with respect to any such work.
ARTICLE 4
WHEN DEMISED PREMISES READY FOR OCCUPANCY
4.01 The Demised Premises shall be deemed ready for occupancy on the earliest
date on which all of the following conditions have been met:
(a) A Certificate of Occupancy (temporary or final or a permission to
occupy) has been issued not inconsistent with Tenant's use of the
Demised Premises as permitted under Section 2.01 hereof.
(b) The Work described in the Work Letter to be performed by Landlord
has been substantially completed, which Work shall be completed by
Landlord no later than one hundred twenty (120) days after the date of
this Lease.
(c) Adequate means of access have been provided, and the use, without
material interference, of the facilities necessary to Tenant's
occupancy of the Demised Premises, including corridors, elevators and
stairways and heating, ventilating, air conditioning, sanitary, water,
and electrical lighting and power facilities, are available to Tenant
in accordance with Landlord's obligations under this Lease.
(d) The facilities and systems serving the Building and passing through
the Demised Premises have been completed to the extent required to
provide adequate services to the Demised Premises, the exterior of the
Building has been substantially completed, including all of the windows
of the Demised Premises, and the remaining work to be done in the
Building is of such nature as will not materially interfere with
Tenant's use of the Demised Premises or access thereto.
-4-
<PAGE>
(e) Ten (10) days after Landlord shall give Tenant written notice
estimating when the conditions listed in subsections (a) through (d)
above will be met, and provided that the conditions shall have been met
by the expiration of such ten (10) day period, the Demised Premises
shall be deemed ready for occupancy on the date of expiration of the
period, or in the event Landlord's estimate was inaccurate, on the date
when the conditions in fact shall have been met.
4.02 If the occurrence of any of the conditions listed in Section 4.01, and
thereby the making of the Demised Premises ready for occupancy, shall be delayed
due to any act or omission of Tenant or any of its employees, agents or
contractors, including but not limited to failure by Tenant to act promptly when
any consent or approval may be requested by Landlord, or to plan or execute work
to be performed by Tenant diligently and expeditiously, the Demised Premises
shall be deemed ready for occupancy on the date when it would have been ready
but for any such delay.
4.03 If the whole of the Demised Premises shall not be ready for occupancy at
approximately the same time, Tenant may, with the written consent of Landlord,
take possession of any part or parts of the Demised Premises for its use and
occupancy before the Commencement Date, provided that a temporary or permanent
Certificate of Occupancy shall have been obtained for the part or parts of the
Demised Premises in respect of which Tenant desires to take possession. Tenant
shall be deemed to have taken possession of a part of the Demised Premises for
use and occupancy (herein called "actual possession") when any personnel of
Tenant or anyone claiming under or through Tenant shall first occupy such part
for the conduct of business. Tenant's actual possession of any part of the
Demised Premises prior to the Commencement Date shall be subject to all of the
obligations of this Lease, including the payment of fixed and additional rent,
which payment shall be reasonably apportioned.
4.04 On the Commencement Date or at such time as Tenant shall take actual
possession of the whole or part of the Demised Premises, whichever shall be
earlier, it shall be conclusively presumed that the same were in satisfactory
condition as of the Commencement Date or the date or dates of such taking of
possession, unless within thirty (30) days after such date Tenant shall have
given Landlord notice specifying in which respects the Demised Premises were not
in satisfactory condition. However, nothing contained in this Section shall be
deemed to relieve Landlord from, and Landlord shall perform, its obligation to
complete, with reasonable speed and diligence, such details of construction,
mechanical adjustment and decoration as shall have been unperformed at the time
Tenant took actual possession, but Tenant shall not be entitled to any rent
abatement on account of any such incomplete work.
ARTICLE 5
SECURITY DEPOSIT
5.01 Tenant, upon the execution of this Lease, has deposited with Landlord the
sum of Eight Thousand Three Hundred and Seventy Nine and 67/100 Dollars
($8,379.67) (the "Security Deposit"), receipt of which is hereby acknowledged by
Landlord. The Security Deposit shall be held by Landlord without liability for
interest, as security for the faithful performance by Tenant of all of the
terms, covenants, and conditions of this Lease by Tenant to be kept and
performed during the term hereof. If at any time during the term of this Lease
any of the rent herein reserved shall be overdue and unpaid, or any other sum
payable by Tenant to Landlord hereunder shall be overdue and unpaid then
Landlord may, at the option of Landlord (but Landlord shall not be required to),
appropriate and apply any portion of the Security Deposit toward any such
overdue rent or other sum.
5.02 In the event of the failure of Tenant to keep and perform any of the terms,
covenants and conditions of this Lease to be kept and performed by Tenant, then
Landlord, at its option, may appropriate and apply the entire Security Deposit,
or so much thereof as may be necessary, to compensate the Landlord for loss or
damage sustained or suffered by Landlord due to such breach on the part of
Tenant. Should the entire
-5-
<PAGE>
Security Deposit, or any portion thereof, be appropriated and applied by
Landlord for the payment of overdue rent or other sums due and payable to
Landlord by Tenant hereunder, then Tenant shall, upon the written demand of
Landlord, forthwith remit to Landlord a sufficient amount in cash to restore the
Security Deposit to the original sum deposited, and Tenant's failure to do so
within five (5) days after receipt of such demand shall constitute a breach of
this Lease. Should Tenant comply with all of the terms, covenants and conditions
and promptly pay all of the rent herein provided for as it falls due, and all
other sums payable by Tenant to Landlord hereunder, the Security Deposit shall
be returned in full to Tenant at the end of the term of this Lease, or upon the
earlier termination of this Lease.
5.03 Landlord may deliver the Security Deposit to the purchaser of Landlord's
interest in the Building, in the event that such interest be sold, and thereupon
Landlord shall be discharged from any further liability with respect to the
Security Deposit; provided that such purchaser assumes Landlord's obligation
with respect to the Security Deposit.
ARTICLE 6
ADJUSTMENTS OF RENT FOR CHANGES IN REAL ESTATE TAXES
6.01 (a) The term "Tax Base Year" shall mean the tax fiscal year of July 1,
1999 to June 30, 2000.
(b) The term "Common Areas" shall mean the land and pedestrian deck, as
shown on Exhibit "F", together with the parking garage and loading dock
facility.
(c) The term "Real Estate Taxes" shall mean 100% of the taxes and
assessments levied, assessed or imposed at any time by any governmental
authority upon or against the Building and 48.24% of such taxes and
assessments levied against the Common Areas, and also any tax or
assessment levied, assessed or imposed at any time by any governmental
authority in connection with the receipt of income or rents from the
Building and Common Areas, to the extent that same shall be in lieu of
or in addition to all or a portion of any of the aforesaid taxes or
assessments upon or against the Building and Common Areas. The term
"Real Estate Taxes" shall not mean any interest or penalties which may
become due any reason of the failure to pay any such taxes when due and
payable; or any municipal, state or federal income, estate,
inheritance, transfer, corporate or franchise taxes assessed against
Landlord unless and to the extent that same is assessed in lieu of part
or all of real estate taxes as presently constituted and are computed
as if Landlord owned no other property.
(d) The term "Tenant's Proportionate Share" shall be 0.731%.
(e) The phrase "Real Estate Taxes payable by Landlord" shall not
include Real Estate Taxes for which Landlord is reimbursed by Tenant
under Section 1.05 or by other tenants of the Building under similar
provisions of their leases.
(f) In the event that, after a statement has been sent to Tenant, an
assessment or valuation which had been utilized in computing the Real
Estate Taxes for a tax fiscal year is reduced (as a result of
settlement, final determination or legal proceedings or otherwise), and
as a result thereof a refund of Taxes is actually received by or on
behalf of Landlord, promptly after receipt of such refund, Landlord
shall send Tenant a statement adjusting the Real Estate Taxes for such
tax fiscal year (taking into account the expenses mentioned in the last
sentence of this subparagraph (f) and setting forth Tenant's
Proportionate Share of such refund) and Tenant shall be entitled to
receive such share by way of a credit against the Additional Rent next
becoming due after the sending of such statement; provided, however,
that Tenant's Proportionate Share of such refund shall be limited to
the amount, if any, which Tenant had theretofore paid to Landlord as
increased Additional Rent for such tax fiscal year on the basis of the
assessed valuation before it had been reduced. All expenses, including
-6-
<PAGE>
attorneys' and appraisers' fees and disbursements, expenses and other
witnesses' fees, incurred in contesting the validity or amount of any
Real Estate Taxes or in obtaining a refund shall be considered as part
of the Real Estate Taxes for such year. If a refund of Taxes is
obtained, Tenant shall be entitled to receive its proportionate share
of any tax refund to the extent Tenant shall have contributed to the
Taxes being refunded.
(g) In the event that any time during a tax fiscal year after the Tax
Base Year the assessment or valuation which had been utilized in
computing the Real Estate Taxes for the additional rent for any Tax
Year is reduced (as a result of settlement, final determination or
legal proceedings or otherwise), so that the Taxes payable for such tax
fiscal year is less than the Taxes payable by Tenant for the Tax Base
Year then and in such event: (i) the Taxes for the Tax Base Year shall
become the lower assessment or valuation effective as of the tax fiscal
year in which said settlement or final determination was reached
(hereinafter the "Updated Tax Base Year"); and (ii) Tenant shall pay as
additional rent its Proportionate Share of the amount by which the
Taxes for each succeeding tax fiscal year after the Updated Tax Base
Year, exceeds the taxes for the Updated Tax Base Year. Landlord
promptly shall send to Tenant a statement setting forth the basis for
the Updated Tax Base Year and all adjustments and additional rent
payments.
6.02 (a) In addition to the fixed rent, Tenant agrees to pay as additional
rent an amount equal to Tenant's Proportionate Share of the excess of
Real Estate Taxes payable by Landlord for each tax fiscal year of the
City which is subsequent to the Tax Base Year, over the Real Estate
Taxes by Landlord for the Tax Base Year.
(b) Tenant's obligation to pay such additional rent under (a) above,
shall commence on the July 1st or January 1st (whichever comes first)
after the Tax Base Year; and Tenant shall pay such additional rent,
with respect of each fiscal year subsequent to the Tax Base Year, in
two equal installments, on such July 1st or January 1st (as the case
may be) and each subsequent July 1st and January 1st during the balance
of the term of this Lease. Tenant's obligation to pay such additional
rent shall be prorated for any portion of the year in which Tenant is
in possession of the Premises.
(c) Within thirty (30) days after the Expiration Date, Landlord shall
pay to Tenant an amount equal to the portion, if any, of such
additional rent which is attributable to the period subsequent to the
Expiration Date.
(d) The dates for the payment of taxes, July 1st and January 1st, are
based on the present dates for the payment of real estate taxes in the
City. If the City or other governmental authority changes the dates for
the payment of Real Estate Taxes then the changed dates shall be
sequentially substituted for the July 1 and January 1 dates contained
herein.
6.03 Upon Tenant's request, Landlord shall furnish to Tenant a copy of the
Assessor's report or reports showing the assessment for the Building and the
Common Areas and the report or reports showing the increased assessment therefor
and all applicable tax bills, or such other evidence coming from the Assessor's
and/or Tax Collector's office which will show the assessments and tax involved
or some other reasonable documentation of the matter.
-7-
<PAGE>
ARTICLE 7
ADJUSTMENT OF RENT FOR CHANGES IN OPERATING COSTS
7.01 (a) In the event that the Operating Costs for an Operating Year shall
exceed the Operating Costs for the Base Year, Landlord shall adopt a
date (the "Adjustment Date"), in the succeeding Operating Year, and
within ten (10) days of the Adjustment Date, Tenant shall pay to
Landlord an amount equal to the Tenant's Proportionate Share of such
excess (without setoff or deduction of any kind and as additional
rent), less the amount of additional rent, if any, which Tenant paid to
Landlord, as additional rent under subparagraph (b) below, during the
Operating Year in question. Tenant's obligation to pay such additional
rent shall be prorated for any portion of the year in which Tenant is
in possession of the Premises.
(b) Tenant also shall pay to Landlord, as additional rent (in equal
monthly installments) in each Operating Year, retroactive to the first
month of such year, a sum equal to Tenant's Proportionate Share of the
amount by which the projected Operating Costs for the current Operating
Year exceed the Operating Costs for the Base Year. In no event shall
Tenant's Proportionate Share of Operating Costs or any Operating Year
during the Term hereof be less than Tenant's Proportionate Share of
Operating Costs for the Base Year; provided that if the net rentable
area of the Demised Premises changes, Tenant's Proportionate Share
shall be revised accordingly.
(c) If the Operating Costs for any Operating Year shall be less than
the Operating Costs for the previous year, Landlord shall credit such
amount of Tenant's Proportionate Share to Tenant, but in no event will
the fixed rent be reduced below that amount stated in Article 1.
7.02 For the purposes of this Article, the following terms shall have the
following meanings:
(a) The term "Base Year" shall mean January 1, 2000, through December
31, 2000.
(b) The term "Operating Year" shall mean each twelve month period
adopted by the Landlord subsequent to the Commencement Date.
(c) The term "Common Areas" shall mean the land and pedestrian deck, as
shown on Exhibit "F", together with the parking garage and loading dock
facility.
(d) The term "Adjustment Date" shall be a date adopted by the Landlord
subsequent to each Operating Year.
(e) The term "Tenant's Proportionate Share" shall be 0.731%.
(f) The term "Operating Costs" shall mean the aggregate of all expenses
paid or incurred by Landlord for the operation of the Building, and
48.24% of such expenses paid or incurred by Landlord for the operation
of the Common Areas, and shall include without limitation the
following:
(i) Wages and salaries paid by Landlord, including all fringe
benefits and taxes related thereto paid by Landlord, of
employees directly engaged in cleaning, maintenance and repair
of the Building, Building equipment and Common Areas, and
performing the functions of garbage and snow removal,
landscaping and security, including a customary managing
agent's fee, or cost to Landlord of an independent contractor
performing any such services;
(ii) Any and all supplies and materials utilized by Landlord
or independent contractors of Landlord in the performance of
the items set forth in subparagraph (i) immediately preceding;
-8-
<PAGE>
(iii) The cost of supplying utilities to the Building and
Common Areas;
(iv) Insurance premiums paid by Landlord with respect to the
Building and Common Areas; and
(v) Expenditures incurred by Landlord after substantial
completion of the Building for any equipment, device or
capital improvement which is required by any law, statute or
regulation or a requirement of the insurance carrier or which
is designed as a labor-saving measure or designed to effect
other economies or efficiencies in the operation or
maintenance of the Demised Premises, Common Areas or the
Building Equipment except to the extent such expenses exceed
$200,000, in which case the annual amortization (on a
straight-line basis over a depreciable life in accordance with
generally accepted accounting principles consistently applied,
with interest calculated at an annual rate of one (1)
percentage point above the prime rate at the time of
Landlord's having made such expenditure) of such expenses
shall be included in Operating Costs; and
(vi) Legal and accounting fees and disbursements, and any
other expense or charge of any nature whatsoever which, in
accordance with generally accepted accounting principles with
respect to the operation of a first-class office building,
would be construed as an operating expense, excluding,
however, real property taxes, depreciation, interest on and
amortization of debt, any items otherwise properly
constituting such an operating expense to the extent payment
therefor is received from or payable by tenants for services
rendered or performed directly for the account of such tenants
or for which a tenant pays directly under an electricity
schedule, real estate brokerage leasing and costs for tenant
improvements for new leases or renewals and penalties and
fines incurred by Landlord due to its negligence or failure to
comply with the law.
(g) In the event that the Building is less than 90% occupied at any
time during the Base Year or any Operating Year, the Operating Costs
for such year shall be those which, with equitable adjustment, would
have been paid or incurred by Landlord for the operation of the
Building and Common Areas if the Building had been ninety percent
occupied throughout the whole of such year.
7.03 Landlord shall advise Tenant by written statement certified to be correct
by Landlord or its agent, of increased Operating Costs for any Operating Year.
The statement shall delineate the amount of Tenant's Proportionate Share caused
by such increase, shall establish the Adjustment Date, and set forth the manner
in which the adjustment is computed. Landlord's failure to render a statement
with respect to increases in Operating costs for any Operating Year shall not
prejudice Landlord's right to thereafter render a statement with respect thereto
or with respect to any subsequent Operating Year. Furthermore, nothing herein
contained shall restrict Landlord from issuing a statement or from revising an
estimate at any time that there is an increase in Operating Costs during any
Operating Year or at any time thereafter. The rights and obligations of Landlord
and Tenant under the provisions of this Article with respect to any additional
rent shall survive the termination of this Lease.
7.04 Tenant and Landlord agree that for all purposes in any way connected with
or arising out of this Article, the statement delivered by Landlord pursuant to
Section 7.03 shall be binding and conclusive on both parties hereto unless
objected to by Tenant in writing within ninety (90) days after receipt thereof.
Tenant's objection shall be in writing and specify the respects in which the
statement is claimed to be incorrect. The Tenant shall have the right to require
the production of Landlord's books which relate to these items of cost and the
right, within ninety (90) days subsequent to the production of Landlord's books,
to deliver notice of disagreement with respect to any item of Operating Costs.
-9-
<PAGE>
7.05 Anything to the contrary herein notwithstanding, Landlord shall have the
right at any time to calculate Operating Costs for the Building and the other
Buildings separately rather than together and to collect from Tenant as
additional rent Tenant's Proportionate Share of the excess of the Building 's
Operating Costs for the Operating Year in question over the Building's Operating
Costs for the Base Year; in such event Landlord shall give Tenant at least
thirty (30) days advance notice of the said manner of calculation ("Landlord's
Change Notice"). At the time said adjustments are made in calculating Operating
Costs for the Operating Years (or portions thereof) falling after the effective
date of Landlord's Change Notice, appropriate adjustment shall be made in
Operating Costs for the Base Year.
7.06 Notwithstanding that in certain provisions of this Lease, it is specified
that Landlord shall perform certain obligations and services as an Operating
Cost, whereas the Lease is silent in regards to other obligations and services,
all obligations and services to be performed by Landlord shall be included as an
Operating Cost to the extent that they fall within the definition of Operating
Costs in Section 7.02(g) hereof. The costs of any services included in Operating
Costs, which services are performed by subsidiaries or affiliates of Landlord or
Landlord's agents shall be competitive in price for comparable contracts and
transactions with unaffiliated entities for the performance of such services in
comparable buildings.
ARTICLE 8
SUBORDINATION, ATTORNMENT, NOTICE TO LESSOR AND MORTGAGEES
8.01 This Lease, and all rights of Tenant hereunder, are and shall be subject
and subordinate in all respects to all present and future ground leases,
over-riding leases and underlying leases and/or grants of term of the land
and/or the Building or the portion thereof in which the Demised Premises are
located in whole or in part now or hereafter existing and to all mortgages and
building loan agreements, including leasehold mortgages and building loan
agreements, which may now or hereafter affect the land and/or the Building
and/or any of such leases, whether or not such mortgages shall also cover other
lands and/or buildings, to each and every advance made or hereafter to be made
under such mortgages, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and spreaders, consolidations and
correlations of such mortgages. This Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver an instrument, in
recordable form, if required, that Landlord, the lessor of any such lease or the
holder of any such mortgage or any of their respective successors in interest
may request to evidence such subordination, and Tenant hereby constitutes and
appoints Landlord attorney-in-fact for Tenant to execute any such instrument for
and on behalf of Tenant. The leases to which this Lease is, at the time referred
to, subject and subordinate pursuant to this Article are hereinafter sometimes
called "superior leases" and the mortgages to which this Lease is at the time
referred to, subject and subordinate are hereinafter sometimes called "superior
mortgages" and the lessor of a superior lease or its successor in interest at
the time referred to is hereinafter sometimes called a "lessor".
8.02 Landlord hereby notifies Tenant that in accordance with the terms of a
superior mortgage, this Lease may not be modified or amended so to reduce the
rent, shorten the term, or adversely affect in any other respect to any material
extent the rights of the Landlord hereunder, or be cancelled or surrendered
without the prior written consent of the holder of the superior mortgage in each
instance, except that said holder's consent shall not be required to the
institution or prosecution of any action or proceedings against Tenant by reason
of a default on the part of Tenant under the terms of this Lease.
8.03 This Lease shall not terminate or be terminable by Tenant by reason of any
termination of the ground lease, by summary proceedings, foreclosure of a
superior mortgage, or otherwise. Tenant agrees without further instruments of
attornment in each case, to attorn to the lessor under the ground lease, or the
mortgagee under the superior mortgage, as the case may be, to waive the
provisions of any statute or rule
-10-
<PAGE>
of law now or hereafter in effect which may give or purport to give Tenant any
right of election to terminate this Lease or to surrender possession of the
Demised Premises in the event the ground lease is terminated or a superior
mortgage is foreclosed, and that unless and until the lessor, or mortgagee, as
the case may be, shall elect to terminate this Lease, this Lease shall not be
affected in any way whatsoever by any such proceeding or termination, and Tenant
shall take no steps to terminate this Lease without giving written notice to the
lessor under the ground lease, or mortgagee under a superior mortgage, and a
reasonable opportunity to cure (without such lessor or mortgagee being obligated
to cure), any default on the part of the Landlord under this Lease.
8.04 If any act or omission by Landlord would give Tenant the right, immediately
or after lapse of time, to cancel or terminate this Lease or to claim a partial
or total eviction, Tenant will not exercise any such right until (a) it has
given written notice of such act or omission to each holder of a superior
mortgage and to each holder of a superior lease, whose name and address shall
have previously been furnished to Tenant, by delivering notice of such act or
omission addressed to each such party at its last address so furnished and (b) a
period for remedying such act or omission shall have elapsed following such
giving of notice and following the time when such senior interest holder shall
have become entitled under such senior interest, as the case may be, to remedy
the same (which period shall be equal to, and immediately follow, the full
period to which Landlord would be entitled under this Lease to effect such
remedy) provided such senior interest holder shall, with reasonable diligence,
give Tenant notice of its intention to remedy such act or omission and shall
commence and continue to act upon such intention. Notwithstanding the foregoing,
nothing shall impose any obligation on such holder actually to remedy such act
or omission.
ARTICLE 9
QUIET ENJOYMENT
9.01 Landlord covenants that if, and so long as, Tenant pays all of the fixed
and additional rent due hereunder, and keeps and performs each and every
covenant, agreement, term, provision and condition herein contained on the part
and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the
premises without hindrance or molestation by Landlord or by any other person
lawfully claiming the same, subject to the covenants, agreements, terms,
provisions and conditions of this Lease.
ARTICLE 10
ASSIGNMENT, MORTGAGING, SUBLETTING
10.01 Neither this Lease, nor the term and estate hereby granted, nor any part
hereof or thereof, nor the interest of Tenant in any sublease or the rentals
thereunder, shall be assigned, mortgaged, pledged, encumbered or otherwise
transferred by Tenant by operation of law or otherwise, and neither the Demised
Premises, nor any part thereof, shall be encumbered in any manner by reason of
any act or omission on the part of Tenant or anyone claiming under or through
Tenant, nor shall be sublet to be used or occupied or permitted to be used or
occupied, or utilized for desk space or for mailing privileges, by anyone other
than Tenant or for any purpose other than as permitted by this Lease, without
the prior written consent of Landlord in every case, except as expressly
otherwise provided in this Article.
Furthermore, no assignment shall be binding on Landlord unless the
assignee shall execute, acknowledge and deliver to Landlord (a) a duplicate
original instrument of assignment in form and substance reasonably satisfactory
to Landlord, duly executed by Tenant, and (b) an agreement, in form and
substance satisfactory to Landlord, duly executed by the assignee, whereby the
assignee shall unconditionally assume in accordance with the terms and
conditions of this Lease observance and performance of, and agree to be bound by
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed or performed, including, without limitation, the provisions of this
Article with respect to all future assignments; but the failure or refusal of
the assignee to execute or deliver such an agreement shall not release the
assignee
-11-
<PAGE>
from its liability for the obligations of Tenant hereunder assumed by acceptance
of the assignment of this Lease.
10.02 If this Lease is assigned, whether or not in violation of the provisions
of this Lease, Landlord may collect rent from the assignee. If the Demised
Premises or any part thereof is sublet or is used or occupied by anybody other
than Tenant, whether or not in violation of this Lease, Landlord may, after
default by Tenant, and expiration of Tenant's time to cure such default, collect
rent from the sub-tenant or occupant. In either event, Landlord may apply the
net amount collected to the rents herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of the
provisions of Section 10.01, or the acceptance of the assignee, subtenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of Tenant's obligations under this Lease. The consent by Landlord to
assignment, mortgaging, subletting or use or occupancy by others shall not in
any way be considered to relieve Tenant from obtaining the express written
consent of Landlord to any other or further assignment, mortgaging or subletting
or use or occupancy by others not expressly permitted by this Article.
References in this Lease to use or occupancy by others, that is anyone other
than Tenant, shall not be construed as limited to subtenants and those claiming
under or through sub-tenants but as including also licensees and others claiming
under or through Tenant, immediately or remotely.
10.03 Tenant, upon written notice to Landlord, but without Landlord's written
consent, may permit any corporations or other business entities which control,
are controlled by, or are under common control with Tenant (herein called
"related corporations") to use the whole or part of the Demised Premises for any
of the purposes permitted to Tenant, subject however to compliance with Tenant's
obligations under this Lease. Such use shall not be deemed to vest in any such
related corporation any right or interest in this Lease or in the Demised
Premises, nor shall such use release, relieve, discharge or modify any of
Tenant's obligations hereunder.
10.04 Tenant, upon Landlord's prior written consent, which shall not
unreasonably be withheld or delayed, may assign or transfer its entire interest
in the Lease and the leasehold estate hereby created or sublet the whole of the
Demised Premises on one or more occasions to a "wholly owned subsidiary" or
"affiliate" of Tenant or to a "successor corporation" of Tenant, as such terms
are hereinafter defined, provided that Tenant shall not be in default in any of
the terms, covenants, conditions and agreements of this Lease, including but not
limited to the payment of the fixed rent or additional rent payable by Tenant
hereunder. A "wholly owned subsidiary" of Tenant shall mean any corporation all
of whose outstanding voting stock shall at the time be owned, directly or
indirectly, by Tenant or by one or more of its wholly owned subsidiaries. An
"affiliate" of Tenant shall mean any corporation which directly or indirectly
controls or is controlled by or is under common control with Tenant. For
purposes of this definition, "control" (including "controlling," "controlled by"
and "under common control with") as used with respect to any corporation, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, or by contract or otherwise. A "successor
corporation" as used in this Article, shall mean (i) a corporation into which or
with which Tenant, its corporate successors or assigns, is merged or
consolidated, in accordance with applicable statutory provisions for the merger
or consolidation of corporations, provided that by operation of law or by
effective provisions contained in the instruments of merger or consolidation the
liabilities of the corporations participating in such merger or consolidation
are assumed by the corporation surviving such merger or consolidation, or (ii) a
corporation acquiring this Lease and the term hereby demised, the good will and
all or substantially all of the other property and assets of Tenant, its
corporate successors or assigns, and assuming all or substantially all of the
liabilities of Tenant, its corporate successors and assigns, or (iii) any
corporate successor to a successor corporation becoming such by either of the
methods described in Clauses (i) and (ii); provided that, immediately after
giving effect to any such merger or consolidation, or such acquisition and
assumption as the case may be, the corporation surviving such merger or created
by such consolidation or acquiring such assets and assuming such liabilities, as
the case may be, shall have assets, capitalization, and a net worth
-12-
<PAGE>
as determined in accordance with generally accepted principles of accounting at
least equal to the assets, capitalization and net worth, similarly determined,
of Tenant, at the beginning of the term of this Lease or Tenant, its corporate
successors or assigns, immediately prior to such merger or consolidation or such
acquisition and assumption, as the case may be, whichever is the greater. The
acquisition by Tenant, its corporate successors or assigns, of all or
substantially all of the assets, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation, shall
be deemed to be a merger of such corporation into Tenant for the purpose of this
Article.
10.05 If Tenant is a corporation or partnership, and if at any time during the
term of this Lease the person or persons who, as of the date this Lease is
executed by Tenant, own or owns a majority of such corporation's voting stock
(as hereinafter defined) or the general partner's interest in such partnership,
as the case may be, cease or ceases to own a majority of such a voting stock or
general partner's interest, as the case may be, then the occurrence of any such
event shall be deemed to be an assignment of this Lease with respect to which
the Landlord's prior written consent shall be required, except, however, that
this provision shall not be applicable to any corporation, all the outstanding
voting stock of which is listed on a National Securities Exchange. For the
purpose of this Section, stock ownership shall be determined in accordance with
the principles set forth in Section 544 of the Internal Revenue Code of 1986, as
amended, and the term "voting stock" shall refer to share of stock regularly
entitled to vote for the election of directors of the corporation.
10.06 (a) Notwithstanding anything contained in Sections 10.01 and 10.02
hereof, but subject to the right of Tenant under Sections 10.03 and
10.04 hereof, in the event that at any time or from time to time prior
to or during the term of this Lease Tenant desires to sublet all or any
part of the Demised Premises, Tenant (I) shall notify Landlord in
writing of the term of the proposed subletting and the area so proposed
to be sublet, (II) shall be deemed to have granted Landlord the option
to sublet from Tenant such space so proposed to be sublet upon the
covenants, agreements, terms, provisions and conditions hereinafter set
forth, and (III) shall not offer such space for subletting to anyone
other than Landlord until thirty (30) days have elapsed after the
receipt of such notice by Landlord. Such option on the part of Landlord
to sublet from Tenant such space so proposed to be sublet shall be
exercisable by Landlord in writing during such 30 day period referred
to in clause (III) of the next preceding sentence. If Landlord fails to
exercise such option within said thirty (30) days and Tenant fails to
complete a sublease with a third party (as hereinafter provided within
one hundred eighty (180) days thereafter), Tenant shall again comply
with all the conditions of this Section, as if the notice and option
hereinabove referred to had not been given and received
(b) As an alternative to Landlord's other rights under this Article
10.06, within thirty (30) days of Landlord's receipt of Tenant's notice
that Tenant desires to assign this Lease or to sublease all or any
portion of the Demised Premises, except with respect to a sublease
within the scope of Article 10.04 herein, Landlord may elect to
terminate this Lease, as to the entire Demised Premises or as to the
relevant portion (at Landlord's option) by delivering notice of Such
election to Tenant within such thirty (30) day period. If Landlord
shall have elected to terminate this Lease Pursuant to this Article
10.06, the Term of this Lease shall cease and come to an end on that
day with the same force and effect as though that were the original
date set forth as the Expiration Date, and Tenant shall deliver broom
clean possession of the Demised Premises to Landlord, in accordance
with the terms of this Lease. Thereafter, neither party shall have any
obligations to the other hereunder, except for any Rent due and owing
to the Landlord up to and including the termination of this Lease, any
obligations that expressly survive the termination or expiration of
this Lease, and as the parties hereto may have agreed otherwise in the
Lease or by separate writing. If Landlord fails to exercise such option
within said thirty (30) days and Tenant fails to complete a sublease
with a third party (as hereinafter provided within ninety (90) days
thereafter), Tenant shall again comply with all the conditions of this
Section, as if the notice and option hereinabove referred to had not
been given and received. The provisions of this Section 10.06(b) shall
not apply in the event of a sale of all or substantially all of the
-13-
<PAGE>
assets or stock of Tenant or in the event of a merger or consolidation
of Tenant with another entity, provided that such transaction is for a
valid business purpose and is not intended to circumvent tenant's
obligations under this lease.
In the event Landlord exercises Landlord's option to sublet such space,
such sublease by Tenant to Landlord shall be at an annual fixed rent
equal to the fixed rent and additional rent as provided in this Lease
for the entire Demised Premises or equal to an equitable apportionment
of such fixed and additional rent if such sublease shall be in respect
of less than the whole of the Demised Premises, and shall be for the
same term as that of the proposed subletting, and it is hereby
expressly agreed that:
(a) the sublease shall be expressly subject to all of the covenants,
agreements, terms, provisions and conditions of this Lease except such
as are not relevant or applicable, and except as otherwise expressly
set forth to the contrary in this Section.
(b) such sublease to Landlord shall give Landlord the unqualified and
unrestricted right, without Tenant's permission, to assign such
sublease or any interest therein and/or sublet the space covered by
such sublease or any part or parts of such space and to make any and
all changes, alterations, and improvements in the space covered by such
sublease;
(c) such sublease to Landlord shall provide that any assignee or
subtenant of the Landlord may, at the election of the Landlord, be
permitted to make alterations, decorations and installments in such
space or any part thereof and shall also provide in substance that any
such alterations, decorations and installations therein made by any
assignee or subtenant for the Landlord may be removed, in whole or in
part, by such assignee or subtenant, at its option, prior to or upon
the expiration or other termination of such sublease provided that such
assignee or subtenant, at its expense, shall repair any damage and
injury to such space or sublet caused by such removal; and
(d) such sublease to Landlord shall also provide that the parties to
such sublease expressly negate any intention that any estate created
under such sublease be merged with any other estate held by either of
said parties. Tenant covenants and agrees (i) that any such assignment
or subletting by the subtenant may be for any purpose or purposes that
Landlord, in Landlord's uncontrolled discretion, shall deem suitable or
appropriate, (ii) that Tenant, at Tenant's expense, shall and will at
all times provide and permit reasonably appropriate means of ingress to
and egress from such space so sublet by Tenant to Landlord, and (iii)
that at the expiration of the term of such sublease, Tenant will accept
the space covered by such sublease in its then existing condition,
subject to the obligations of Landlord to make such repairs thereto as
may be necessary to preserve the premises demised by such sublease in
good order and condition.
10.07 In the event Landlord does not exercise its option to so sublet such
space, Landlord covenants not to unreasonably withhold or delay its consent
which must be in writing, to a subletting, provided, however, that Landlord
shall not, in any event, be obligated to consent to any such proposed subletting
unless:
(a) Tenant shall furnish Landlord with the name and business address of
the proposed subtenant, a counterpart of the proposed subleasing
agreement, and satisfactory information with respect to the nature and
character of the business of the proposed subtenant together with
current financial information and references reasonably satisfactory to
Landlord;
(b) in the reasonable judgment of Landlord the proposed subtenant is of
a character and engaged in a business such as are in keeping with the
standards of Landlord in those respects for the Building; and
-14-
<PAGE>
(c) the purposes for which the proposed subtenant intends to use the
portion of the Demised Premises sublet to it are uses expressly
permitted by and not expressly prohibited by this Lease; and
(d) Tenant shall not have (i) advertised or publicized in any way the
availability of all or part of the Demised Premises without prior
notice to and approval by Landlord, (ii) listed or publicly advertised
the rental rate less than the fixed rent and additional rent (pursuant
to Articles 6 and 7) then payable hereunder for such space; but the
provisions of this subsection, however, shall not be deemed to prohibit
Tenant from negotiating a sublease at a lesser rate of rent and
consummating the same insofar as it may be permitted under the
provisions of this Article; and
(e) the proposed subtenant is not an existing tenant of Landlord who
leases space in the Building or in any other building owned by Landlord
or any affiliate of Landlord.
(f) Tenant shall pay to Landlord immediately upon receipt thereof, a
sum equal to the amount of (i) all fixed rent and additional rent and
any other consideration paid to Tenant by any subtenant which is in
excess of the fixed rent and additional rent then being paid by Tenant
to Landlord pursuant to the terms hereof, and (ii) any other profit or
gain realized by Tenant from any such subletting; if only a part of the
Demised Premises is sublet, then the fixed rent and additional rent
paid therefor by Tenant to Landlord shall be deemed to be the fraction
thereof that the area of the sublet space bears to the entire Demised
Premises.
(g) Tenant shall together with requesting Landlord's consent hereunder,
have paid Landlord any reasonable costs incurred by Landlord to review
the proposed subletting including attorneys' fees incurred by Landlord.
(h) In the case of a subletting of a portion of the Demised Premises,
the portion so sublet shall be regular in shape and suitable for normal
renting purposes; and
(i) Tenant shall have reimbursed Landlord for Landlord's costs incurred
in the plan review or plan approval should Tenant propose the
alterations to the Demised Premises to make same suitable for the
occupancy by Tenant's subtenant.
Except for any subletting by Tenant to Landlord pursuant to the
provisions of this Article, each subletting pursuant to this Article shall be
subject to all the covenants, agreements, terms, provisions and conditions
contained in this Lease. Tenant covenants and agrees that notwithstanding any
such subletting to any subtenant (other than Landlord) and/or acceptance of rent
or additional rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the fixed rent and additional rent due and to
become due hereunder and for the performance of all the covenants, agreements,
terms, provisions and conditions contained in this Lease on the part of Tenant
to be performed and all acts and omissions of any licensee or subtenant or
anyone claiming under or through any subtenant which shall be in violation of
any of the obligations of this Lease and any such violation shall be deemed to
be a violation by Tenant. Tenant further covenants and agrees that
notwithstanding any such subletting, no other and further subletting of the
Demised Premises or any part thereof shall or will be made except upon
compliance with and subject to the provisions of this Article.
10.08 With respect to each and every sublease or subletting authorized by the
provisions of this Article:
(a) No subletting shall be for a term ending later than one day prior
to the Expiration Date of this Lease, and that part, if any, of the
proposed term of any sublease or any renewal or extension thereof
-15-
<PAGE>
which shall extend beyond a date one day prior to the Expiration Date
or the earlier termination of the term of this Lease, is hereby deemed
to be a nullity.
(b) Upon the execution of any such sublease as may be authorized by
this Article, Tenant shall promptly deliver to Landlord a copy of each
such sublease.
10.09 Landlord's approval is required for the use of any name other than
Tenant's name for identification on any signs or directory listings in the
Building.
The listing of any name other than that of Tenant, even though approved
by Landlord, shall not:
(i) Constitute a waiver of Landlord's right to withhold consent to any
sublet or assignment pursuant to this Article;
(ii) Be deemed an implied consent by Landlord to any sublet of the
Premises or any portion thereof, to any assignment or transfer of the
lease, or to any unauthorized occupancy of the Premises, except in
accordance with the express terms of the Lease; or
(iii) Operate to vest any right or interest in the Lease or in the
Premises.
The use of any such other name or listing as provided above shall
constitute a privilege extended by Landlord to Tenant, and shall be revocable at
Landlord's will by notice to Tenant.
ARTICLE 11
COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES
11.01 Tenant shall promptly notify Landlord of any written notice it receives of
the violation of any law or requirements of any Federal, State, Municipal or
other public authority, and at its expense Tenant shall comply with all laws and
requirements of such public authorities which shall, with respect to the
Building or the Demised Premises or the use and occupation thereof or the
abatement of any nuisance, impose any violation, order or duty on Landlord or
Tenant, arising from (i) Tenant's use of the Demised Premises, (ii) the manner
of conduct of Tenant's business or operation of its installations, equipment or
other property therein, (iii) any cause or condition created by or at the
instance of Tenant, or (iv) breach of any of Tenant's obligations hereunder.
ARTICLE 12
INSURANCE
12.01 Tenant shall not do, or permit anything to be done, or keep or permit
anything to be kept in the Demised Premises which would increase the fire or
other casualty insurance rate on the Building or the property therein over the
rate which would otherwise then be in effect (unless Tenant pays the resulting
increased amount of premium as provided in Section 12.02) or which would result
in insurance companies of good standing refusing to insure the Building or any
of such property in amounts and at normal rates reasonably satisfactory to
Landlord.
12.02 If, by reason of any act or omission on the part of Tenant, the rate of
fire insurance with extended coverage on the Building or equipment or other
property of Landlord shall be higher than it otherwise would be, Tenant shall
reimburse Landlord, on demand, for that part of the premiums for fire insurance
and extended coverage paid by Landlord because of such act or omission on the
part of Tenant, which sum shall be deemed to be additional rent and collectible
as such.
-16-
<PAGE>
12.03 In the event that any dispute should arise between Tenant and Landlord
concerning rates, a schedule or make up of rates for the Building or the Demised
Premises, as the case may be, issued by a Fire Insurance Rating Organization or
other similar body making rates for fire insurance and extended coverage for the
premises concerned, shall be presumptive evidence of the facts therein stated
and of the several items and charges in the fire insurance rates with extended
coverage then applicable to such premises.
12.04 Tenant shall obtain and keep in full force and effect during the term of
this Lease at its own cost and expense comprehensive General Public Liability
Insurance on an occurrence basis with minimum limits of liability in an amount
of not less than $3,000,000.00 for bodily injury or death including personal
injury, and with respect to damage to property, water damage and sprinkler
leakage including legal liability arising out of any one occurrence, which
insurance shall contain contractual liability insurance covering the matters set
forth in Article 21.
12.05 All policies of insurance to be obtained and furnished by Tenant hereunder
shall be issued and carried in the name of Landlord and Tenant, as their
respective interests may appear, together with such other party or parties as
may be designated by Landlord, as their interests may appear. All such policies
of insurance shall be issued by a financially responsible company or companies,
authorized to issue such policy or policies, and licensed to do business in the
State of Connecticut, which shall be reasonably satisfactory to Landlord, and
shall contain endorsements providing as follows: (a) that any such insurance
shall not be subject to cancellation, termination, reduction or change, except
with 30 days' prior written notice sent by registered mail to Landlord by the
insurance company; and (b) that Landlord shall not be liable for any damage by
fire or other casualty covered by such insurance, regardless of the cause, it
being understood that Tenant shall look solely to its insurer or insurers for
reimbursement. Landlord and Tenant waive their right to recover damages against
each other for any reason whatsoever to the extent the damaged party recovers
from its insurance carrier. Any insurance policy procured by Tenant which does
not name the Landlord as an additional insured shall contain an express waiver
of any right of subrogation by the insurance company against Landlord. All
public liability and property damage polices shall contain an endorsement that
Landlord, although named as an insured, shall nevertheless be entitled to
recover under said policies for any loss or damage occasioned to it, its
servants, agents and employees. The original policy or policies together with
satisfactory evidence of payment of the premium thereof, shall be delivered to
Landlord on or before the commencement of any of Tenant's Work under this Lease,
and upon renewals of such policies, not less than 30 days prior to the
expiration of the term of any such coverage. The minimum limits of any insurance
coverage required herein to be carried by Tenant shall not limit Tenant's
liability under Article 21 hereof.
12.06 In the event that Tenant at any time or times shall fail to obtain or
maintain in full force and effect any or all of the insurance polices and
coverage required of it hereunder, or should Tenant violate any of the
provisions of Section 12.05 herein, Landlord, at its election after ten (10)
days written notice to Tenant, and as agent for Tenant, may obtain such
insurance or coverage, or additional insurance or coverage as the case may be,
pay the premiums thereon or take such other steps as may be necessary to meet
the requirements of this Article and thereafter, upon demand, obtain
reimbursement of the costs so expended from Tenant. The failure of Landlord to
obtain evidence of the required insurance coverage shall not relieve Tenant of
its obligations under this Article.
-17-
<PAGE>
ARTICLE 13
RULES AND REGULATIONS
13.01 Tenant and its employees and agents shall faithfully observe and comply
with the rules and regulations set forth in the attached Exhibit "C" (the "Rules
and Regulations"), and such reasonable changes therein (whether by modification,
elimination or addition) as Landlord at any time or times hereafter may make and
communicate in writing to Tenant, which do not unreasonably affect the conduct
of Tenant's business in the Demised Premises; provided, however, that in case of
any conflict or inconsistency between the provisions of this Lease and any Rules
and Regulations enacted subsequent to the date of this Lease the provisions of
this Lease shall control.
13.02 Notwithstanding anything to the contrary in any of the Rules and
Regulations set forth in Exhibit "C":
(a) Tenant may bring into and keep in the Demised Premises such small
quantities of inflammable or combustible objects or materials as are
permitted by local law and as are incidental to the use of the Demised
Premises for the purposes permitted by Article 2, but this shall not be
deemed to relieve Tenant of responsibility to comply with all other
obligations of this Lease that may be applicable to or result from the
introduction or maintenance of such objects or materials in the Demised
Premises, including but not limited to compliance with the provisions
of Sections 12.01 and 12.02.
(b) Subject to the provisions of Paragraph 2.02(c), Landlord shall not
unreasonably withhold its consent to the installation, maintenance and
operations by Tenant in the Demised Premises of data processing
machines, telecommunications equipment, office duplicating machines,
teletypewriter machines, equipment and other business machines and
machinery customarily used in offices in the ordinary course of
business, provided, however, that Tenant shall comply with all other
obligations of this Lease that may be applicable to or result from such
installation, maintenance or operation.
(c) Landlord shall not unreasonably withhold from Tenant any approval
provided for in the Rules and Regulations.
(d) Whenever Landlord shall claim, by written notice to Tenant, that
Tenant is violating any of the provisions of the Rules and Regulations,
and Tenant shall in good faith dispute such claim by written notice
given to Landlord within ten (10) days after service of Landlord's
notice of the violation, the dispute shall be determined by arbitration
pursuant to the rules of the American Arbitration Association.
(e) Tenant shall utilize only security and cleaning services approved
in writing by Landlord.
ARTICLE 14
ALTERATIONS AND TENANT'S PROPERTY
14.01 Tenant shall not make any alterations, decorations, installations,
additions, or improvements in or to the Demised Premises without Landlord's
prior written consent, which consent Landlord agrees shall not be unreasonably
withheld or delayed.
14.02 All work done by or on behalf of Tenant ("Tenant's Work") shall be done at
Tenant's sole expense and shall be done only by Landlord's contractors, except
as set forth in Exhibit D.
14.03 All alterations, decorations, installations, additions or improvements
upon the Demised Premises made by any party shall at the expiration of the term
hereof become the property of the Landlord and be surrendered with the Demised
Premises as part thereof at the end of the term. Tenant's special chandeliers,
-18-
<PAGE>
business and trade fixtures, machinery and equipment, whether or not attached to
the Demised Premises, which are installed by or for the account of Tenant, and
can be removed without permanent structural damage to the Demised Premises or
the Building, and all furniture, furnishings and other articles of movable
personal property shall be and shall remain Tenant's property and may be removed
by it prior to the expiration date of this Lease; provided, however, that if any
of Tenant's property is removed, Tenant shall repair or pay the cost of
repairing any damage to the Demised Premises resulting from such removal. Any
equipment or other property for which Landlord shall have granted any allowance
or credit to Tenant shall not be deemed to have been installed by or for the
account of Tenant and shall not be considered Tenant's property.
14.04 At or before the Expiration Date, or the date of any earlier termination
of this Lease, Tenant at its expense, shall remove from the Demised Premises all
of Tenant's property (including telecommunications and data wiring) except such
items thereof as Tenant shall have expressly agreed in writing with Landlord
were to remain and to become the property of Landlord, and shall repair any
damage to the Demised Premises or the Building resulting from such removal. Any
other items of Tenant's property (except money, securities and other like
valuables) which shall remain in the Demised Premises after the Expiration Date
or after a period of fifteen (15) days following an earlier termination date,
may, at the option of the Landlord, be deemed to have been abandoned, and in
such case either may be retained by Landlord as its property or may be disposed
of, without accountability, in such manner as Landlord may see fit at Tenant's
expense.
14.05 All Tenant's work, at all times, shall comply with laws, orders and
regulations of governmental authorities having jurisdiction thereof and all
rules and regulations of Landlord. Tenant, at its expense, shall obtain all
necessary governmental permits and certificates for the commencement and
prosecution of Tenant's work and for final approval thereof upon completion, and
shall cause Tenant's work to be performed in compliance therewith and with all
applicable requirements of insurance bodies, and in good and first class
workmanlike manner, using materials and equipment at least equal in quality and
class to the original installations of the Building. Tenant's work shall be
performed in such a manner as not to interfere with the occupancy of any other
tenant in the Building, nor delay or impose any additional expense upon Landlord
in the construction, maintenance or operation of the Building. Throughout the
performance of Tenant's work, Tenant, at its expense, shall carry, or cause to
be carried, workmen's compensation insurance in statutory limits, and general
liability insurance for any occurrence in or about the Building, of which
Landlord and its managing agent shall be named as parties insured, in such
limits as Landlord may reasonably prescribe, with insurers reasonably
satisfactory to Landlord. Tenant shall furnish Landlord with reasonably
satisfactory evidence that such insurance is in effect at or before the
commencement of Tenant's work and, on request, at reasonable intervals
thereafter during the continuance of Tenant's work. No Tenant's work shall
involve the removal of any fixtures, equipment or other property in the Demised
Premises which are not Tenant's property, unless Landlord's prior written
consent is first obtained and unless such fixtures, equipment or other property
shall be promptly replaced at Tenant's expense and free of superior title, liens
and claims, with fixtures, equipment or other property ( as the case may be) of
like utility and at least equal value (which replaced fixture, equipment or
other property shall thereupon become the property of Landlord), unless Landlord
shall otherwise expressly consent in writing.
14.06 Tenant, at its expense, and with diligence and dispatch, shall procure the
cancellation or discharge of all notices of violation arising from or otherwise
connected with Tenant's work which shall be issued by any public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
harmless Landlord against any and all mechanics and other liens in connection
with Tenant's work, repairs or installation, including but not limited to the
liens of any conditional sale of, or chattel mortgages upon, any materials,
fixtures, or articles installed in and constituting part of Demised Premises and
against all costs, attorney's fees, fines, expenses and liabilities reasonably
incurred in connection with any such lien, conditional sale or chattel mortgage
or any action or proceeding brought thereon.
-19-
<PAGE>
Tenant, at its expense, shall procure the satisfaction or discharge of
all such liens within ten (10) days of the filing of such lien against the
Demised Premises or the Building. If Tenant shall fail to cause such lien to be
discharged within the period aforesaid, then, in addition to any other right or
remedy, Landlord may, but shall not be obligated to, discharge the same either
by paying the amount claimed to be due or by procuring the discharge of such
lien by deposit or by bonding proceedings, and in any such event Landlord shall
be entitled, if Landlord so elects, to compel the prosecution of an action for
the foreclosure of such lien by the lienor and to pay the amount of the judgment
in favor of the lienor with interest, costs and allowances. Any amount so paid
by Landlord and all costs and expenses incurred by Landlord, in connection
therewith, together with interest thereon at the rate of one percent per month
or portion thereof from the respective dates of Landlord's making of the payment
or incurring of the cost and expense shall constitute additional rent payable by
Tenant under this Lease and shall be paid by Tenant on demand. If Tenant makes
any such payment it shall not be entitled to any set-off against rent due
hereunder. Tenant agrees that it will not at any time prior to or during the
term of this Lease, either directly or indirectly, use any contractors, labor or
materials in the Demised Premises, if the use of such contractors, labor or
materials would, in the Landlord's opinion, create any difficulty with other
contractors or labor engaged by Tenant or Landlord or others or would in any way
disturb harmonious labor relations in the construction, maintenance or operation
of the Building or any part thereof.
ARTICLE 15
REPAIRS AND MAINTENANCE
15.01 Tenant shall take good care of the Demised Premises and the fixtures and
appurtenances therein, and at its sole cost and expense shall make all repairs
thereto, as and when needed to preserve them in good working order and
condition. In addition, Tenant, at its expense, shall promptly make all repairs,
ordinary or extraordinary, interior or exterior, structural or otherwise, in and
about the Demised Premises and the Building as shall be required by reason of
(i) the performance or existence of work by Tenant necessary to suit the Demised
Premises to Tenant's initial occupancy or Tenant's work (ii) the installation,
use or operation of Tenant's property in the Demised Premises, (iii) the moving
of Tenant's property in or out of the Building, or (iv) the misuse or neglect of
Tenant or any of its employees, agents or contractors. Tenant shall not be
responsible, and Landlord shall be responsible, for any repairs to the Demised
Premises as are required by reason of Landlord's neglect or other fault in the
manner of performing any work included in the Work Letter OR Tenant's work which
may be undertaken by Landlord for Tenant's account or as are otherwise required
by reason of neglect or other fault of Landlord or its employees, agents or
contractors.
15.02 Landlord shall keep and maintain the Building and its fixtures,
appurtenances, systems and facilities serving the Demised Premises, in good
working order, condition and repair and shall make all structural repairs,
interior and exterior, except as indicated in Section 15.01 as and when needed
in the Building, except for those repairs for which Tenant is responsible
pursuant to any other provisions of this Lease, and subject to all other
provisions of this Lease, including but not limited to the provisions of Article
21.
15.03 Except as expressly otherwise provided in this Lease, Landlord shall have
no liability to Tenant by reason of any inconvenience, annoyance, interruption
or injury to business arising from Landlord or any tenant making any repairs or
changes or performing maintenance services, whether or not Landlord is required
or permitted by this Lease or by law to make such repairs or changes or to
perform such services in or to any portion of the Building or the Demised
Premises, or in or to the fixtures, equipment or appurtenances of the Building
or the Demised Premises, provided that Landlord shall be reasonably diligent
with respect thereto and shall perform such work, except in case of emergency,
at times reasonably convenient to Tenant and otherwise in such manner and to the
extent practical as will not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises.
-20-
<PAGE>
ARTICLE 16
ELECTRICAL ENERGY
16.01 Landlord shall furnish electrical energy for use by the Tenant in the
Demised Premises for lighting and operation of its business machines.
16.02 Tenant shall pay to Landlord such amounts and at such times as is set
forth in Exhibit "E", attached hereto and made a part hereof.
16.03 Landlord shall in no way be liable for any failure of or defect in the
character or supply of electrical energy supplied to the Demised Premises,
except for its gross negligence or willful misconduct.
16.04 After the initial installation which shall be set forth in the Work
Letter, Tenant shall at its expense, install all lamps (including, but not
limited to, fluorescent), starters and ballasts used in the Demised Premises.
ARTICLE 17
HEAT, VENTILATION AND AIR CONDITIONING
17.01 Landlord shall maintain and operate the heating, ventilation and air
conditioning systems in the Building and shall furnish heat, ventilation and air
conditioning in the Demised Premises through such systems, in compliance with
such performance specifications, during regular business hours, but not before
8:00 A.M., or after 6:00 P.M. on business days (which term is used herein to
mean all days except Saturdays, Sundays and the days observed by the Federal or
the Connecticut government as legal holidays). If Tenant shall require
ventilating and air conditioning service or heating service at any other time
(hereinafter called "after hours"), Landlord shall furnish after hours
ventilating and air conditioning service or heating service upon reasonable
advance notice from Tenant, and Tenant shall pay Landlord's then established
charges therefor on Landlord's demand. Such charges shall not exceed 121% of
Landlord's actual cost of labor, utilities and equipment depreciation used in
providing such after hours air conditioning or heating service. If any of the
other tenants of the Building shall request and receive after hours heating or
air conditioning service pursuant to Landlord's obligation to provide the same
to them, at the same time as Tenant, only that equitably pro-rated portion of
such labor and utilities costs as shall be incurred for such common service
shall be charged to Tenant.
17.02 Landlord will not be responsible for the failure of the air conditioning
system to meet the performance specifications stated in the Work Letter attached
hereto if such failure results from the occupancy of the Demised Premises with
more than an average of one person for each 100 square feet or if the Tenant
installs and operates machines and appliances, the installed electrical load of
which when combined with the load of all lighting fixtures exceeds seven watts
per square foot of floor area in any one room or other area. If due to use of
the Demised Premises in a manner exceeding the aforementioned occupancy and
electrical load criteria, or due to rearrangement of partitioning after the
initial preparation of the Demised Premises, interference with normal operation
of the air conditioning in the Demised Premises results, necessitating changes
in the air conditioning system servicing the Demised Premises, such changes
shall be made by Landlord upon written notice to Tenant at Tenant's sole cost
and expense. Tenant agrees to lower and close window coverings when necessary
because of the sun's position whenever the air conditioning system is in
operation, and Tenant agrees at all times to cooperate fully with Landlord and
to abide by all the regulations and requirements which Landlord may prescribe
for the proper functioning and protection of the air conditioning system.
Landlord, throughout the term of this Lease, shall have free and unrestricted
access to any and all air conditioning facilities in the Demised Premises.
Landlord shall not be required to furnish, and Tenant shall not be entitled to
receive any air conditioning during any period wherein Tenant shall be in
default in any material provision of this Lease.
-21-
<PAGE>
ARTICLE 18
LANDLORD'S OTHER SERVICES
18.01 Landlord, at its expense, shall provide public elevator service, by
elevators serving the floors on which the Demised Premises are situated as
specified and shown in the Building plans and specifications, during regular
hours of business days, and shall have at least one passenger elevator subject
to call at all other times. The elevators, or any of them, may be operated by
automatic control and/or by manual control, as Landlord shall determine at any
time or from time to time. Landlord shall not be obligated to furnish an
operator for any automatic elevator and shall have no liability to Tenant for
discontinuing the service of any operator theretofore furnished. If Tenant shall
require Saturday or after hours service of elevators or of the loading area in
the Building under such circumstances as in Landlord's reasonable judgment, will
require service or attention by Landlord's personnel, Tenant shall pay Landlord,
on demand, a reasonable charge attributable to such service or attention.
18.02 Provided that Tenant shall keep the Demised Premises in good order,
Landlord, at its expense, shall cause the Demised Premises, including the
exterior and the interior of the windows thereof (subject to Tenant maintaining
unrestricted access to such windows), to be cleaned in accordance with the
standards set forth in the attached Exhibit "B" (the "Cleaning Schedule").
Tenant shall pay to Landlord on demand the costs incurred by Landlord for (a)
cleaning work in the Demised Premises or the Building required because of (i)
misuse or neglect on the part of the Tenant or its employees or visitors, (ii)
use of portions of the Demised Premises for preparation, serving, or consumption
of food or beverages, reproducing operations, private lavatories or toilets or
other special purposes requiring greater or more difficult cleaning work than
office areas, (iii) unusual quantity of interior glass surfaces, (iv)
non-standard building materials or finishes installed by Tenant or at its
request, (v) increases in frequency or scope in any of the items set forth in
Exhibit "B" as shall have been requested by Tenant, and (b) removal from the
Demised Premises and the Building of (i) so much of any refuse and rubbish of
Tenant as shall exceed that normally accumulated daily in the routine of
ordinary business office occupancy, and (ii) all of the refuse and rubbish of
Tenant's machines and the refuse and rubbish of any other eating facilities
requiring special handling (known as "wet garbage"). Landlord and its cleaning
contractor and their employees shall have after hours access to the Demised
Premises and the use of Tenant's light, power and water in the Demised Premises
as may be reasonably required for the purpose of cleaning the Demised Premises.
18.03 Landlord, at its expense, shall furnish adequate hot and cold water for
drinking, lavatory, toilet, and ordinary cleaning purposes to the plumbing
fixtures of central Facilities of the Building serving the Demised Premises.
18.04 Landlord shall keep and maintain the public areas and the public
facilities of the Building clean and in good order and the sidewalks adjoining
the Building shall be kept in good repair and free of accumulation of snow and
ice or unlawful obstructions.
18.05 Landlord, subject to its prior written approval, at its expense, and on
Tenant's request, shall maintain listings on the Building directory of the names
of Tenant, its organizational divisions and any other person or business
entities lawfully occupying the Demised Premises or any part thereof, and the
names of any of their officers and employees, provided that the names so listed
shall not take up more than Tenant's Proportionate Share of the space on the
Building directory, the size of which shall be determined by Landlord. The
listing of any name other than that of Tenant on the Building directory or on
any of the doors of the Demised Premises shall not be deemed to vest in the
person or entity so listed any right or interest in this Lease or in the Demised
Premises or to constitute the consent of Landlord required under Article 10, or
a waiver thereof. Notwithstanding anything to the contrary herein, initial
listings on the Building directory shall be at Landlord's expense, and any
subsequent changes and/or additions shall be at Tenant's expense.
-22-
<PAGE>
18.06 Landlord reserves the right, without any liability to Tenant, except as
otherwise expressly provided in this Lease, and without being in breach of any
covenant of this Lease, to stop, interrupt or suspend service of any of the
heating, ventilating, air conditioning, electric, sanitary, elevator or other
Building systems serving the Demised Premises, or the rendition of any of the
other services required of Landlord under this Lease, whenever and for so long
as may be necessary, by reason of accidents, emergencies, strikes or the making
of repairs or changes which Landlord is required by law to make or in good faith
deems advisable, or by reason of difficulty in securing proper supplies of fuel,
steam, water, electricity, labor or supplies, or by reason of any other cause
beyond Landlord's reasonable control, including Governmental restrictions on the
use of materials or the use of any of the Building systems. In each instance
Landlord shall exercise reasonable diligence to eliminate the cause of stoppage
and to effect restoration of service and shall give Tenant reasonable notice,
when practicable, of the commencement and anticipated duration of such stoppage,
and if any work is required to be performed in or about the Demised Premises for
such purpose, the provisions of Section 15.03 shall apply. Tenant shall not be
entitled to any diminution or abatement of rent or other compensation nor shall
this Lease or any of the obligations of Tenant be affected or reduced by reason
of the interruption, stoppage or suspense of any of the Building systems or
services arising out of the causes set forth in this Section.
ARTICLE 19
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
19.01 All walls, windows and doors bounding the Demised Premises (including
exterior Building walls, corridor walls and doors and any corridor entrance),
except the inside surfaces thereof, any terraces or roofs adjacent to the
Demised Premises, and any space in or adjacent to the Demised Premises used for
shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
sinks or other Building facilities, and the use thereof, as well as access
thereto through the Demised Premises for the purposes of operation, maintenance,
decoration and repair are reserved to Landlord.
19.02 Tenant shall permit Landlord to install, use and maintain pipes, ducts and
conduits within or through the Demised Premises, or through the walls, columns
and ceilings therein, provided that the installation work is performed at such
times and by such methods as will not unreasonably interfere with Tenant's use
and occupancy of the Demised Premises, or damage the appearance thereof, reduce
the floor area thereof by more than two percent (2%) (without an appropriate
adjustment in rent) or materially affect Tenant's layout. Where access doors are
required for mechanical fixtures in or adjacent to the Demised Premises,
Landlord shall furnish and install such access doors and confine their location,
wherever practical to closets, coat rooms, toilet rooms, corridors and kitchen
or pantry rooms. Landlord and Tenant shall cooperate with each other in the
location of Landlord's and Tenant's facilities requiring such access doors.
19.03 Landlord or Landlord's agents or employees shall have the right upon
request made on reasonable advance notice to Tenant, or to an authorized
employee of Tenant at the Demised Premises, to enter and/or pass through the
Demised Premises or any part thereof, at reasonable times during reasonable
hours, (i) to examine the Demised Premises or to show them to the fee owners,
lessors of superior leases, holders of mortgages, insurance carriers, or
prospective purchasers, mortgagees or lessees of the land or the Building, and
(ii) for the purpose of making such repairs or changes or doing such repainting
in or to the Demised Premises or in or to the Building or its facilities as may
be provided for by this Lease or as Landlord may deem necessary or as Landlord
may be required to make by law or in order to repair and maintain the Building
or its fixtures or facilities. Landlord shall be allowed to take all materials
into and store such materials upon the Demised Premises which may be required
for such repairs, changes, repainting or maintenance. Landlord's rights under
this Section shall be exercised in such a manner as will not unreasonably
interfere with Tenant's use and occupancy of the Demised Premises. Landlord, its
agents or employees, shall also have the right to enter on and/or pass through
the Demised Premises, or any part thereof without notice at such times as such
entry shall be required by circumstances of emergency affecting the Demised
Premises or the Building.
-23-
<PAGE>
19.04 During the period of nine (9) months prior to the Expiration Date Landlord
may exhibit the Demised Premises to prospective tenants upon the same notice and
subject to the same conditions as are provided in Section 19.03. If, during the
last month of the term hereof, Tenant shall have removed all of Tenant's
property therefrom, Landlord may, upon at least 48 hours notice to Tenant, enter
and alter, renovate and redecorate the Demised Premises without incurring any
liability to Tenant therefor.
19.05 Landlord reserves the right, at any time after completion of the Building,
without incurring any liability to Tenant therefor, to make such changes in or
to the Building and the fixtures and equipment thereof, as well as in or to the
street entrances, halls, passages, elevators, and stairways thereof, as it may
deem necessary or desirable; provided that there be no unreasonable lengthy
interference with the use of the Demised Premises or in the services furnished
to the Demised Premises, and no reduction in the area of the Demised Premises in
excess of two percent without an appropriate adjustment in rent.
19.06 The Landlord reserves the right to select a name for the Building and to
make such change or changes of name as it may deem appropriate during Tenant's
occupancy, and Tenant agrees not to refer to the Building by any other name than
(i) the name selected by Landlord, or (ii) the postal address approved by the
U.S. Post Office.
19.07 Landlord may limit and restrict, as provided in the Rules and Regulations
attached hereto, the means of access to the Demised Premises outside of normal
business hours, so long as Tenant's employees and authorized agents have
reasonable access to all parts of the Demised Premises. Tenant and its agents,
employees and visitors shall be entitled to access from the Demised Premises to,
and the right to use, the toilets, lavatories and powder rooms only on the floor
(or floors) on which the Demised Premises are located, unless such facilities
are not in working order.
ARTICLE 20
SHORING, NOTICE OF ACCIDENTS, ETC.
20.01 If an excavation or other substructure work shall be undertaken or
authorized upon land adjacent to the Building or in the vaults beneath the
Building or in subsurface space adjacent to the said vaults, Tenant, without
liability on the part of the Landlord therefor, shall afford to the person
causing or authorized to cause such excavation or other substructure work
license to enter upon the Demised Premises for the purpose of doing such work as
such person shall deem necessary to protect or preserve any of the walls or
structures of the Building or surrounding lands from injury or damage and to
support the same by proper foundations, pinning and/or underpinning, and, except
in case of emergency, if so requested by Tenant such entry shall be accomplished
in the presence of a representative of Tenant, who shall be designated by Tenant
promptly upon Landlord's request. The said license to enter shall be afforded by
Tenant without any claim for damages or indemnity against the Landlord and
Tenant shall not be entitled to any diminution or abatement of rent on account
hereof.
20.02 Tenant shall give notice to Landlord promptly after Tenant learns of (i)
any accident in or about the Demised Premises or the Building, (ii) any fire in
the Demised Premises, (iii) all damages to or defects in the Demised Premises,
including the fixtures, equipment and appurtenances thereof, for the repair of
which Landlord might be responsible or which constitutes Landlord's property,
and (iv) all damage to or defects in any parts of the Building's sanitary,
electrical, heating, ventilating, air conditioning, elevator and other systems
located in or passing through the Demised Premises.
-24-
<PAGE>
ARTICLE 21
NON-LIABILITY AND INDEMNIFICATION
21.01 Neither Landlord nor any agent or employee of Landlord shall be liable to
Tenant, its employees, agents, contractors and licensees, and Tenant shall hold
Landlord harmless for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by theft or otherwise) of, any property of Tenant
and/or of any other person, irrespective of the cause of such injury, damage or
loss, unless (with respect to personal injury only) such injury was caused by or
due to the negligence of Landlord, its agents or employees without contributory
negligence on the part of Tenant for which Landlord shall indemnify and hold
Tenant harmless; it being understood that no property, other than such as might
normally be brought upon or kept in the Demised Premises as incident to the
reasonable use of the Demised Premises for the purposes herein permitted, will
be brought upon or be kept in the Demised Premises. Landlord shall not be liable
in any event for loss of, or damage to, any property entrusted to any of
Landlord's employees or agents by Tenant without Landlord's specific written
consent.
21.02 Tenant shall defend, indemnify and save harmless Landlord and its agents
and employees against and from all liabilities, obligations, damages, penalties,
claims, costs, charges and expenses, including reasonable architects' and
attorneys' fees, which may be imposed upon or incurred by or asserted against
Landlord and/or its agents by reason of any of the following occurring during
the term of this Lease, or during any period of time prior to the Commencement
Date that Tenant may have been given access to or possession of all or any part
of the Demised Premises pursuant to Section 3.03:
(a) Any work or thing done in or about the Demised Premises or any part
thereof by or at the instance of Tenant, its agents, contractors,
subcontractors, servants, employees, licensees or invitees;
(b) any negligence or otherwise wrongful act or omission on the part of
Tenant or any of its agents, contractors, subcontractors, servants,
employees, subtenants, licensees or invitees;
(c) any accident, injury or damage to any person or property occurring
in, on or about the Demised Premises or any part thereof, except if
caused by or due to the negligence of Landlord without contributory
negligence on the part of Tenant;
(d) any failure on the part of Tenant to perform or comply with any of
the covenants, agreements, terms, provisions, conditions or limitations
contained in this Lease on its part to be performed or complied with.
In case any action or proceeding is brought against Landlord by reason
of any such claim, Tenant upon written notice from Landlord, shall at Tenant's
expense resist or defend such action or proceeding by counsel approved by
Landlord in writing, which approval Landlord shall not unreasonably withhold.
21.03 Whenever either party shall be obligated under the terms of this Lease to
indemnify the other party, the indemnifying party may select legal counsel
(subject to the consent of the indemnified party, which consent shall not be
unreasonably withheld) and shall keep the indemnified party fully apprised at
all times of the status of such defense. Legal counsel of the insurer for either
party is hereby deemed satisfactory to both parties.
21.04 Except as otherwise expressly provided herein, this Lease and the
obligations of Tenant to pay rent hereunder and perform all of the other
covenants, agreements, terms, provisions and conditions hereunder on the part of
Tenant to be performed shall in no way be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease or is
unable to supply or is delayed in supplying any service, express or implied, to
be supplied or is unable to make or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by reason of any
cause whatsoever beyond
-25-
<PAGE>
Landlord's reasonable control, including, but not limited to, Acts of God,
strikes, labor troubles, governmental preemption in connection with a national
emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any governmental agency or by reason of the conditions of
supply and demand which have been or are affected by war, hostilities or other
similar emergency; provided that Landlord shall in each instance exercise
reasonable diligence to effect performance when and as soon as possible.
21.05 Notwithstanding any contrary provisions of this Lease whatsoever,
including, without limitation, those pertaining to use and Permitted Use, Tenant
shall not use, or permit the use of the Demised Premises, the Building or the
complex so as to create or result in, directly or indirectly, (a) any sudden or
gradual spill, leak, discharge, escape, seepage, infiltration, abandonment,
dumping, disposal or storage of any hazardous or industrial waste, substance or
contamination, effluent, sewage, pollution or other detrimental or deleterious
material or substance (including without limitation asbestos), or the disposal,
storage or abandonment on the Complex of any material, tank or container holding
or contaminated by any of the foregoing residues thereof, or the installation of
any material or product containing or composed of any of the foregoing, in, on,
from under or above the Complex (the foregoing occurrences being hereinafter
collectively called "Environmental Hazard"), or (b) any violation, or state of
facts or condition which would result in a violation, of any Federal, State or
local statute, law, code, rule, regulation or order applicable to any
Environmental Hazard (the foregoing being hereinafter collectively call "Legal
Violation"). In the event of the violation of the foregoing by Tenant, in
addition to all other rights and remedies of Landlord under this Lease,
regardless of when the existence of the Environmental Hazard or Legal Violation
is determined, and whether during the Term or after the Expiration Date, (I)
Tenant shall, immediately upon notice from Landlord, at Tenant's sole cost and
expense, at Landlord's option, either (x) take all action necessary to test,
identify and monitor the Environmental Hazard and to remove the Environmental
Hazard from the Complex and dispose of the same and restore the Complex to the
condition existing prior to such removal, and/or to remedy any Legal Violation,
all in accordance with applicable Federal, State and local statutes, laws,
codes, rules, regulations or orders or (y) reimburse Landlord for all costs and
expenses incurred by Landlord for engineering or environmental consultant or
laboratory services, in testing, investigating, identifying and monitoring the
Environmental Hazard and in removing and disposing of the Environmental Hazard
and in restoring the Complex, and/or in remedying any Legal Violation, and (ii)
Tenant shall and hereby does defend with legal counsel acceptable to Landlord,
indemnify and save harmless Landlord and Others in Interest against and from all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including architects' and attorneys' fees and disbursements which may
be imposed upon or incurred by or asserted against Landlord and Others in
Interest, whether by any governmental authority, Tenant or other third party, by
reason of any violation or alleged violation of any of the foregoing provisions
of this Section.
ARTICLE 22
DESTRUCTION OR DAMAGE
22.01 If the Demised Premises and/or access thereto shall be partially or
totally damaged or destroyed by fire or other casualty, then, Landlord shall,
subject to its right under Section 22.03 hereof, repair such damage and restore
and rebuild the Demised Premises and/or access thereto as nearly as may be
reasonably practical to its condition and character immediately prior to such
damage or destruction, with reasonable diligence after notice to it of the
damage or destruction.
22.02 If the Demised Premises and/or access thereto shall be partially or
totally damaged or destroyed by fire or other casualty not attributable to the
fault, negligence or misuse of the Demised Premises by the Tenant, its agents or
employees under the provisions of this Lease, the rents payable hereunder shall
be abated to the extent that the Demised Premises shall be rendered untenantable
from the date of such damage or destruction to the date the damage shall be
substantially repaired, restored or rebuilt. Should Tenant reoccupy a portion of
the Demised Premises during the period that the repair, restoration, or
rebuilding is in progress and prior to the date that the same are made
completely tenantable, rents allocable to such portion
-26-
<PAGE>
shall be payable by Tenant from the date of such occupancy to the date the
Demised Premises are made tenantable.
22.03 In case the Building shall be so damaged by such fire or other casualty
that substantial renovation, reconstruction or demolition of the Building shall,
in Landlord's sole opinion, be required (whether or not the Demised Premises
shall have been damaged by such fire or other casualty), then Landlord may, at
its option, terminate this Lease and the term and estate hereby granted, by
notifying Tenant in writing of such termination, within 60 days after the date
of such damage. If at any time prior to Landlord giving Tenant the aforesaid
notice of termination or commencing the repair and restoration pursuant to
Section 22.01, the holder of a superior mortgage or any person claiming under or
through the holder of such superior mortgage takes possession of the Building
through foreclosure or otherwise, such holder or person shall have a further
period of 60 days from the date of so taking possession to terminate this Lease
by appropriate written notice to Tenant. In the event that such a notice of
termination shall be given pursuant to either of the two immediately preceding
sentences, this Lease and the term and estate hereby granted shall expire as of
the date of such termination with the same effect as if that were the date
hereinbefore set for the expiration of the term of this Lease, and the fixed and
additional rent due and to become due hereunder shall be apportioned as of such
date if not earlier abated pursuant to Section 22.02. Nothing contained in this
Section shall relieve Tenant from any liability to Landlord or to its insurers
in connection with any damage to the Demised Premises or the Building by fire or
other casualty if Tenant shall be legally liable in such respect.
22.04 No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to effect such repair or
restoration promptly and in such manner as not unreasonably to interfere with
Tenant's use and occupancy.
22.05 Landlord will not carry insurance of any kind on Tenant's property, and,
except as provided by law or its breach of any of its obligations hereunder,
shall not be obligated to repair any damage thereto or replace the same.
22.06 The provisions of this Article shall be considered an express agreement
governing any case of damage or destruction of the Demised Premises by fire or
other casualty, and any law to the contrary, now or hereafter in force, shall
have no application in such case.
22.07 Notwithstanding any of the foregoing provisions of this Article, if
Landlord or the holder of any superior mortgage shall be unable to collect all
of the insurance proceeds (including rent insurance proceeds) applicable to
damage or destruction of the Demised Premises or the Building by fire or other
cause, by reason of some action or inaction on the part of the Tenant or any of
its employees, agents or contractors, then, without prejudice to any other
remedies which may be available against Tenant, the abatement of Tenant's rents
provided for in this Article shall not be effective to the extent of the
uncollected insurance proceeds.
-27-
<PAGE>
ARTICLE 23
EMINENT DOMAIN
23.01 In the event that the land, Building or any part thereof or the Demised
Premises or any part thereof shall be taken in condemnation proceedings or by
the exercise of any right of eminent domain or by agreement between the Landlord
on the one hand and any governmental authority authorized to exercise such right
on the other hand, Landlord shall be entitled to collect from any condemnor the
entire award or awards that may be made in any such proceeding without deduction
therefrom for any estate hereby vested in or owned by Tenant, to be paid out as
in this Article provided. Tenant hereby expressly assigns to Landlord all of its
right, title and interest in or to every such award and also agrees to execute
any and all further documents that may be required in order to facilitate the
collection thereof by Landlord.
23.02 At any time during the term of this Lease if title to the whole or
substantially all of the land, Building and/or Demised Premises shall be taken
in condemnation proceedings or by the exercise of any right of eminent domain or
by agreement between the Landlord on the one hand and any governmental authority
authorized to exercise such right on the other hand, this Lease shall terminate
and expire on the date of such taking and the fixed rent and additional rent
provided to be paid by Tenant shall be apportioned and paid to the date of such
taking. For the purposes of this Article "substantially all of the land,
Building and/or Demised Premises" shall be deemed to have been taken if the
remaining portion of such land, Building or Demised Premises not so taken cannot
reasonably or practicably be repaired or reconverted so as to permit the use
thereof for substantially the same purposes for which such land, Building or
Demised Premises were used immediately prior to such taking.
23.03 However, if substantially all of the land or Building is not so taken and
if only a part of the entire Demised Premises shall be so taken, this Lease
nevertheless shall continue in full force and effect, except that Tenant may
elect to terminate this Lease if that portion of the Demised Premises then
occupied by Tenant shall be reduced by more than 25%. Tenant shall give notice
of such election to Landlord not later than thirty (30) days after (i) notice of
such taking is given by Landlord to Tenant, or (ii) the date of such taking,
whichever occurs first. Upon the giving of such notice by Tenant this Lease
shall terminate on the date of service of Tenant's notice and the fixed rent and
additional rent due and to become due, shall be prorated and adjusted as of the
date of the taking. If Tenant fails to give such notice upon such partial
taking, and this Lease continues in force as to any part of the Demised Premises
not taken, the rents apportioned to the part taken shall be prorated and
adjusted as of the date of taking and from such date the fixed rent and
additional rent shall be reduced to the amount apportioned to the remainder of
the Demised Premises.
23.04 In the event of any such taking of less than the whole of the Building
which does not result in a termination of this Lease, or in the event of such a
taking of all or any part of the Demised Premises which does not result in a
termination of this Lease, Landlord, at its expense, shall proceed with
reasonable diligence to repair, alter and restore the remaining parts of the
Building and the Demised Premises to substantially the same condition as it was
in immediately prior to such taking to the extent that the same may be feasible,
so as to constitute a tenantable Building and Demised Premises, provided that
Landlord's liability under this Section shall be limited to the proportionate
amount received by Landlord as an award arising out of such taking.
-28-
<PAGE>
ARTICLE 24
SURRENDER
24.01 On the last day of the term of this Lease, or upon any earlier termination
of this Lease, or upon any reentry by Landlord upon the Demised Premises, Tenant
shall quit and surrender the Demised Premises to Landlord broom clean, in good
order, condition and repair except for ordinary wear and tear and damage by fire
or other insured casualty; Tenant shall remove Tenant's property subject to the
provisions of Article 14 hereof; and Tenant shall surrender to Landlord all keys
to offices, lavatories and mail boxes and all Building identification and
parking cards possessed by Tenant's employees.
24.02 In the event Tenant remains in possession of the Demised Premises after
the termination of this Lease without the execution by Landlord and Tenant of a
new lease, Tenant shall, at Landlord's option, be deemed to be occupying the
Demised Premises as a tenant from month to month, at a monthly rental equal to
150% of the fixed rent and additional rent payable during the last month of the
term for the initial two (2) months of such holdover and thereafter 200%
thereof, subject to all of the other terms of this Lease insofar as the same are
applicable to a month to month tenancy.
24.03 In the event Tenant remains in possession of the Demised Premises
following the termination of this Lease, Tenant hereby indemnifies and agrees to
hold Landlord harmless from and against any loss, cost, liability, claim,
damage, fine, penalty, and expense, including attorneys' fees and disbursements,
resulting from such delay by Tenant in surrendering the Demised Premises upon
the termination of this Lease as provided in this Article 24, including without
limitation, any claims made by any succeeding tenant or prospective tenant based
upon such delay. In the event Tenant remains in possession of the Demised
Premises for any period of time following the Expiration Date, Tenant shall be
in default, and in addition to the rent provided in Section 24.02 hereof,
Landlord shall be entitled to all of its rights and remedies provided in this
Lease.
ARTICLE 25
CONDITIONS OF LIMITATION
25.01 (a) This Lease and the term and estate hereby granted are subject,
inter alia, to the limitation that whenever Tenant shall make an
assignment for the benefit of creditors, or shall file a voluntary
petition under any bankruptcy or insolvency law, or an involuntary
petition alleging an act of bankruptcy or insolvency is filed against
Tenant, or whenever a petition shall be filed by or against Tenant
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or any
future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any substantial part of its properties, or whenever
a permanent or temporary receiver of Tenant or of or for the property
of Tenant shall be appointed, or if Tenant shall plead bankruptcy or
insolvency as a defense in any action or proceeding, then, Landlord (a)
at any time after receipt of notice of the occurrence of any such
event, or (b) if such event occurs without the acquiescence of Tenant,
at any time after the event continues for 60 days, may give Tenant a
notice of intention to end the term of this Lease at the expiration of
five (5) days from the service of such notice of intention, and upon
the expiration of said five (5) day period this Lease and the term and
estate hereby granted, whether or not the term shall theretofore have
commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided
in Article 27.
(b) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seg. (the
Bankruptcy Code"), any and all consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered
to Landlord, shall be and remain the exclusive property of Landlord and
shall not constitute property of Tenant or
-29-
<PAGE>
of the estate of Tenant within the meaning of the Bankruptcy Code. Any
and all monies and other consideration constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall be
held in trust for the benefit of Landlord and be promptly paid to or
turned over to Landlord.
(c) If, pursuant to the provisions of the Bankruptcy Code, Tenant
assumes this Lease and proposes to assign the same to any person or
entity who shall have made a bona fide offer to accept an assignment of
this Lease on terms acceptable to Tenant then notice of such proposed
assignment, setting forth (i) the name and address of such person, (ii)
all of the terms and conditions of such offer, and (iii) the adequate
assurance to be provided Landlord to assure such person's future
performance under this Lease, including, without limitation, the
assurance referred to in Section 365(b)(3) of the Bankruptcy Code,
shall be given to Landlord by Tenant no later than twenty (20) days
after receipt by Tenant but in any event no later than ten (10) days
prior to the date that approval to enter into such assignment and
assumption, and Landlord shall thereupon have the prior right and
option, subject to all legal restrictions under the Bankruptcy Code,
and to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of
this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such person, less
any brokerage commissions which may be payable out of the consideration
to be paid by such person for the assignment of this Lease.
25.02 This Lease and the term and estate hereby granted are subject to the
further limitation that:
(a) whenever Tenant shall default in the payment of any installment of
fixed rent, or in the payment of any additional rent, on any day upon
which the same shall be due and payable and such default shall continue
for ten (10) days after the date on which the same was due and payable;
or
(b) whenever Tenant shall do or permit anything to be done, whether by
action or inaction, contrary to any of Tenant's obligations hereunder,
and if such situation shall continue and shall not be remedied by
Tenant within twenty (20) days after Landlord shall have given to the
Tenant a notice specifying in reasonable detail the same, or, in the
case of a happening or default which cannot with due diligence be cured
within a period of twenty (20) days and the continuance of which for
the period required for cure will not subject Landlord to the risk of
criminal liability or termination of any superior lease or foreclosure
of any superior mortgage, if Tenant shall not duly institute within
such twenty (20) day period and promptly and diligently prosecute to
completion all steps necessary to remedy the same; or
(c) whenever any event shall occur or any contingency shall arise
whereby this Lease or any interest therein or the estate hereby granted
or any portion thereof or the unexpired balance of the term hereof
would by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly
permitted in Article 10.
Then in any such event at any time thereafter, Landlord may give to
Tenant a notice ending the term of this Lease on the date of the service of such
notice and thereupon this Lease and the term and estate hereby granted, whether
or not the term has theretofore commenced, shall terminate with the same effect
as if that day were the Expiration Date, but Tenant shall remain liable for
damages as provided in Article 27.
25.03 Notwithstanding anything to the contrary set forth in this Lease, if:
(a) Tenant or its employees, agents, contractors or invitees (such
employees, agents, contractors and invitees being hereinafter
referred to as "Related Persons") shall violate the provisions of
this Lease relating to parking; or
-30-
<PAGE>
(b) Tenant or any of its Related Persons shall violate the
provisions of this Lease dealing with excessive noise, loitering
or other conduct that shall constitute a nuisance to the other
tenants of the Building; or
(c) Tenant shall allow a population density in the Demised Premises of
more than one (1) person per 100 square feet;
and Landlord shall give Tenant notice of its breach of any of the foregoing
provisions two (2) times during the Term of this Lease, then, notwithstanding
that any such breach shall have been timely cured, any future breach of the
subject provision shall be deemed to be a "Deliberate Default". Upon the
occurrence of a Deliberate Default, Landlord, without giving Tenant any notice
of such default and without giving Tenant any opportunity to cure such default,
may (in addition to resorting to the other remedies afforded to Landlord under
this Lease or at law or equity) give to Tenant a notice of Landlord's intention
to end the Term of this Lease at the expiration of three (3) days from the date
of service of such notice of intention and, upon the expiration of said three
(3) days, this Lease and the Term and estate hereby granted (whether or not the
Term shall have theretofore commenced) shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 27.
ARTICLE 26
RE-ENTRY BY LANDLORD - DEFAULT PROVISIONS
26.01 If this Lease shall terminate for any reason whatsoever, Landlord or
Landlord's agents and employees may without further notice immediately or at any
time thereafter enter upon and reenter the Demised Premises or any part thereof,
and possess or repossess itself thereof either by summary dispossess
proceedings, ejectment or by any suitable action or proceeding at law, or by
agreement, or by force and otherwise and may dispossess and remove Tenant and
all other persons and property from the Demised Premises without being liable to
indictment, prosecution or damage therefor, and may repossess the Demised
Premises and the right to receive all rental income again as and of its first
estate and interest therein. The words "enter" or "reenter", "possess or
"repossess" as herein used, are not restricted to their technical legal meaning.
In the event of any termination of this Lease, or of reentry by summary
dispossess proceedings, ejectment or by any suitable action or proceeding at
law, or by agreement, or by force or otherwise by reason of default hereunder on
the part of Tenant, Tenant shall thereupon pay to Landlord a fixed rent and
additional rent due up to the time of such termination of this Lease, or such
recovery of possession of the Demised Premises by Landlord, as the case may be,
and shall also pay to Landlord damages as provided in Article 27.
26.02 In the event of any breach or threatened breach by Tenant of any of the
agreements, terms, covenants or conditions contained in this Lease, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed at law or in equity or by statute
or otherwise as though reentry, summary proceedings, and other remedies were not
provided for in this Lease.
26.03 Each right and remedy of Landlord provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Landlord of any one
or more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise.
26.04 If this Lease shall terminate under the provisions of Article 25, or if
Landlord shall reenter the Demised Premises under the provisions of this
Article, or in the event of the termination of this Lease or of reentry, by or
under any summary dispossess or other proceeding or action or any provision of
law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all monies, if any, paid by Tenant to
-31-
<PAGE>
Landlord, whether as advance rent, security or otherwise, but such monies shall
be credited by Landlord against any fixed rent or additional rent due from
Tenant at the time of such termination or reentry or, at Landlord's option,
against any damages payable by Tenant under Article 27 or pursuant to law.
ARTICLE 27
DAMAGES
27.01 If this Lease is terminated under the provisions of Article 25, or if
Landlord shall reenter the Demised Premises under the provisions of Article 26
or in the event of the termination of this Lease, or of reentry by summary
dispossess proceedings, ejectment or by any suitable action or proceeding at
law, or by agreement, or by force or otherwise, by reason of default hereunder
on the part of Tenant, Tenant shall pay Landlord as damages, at the election of
Landlord, either:
(a) on demand, a sum which at the time of such termination of this
Lease or at the time of any such reentry by Landlord, as the case may
be, represents the excess of (i) the aggregate of the fixed rent and
the additional rent payable hereunder which would have been payable by
Tenant (conclusively presuming the additional rent to be the same as
was payable for the year immediately preceding such termination) for
the period commencing with such earlier termination of this Lease or
the date of such reentry, as the case may be, and ending with the
Expiration Date, had this Lease not so terminated or had Landlord not
so reentered the Demised Premises, over (ii) the aggregate rental value
(calculated as of the date of such termination or reentry) of the
Demised Premises for the same period; or
(b) sums equal to the fixed rent and the additional rent (as above
presumed) payable hereunder which would have been payable by Tenant had
this Lease not so terminated, or had Landlord not so reentered the
Demised Premises, payable quarterly, in advance, but otherwise upon the
terms therefor specified herein following such termination or such
reentry and until the Expiration Date, provided, however, that if
Landlord shall relet the Demised Premises or any portion or portions
thereof during said period, Landlord shall credit Tenant with the net
rents received by Landlord from such reletting, such net rents to be
determined by first deducting from the gross rents as and when received
by Landlord from such reletting the expenses incurred or paid by
Landlord in terminating the Lease or in reentering the Demised Premises
and in securing possession thereof, as well as the expenses of
reletting, including altering and preparing the Demised Premises or any
portion or portions thereof for new tenants, brokers' commissions,
advertising expenses, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom; it being
understood that any such reletting may be for a period shorter or
longer than the remaining term of this Lease, but in no event shall
Tenant be entitled to receive any excess of such net rents over the
sums payable by Tenant to Landlord hereunder, nor shall Tenant be
entitled in any suit for the collection of damages pursuant to this
subsection to a credit in respect of any net rents from a reletting,
except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet
in combination with other space, then proper apportionment shall be
made of the rent received from such reletting and of the expenses of
reletting, and Landlord shall have the right to grant reasonable rent
concessions to attract one or more new tenants and to permit the term
of any new lease covering part or all of the Demised Premises to be for
a shorter or longer period than provided for herein.
If the Demised Premises or any part thereof be relet by Landlord for
the unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental
-32-
<PAGE>
value for the Demised Premises, or part thereof, so relet during the term of the
reletting. Landlord, however, shall in no event and in no way be responsible or
liable for any failure to relet the Demised Premises or any part thereof or for
failure to collect any rent due upon any such reletting.
27.02 In the event Landlord elects to collect damages from Tenant under Section
27.01(b) at any time subsequent to such election and upon ten days prior written
notice to Tenant, Landlord may elect to collect a lump sum under Section
27.01(a), crediting Tenant with amounts theretofore received by Landlord as
damages. Landlord shall have no obligation to relet part or all of the Demised
Premises subsequent to termination of the Lease and upon Tenant's default.
27.03 Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
so terminated under the provisions of Article 25, or under any provision of law,
or had Landlord not reentered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder or
otherwise on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of the Landlord to provide for and obtain as
liquidated damages by reason of the termination of this Lease or reentry on the
Demised Premises for the default of Tenant under this Lease, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time, and
governing the proceedings in which such damages are to be proved whether or not
such amount be greater, equal to, or less than any of the sums referred to in
Section 27.01.
27.04 The foregoing Sections of this Article shall apply even if the default by
Tenant has occurred prior to the Commencement Date and/or prior to Tenant taking
possession of the Demised Premises. The parties acknowledge that this instrument
is a lease and not a contract to make a lease.
ARTICLE 28
WAIVERS
28.01 Tenant, for itself, and on behalf of any and all persons claiming through
or under Tenant, including creditors of all kinds, does hereby waive and
surrender all right and privilege so far as is permitted by law, which they or
any of them might have under or by reason of any present or future law, of the
service of any notice of intention to reenter and also waives any and all right
to redemption or reentry or repossession in case Tenant shall be dispossessed or
ejected by process of law or in case of reentry or repossession by Landlord upon
any expiration or termination of this Lease as herein provided.
28.02 Tenant waives Tenant's rights, if any, to designate the items against
which any payments made by Tenant are to be credited, and Tenant agrees that
Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited.
28.03 Tenant waives Tenant's rights, if any, to assert a counterclaim in any
summary proceeding brought by Landlord against Tenant, and Tenant agrees to
assert any such claim against Landlord only by way of a separate action or
proceeding.
28.04 TO THE EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD AND TENANT HEREBY
WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, OR TENANT'S
-33-
<PAGE>
USE OR OCCUPANCY OF THE DEMISED PREMISES, OR ANY EMERGENCY OR OTHER STATUTORY
REMEDY WITH RESPECT THERETO.
ARTICLE 29
NO OTHER WAIVERS OR MODIFICATIONS
29.01 The failure of either party to insist in any one or more instances upon
the strict performance of any one or more of the agreements, terms, covenants,
conditions or obligations of this Lease, or to exercise any right, remedy or
election herein contained, shall not be construed as a waiver or relinquishment
for the future of the performance of such one or more obligations of this Lease
or of the right to exercise such election, but the same shall continue and
remain in full force and effect with respect to any subsequent breach, act or
omission. The manner of enforcement or the failure of Landlord to enforce any of
the Rules and Regulations set forth herein, or hereafter adopted against the
Tenant and/or any other tenant in the Building shall not be deemed a waiver of
any such Rules and Regulations. No executory agreement hereafter made between
Landlord and Tenant shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or part,
unless such executory agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge or termination or effectuation of the abandonment is
sought.
29.02 The following specific provisions of this Section shall not be deemed to
limit the generality of the foregoing provisions of this Article:
(a) No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by
Landlord. The delivery of keys to an employee of Landlord or of its
agent shall not operate as a termination of this Lease or a surrender
of the Demised Premises. If Tenant shall at any time request Landlord
to sublet the Demised Premises for Tenant's account, Landlord or its
agent is authorized to receive said keys for such purposes without
releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Landlord of any liability for loss or damage to
any of Tenant's property in connection with such subletting.
(b) The receipt or acceptance by Landlord of rents with knowledge of
breach by Tenant of any term, agreement, covenant, condition or
obligation of this Lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser amount than
the correct fixed rent or additional rent due hereunder shall be deemed
to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment
be deemed to effect or evidence an accord and satisfaction, and
Landlord may accept such check on payment without prejudice to
Landlord's right to recover the balance or pursue any other remedy in
this Lease or at law provided.
(d) If, in connection with obtaining, continuing or renewing financing,
for which the Building, land or the leasehold or any interest therein
represents collateral in whole or in part, a banking, insurance or
other lender shall request reasonable modifications of this Lease as a
condition of such financing, Tenant will not unreasonably withhold,
delay or defer its consent thereto, provided that such modifications do
not increase the obligations of Tenant hereunder or adversely affect to
a material degree the Tenant's leasehold interest hereby created.
-34-
<PAGE>
ARTICLE 30
CURING TENANT'S DEFAULTS
30.01 If Tenant shall default in the performance of any covenant, term,
provision or condition herein contained, Landlord, without thereby waiving such
default, may perform the same for the account and at the expense of Tenant
without notice in a case of emergency and in any other case if such default
continues after five (5) business days from the date of the giving by Landlord
to Tenant of written notice of intention so to do. Bills for any reasonable and
necessary expense incurred by Landlord in connection with any such performance
by Landlord for the account of Tenant, and reasonable and necessary bills for
all costs, expenses and disbursements, including (without being limited to)
reasonable counsel fees, incurred in collecting or endeavoring to collect the
fixed rent or additional rent or other charge or any part thereof or enforcing
or endeavoring to enforce any rights against Tenant under or in connection with
this Lease, or pursuant to law, including (without being limited to) any such
cost, expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material, labor or services
provided, furnished or rendered, or caused to be provided, furnished or
rendered, by Landlord to Tenant including (without being limited to) electric
lamps and other equipment, construction work done for the account of Tenant,
water, ice, drinking water, drinking cups, towel and other services, as well as
for any charges for any additional elevator, heating, air conditioning or
cleaning services and any charges for other services incurred by Tenant under
this Lease, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and shall be due and payable by Tenant in accordance with the
terms of said bills and if not paid when due, the amounts thereof shall
immediately become due and payable as additional rent under the Lease together
with interest thereon at the rate of 12% per annum from the date of the said
bills which should have been paid in accordance with their terms. Landlord
reserves the right, without liability to Tenant and without constituting any
claim of constructive eviction, to suspend furnishing or rendering to Tenant any
property, material, labor, utility or other service, whenever Landlord is
obligated to furnish or render the same at the expense of Tenant, in the event
that (but only for so long as) Tenant is in arrears in paying Landlord therefor.
ARTICLE 31
CONSENTS - BROKER
31.01 Any provision of this Lease which requires Landlord not to unreasonably
withhold or delay its consent shall never be the basis for an award of damages
or give rise to a right of setoff to Tenant, but shall only be the basis for a
declaratory judgment or specific injunction with respect to the matter in
question.
31.02 Tenant represents and warrants that the sole broker with whom it has dealt
with in this transaction is McCarthy O'Callaghan Company, Inc. and that no other
broker interested Tenant in the Demised Premises. Landlord shall be responsible
for the payment of any real estate commission to said broker but Tenant shall
hold Landlord harmless from the claim of any other real estate broker or
salesman claiming to have interested or have been responsible for Tenant's
execution of this Lease, except any such broker or salesman claims such
commission solely by reason of Landlord's action.
-35-
<PAGE>
ARTICLE 32
NOTICES
32.01 Any notice, statement, demand, request or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this Lease or pursuant to any applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
Lease) and shall be deemed to have been properly given, rendered or made, if
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed to the other party at the address hereinabove set forth (except that
after the Commencement Date, Tenant's address, unless Tenant shall give written
notice to the contrary, shall be the Building), and shall be deemed to have been
given, rendered or made on the day so mailed, unless mailed outside of the State
of Connecticut, in which case it shall be deemed to have been given, rendered or
made on the expiration of three business days after mailing. Either party may,
by notice as aforesaid, designate a different address or addresses for notices,
statements, demands or other communications intended for it.
32.02 However, notices requesting after hours service pursuant to Sections 17.01
and 18.01 may be delivered, provided they are in writing, to the Building
Superintendent or any other person in the Building designated by Landlord to
receive such notices, and notice of fire, accident or other emergency shall be
given by facsimile or by personal delivery of written notice to that address
designated for this purpose from time to time by the respective parties hereto.
32.03 Whenever either party shall consist of more than one person or entity, any
notice, statement, demand, or other communication required or permitted to be
given, rendered or made to or by, and any payment to be made to such party,
shall be deemed duly given, rendered, made or paid if addressed to or by (or in
the case of payment by check, to the order of) any one of such persons or
entities who shall be designated from time to time as the authorized
representative of such party. Such party shall promptly notify the other of the
identity of such person or entity who is so to act on behalf of all persons and
entities then comprising such party and of all changes in such identity.
ARTICLE 33
ESTOPPEL CERTIFICATE
33.01 Tenant agrees, at any time, and from time to time, as requested by
Landlord, upon not less than five (5) days prior notice, to execute and deliver,
without cost or expense to the Landlord, a statement certifying that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the fixed rent and additional rent
have been paid, and stating whether, to the best knowledge of the Tenant, the
Landlord is in default in performance of any of its obligations under this
Lease, and, if so, specifying each such default of which the Tenant may have
knowledge, it being intended that any such statement delivered pursuant thereto
may be relied upon by any other person with whom the Landlord may be dealing.
33.02 Should the Tenant fail to execute and deliver to the Landlord the
certificate and statement set forth in Section 34.01, above, then the Landlord
may execute the statement as attorney-in-fact for the Tenant specifying to the
best of Landlord's knowledge, the items called for in said Section 34.01.
-36-
<PAGE>
ARTICLE 34
NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW
34.01 Tenant expressly acknowledges and agrees that Landlord has not made and is
not making, and Tenant in executing and delivering this Lease is not relying
upon, any warranties, representations, promises or statements, except to the
extent that the same are expressly set forth in the Lease, or in any other
written agreement which may be made and executed between the parties
concurrently with the execution and delivery of this Lease, which agreement
shall expressly refer to this Lease.
34.02 If any of the provisions of this Lease, or the application thereof to any
person or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such provision or provisions to
persons or circumstances other than those as to whom or which it is held invalid
or unenforceable, shall not be affected thereby, and every provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
34.03 This Lease shall be governed in all respects by the laws of the State of
Connecticut.
ARTICLE 35
PARTIES BOUND
35.01 The obligations of this Lease shall bind and benefit the successors and
assigns of the parties with the same effect as if mentioned in each instance
where a party is named or referred to, except that no violation of the
provisions of Article 10 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 25.
However, the obligations of Landlord under this Lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in the event of such
transfer the obligations thereafter shall be binding upon each transferee of the
interest of Landlord herein named as such owner or lessee of the Building, but
only with respect to the period ending with a subsequent transfer within the
meaning of this Article, and such transferee, by accepting such interest, shall
be deemed to have assumed such obligations except only as may be expressly
otherwise provided in this Lease. A lease of Landlord's entire interest in the
Building as owner or lessee thereof shall be deemed a transfer within the
meaning of this Article.
35.02 Tenant shall look solely to the estate and interest of Landlord, its
successors and assigns, in the land and Building (or the proceeds thereof) for
the collection of a judgment (or other judicial process) requiring the payment
of money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to either this Lease, the relationship of Landlord and Tenant
hereunder or Tenant's use and occupancy of the Demised Premises.
ARTICLE 36
CERTAIN DEFINITIONS AND CONSTRUCTIONS
36.01 For the purposes of this Lease and all agreements supplemental to this
Lease, unless the context otherwise requires:
(a) The term "Mortgage" shall include any indenture of mortgage and
deed of trust to a trustee to secure an issue of bonds and debentures,
and the term "Mortgagee" shall include such a trustee.
(b) The terms "include" and "such as" shall each be construed as if
followed by the phrase "without being limited to."
-37-
<PAGE>
(c) The term "obligations of this Lease" and words of like import,
shall mean covenants to pay rent and additional rent under this Lease
and all of the other covenants and conditions contained in this Lease.
Any provision in this Lease that one party or the other or both shall
do or not do, or shall cause or permit or not cause to permit a
particular act, condition or circumstance shall be deemed to mean that
such party so covenants or both parties so covenant, as the case may
be.
(d) The term "Tenant's obligations hereunder" and words of like import,
and the term "Landlord's obligations hereunder" and words like import,
shall mean the obligations to this Lease which are to be performed or
observed by Tenant, or by Landlord, as the case may be. Reference to
"performance" of either party's obligations under this Lease shall be
construed as "performance and observance." Tenant's obligations
hereunder shall be construed in every instance as conditions as well as
covenants.
(e) Reference to Tenant being or not being "in default hereunder" or
words of like import, shall mean that Tenant is in default in the
performance of one or more of Tenant's obligations hereunder, or that
Tenant is not in default in the performance of any of Tenant's
obligations hereunder, or that a condition of the character described
in Section 25.01 has occurred and continues or has not occurred or does
not continue, as the case may be.
(f) References to Landlord as having "no liability to Tenant" or being
"without liability to Tenant" shall mean that Tenant is not entitled to
terminate this Lease, or to claim actual or constructive eviction,
partial or total, or to receive any abatement or diminution of rent, or
to be relieved in any manner of any of its other obligations hereunder,
or to be compensated for loss or injury suffered or to enforce any
other kind of liability whatsoever against the Landlord under or with
respect to this Lease or with respect to Tenant's use or occupancy of
the Demised Premises.
(g) The term "laws and/or requirements of public authorities" and words
of like import shall mean laws and ordinances of any or all of the
federal, state, city and county governments and rules, regulations,
orders and or directives of any or all departments, subdivisions,
boards, agencies or offices thereof, or any other governmental, public
or quasipublic authorities, having jurisdiction in the premises, and/or
the direction of any public officer pursuant to law.
(h) The term "requirements of insurance bodies" and words of like
import shall mean rules, regulations, orders and other requirements of
the Board of Fire Underwriters and/or the Fire Insurance Rating
Organization in Connecticut and/or any other similar body performing
the same or similar functions and having jurisdiction or cognizance of
the Building and/or the Demised Premises.
(i) The term "repair" shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working
order and condition, and the term "untenantable" shall be deemed to
include being inaccessible.
(j) Reference to "termination of this Lease" includes expiration or
earlier termination of the term of this Lease or cancellation of this
Lease pursuant to any of the provisions of this Lease or pursuant to
law. Upon a termination of this Lease, the term and estate granted by
this Lease shall end at noon on the date of termination as if such date
were the date of expiration of the term of this Lease and neither party
shall have further obligation or liability to the other after such
termination (i) except as shall be expressly provided for in this
Lease, or (ii) except for such obligations as by their nature or under
the circumstances can only be, or by the provisions of this Lease, may
be, performed after such termination, and, in any event, unless
expressly otherwise provided in this Lease, any liability
-38-
<PAGE>
for a payment which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this
Lease.
(k) The term "in full force and effect" when herein used in reference
to this Lease as a condition to the existence or exercise of a right on
the part of Tenant shall be construed in each instance as including the
further condition that at the time in question no default on the part
of Tenant exists, and no event has occurred which has continued to
exist for such period of time (after the notice, if any, required by
this Lease), as would entitle Landlord in either such instance to
terminate this Lease or to dispossess Tenant.
(l) The term "Landlord" as used in this Lease means only the owner, or
other mortgagee in possession, for the time being of the land and
Building (or the owner of a lease of the Building or of the land and
Building) of which the Demised Premises form a part, so that in the
event of any sale or sales of said land and Building or of said Lease,
or in the event of a lease of said Building, or of the land and
Building, the said Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder, and it
shall be deemed and construed without further agreement between the
parties or their successors in interest, or between the parties and the
purchaser, at any such sale, or the said lessee of the Building, or of
the land and Building, that the purchaser or the lessee of the Building
has assumed and agreed to carry out any and all covenants and
obligations of Landlord, hereunder.
(m) The term "Tenant" shall mean Tenant herein named or any assignee or
other successor in interest (immediate or remote) of Tenant herein
named, when Tenant herein named or such assignee or other successor in
interest, as the case may be, is in possession of the Demised Premises
as owner of the Tenant's estate and interest granted by this Lease, and
also if Tenant is not an individual or corporation, all of the
individuals, firms and/or corporations and other entities comprising
Tenant.
(n) Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
(o) The rule of "ejusdem generis" shall not be applicable to limit a
general statement following or referable to an enumeration of specific
matter or matters similar to the matters specifically mentioned.
(p) All references in this Lease to numbered Articles, numbered
Sections and Subsections and lettered Exhibits are references to
Articles and Sections and Subsections of this Lease, and Exhibits
annexed to (and thereby made a part of) this Lease, as the case may be,
unless expressly otherwise designated in the context.
(q) The term "rent" or "rents" shall, except where the context
expressly implies to the contrary, be deemed to mean fixed rent and
additional rent as such terms are defined in Section 1.04.
36.02 The various terms which are defined in other Articles of this Lease or are
defined in exhibits annexed hereto, shall have the meaning specified in such
other Articles and such exhibits for all purposes of this Lease and all
agreements supplemental thereto, unless the context shall otherwise require.
36.03 The Article headings in this Lease and Index prefixed to this Lease are
inserted only as a matter of convenience or reference, and are not to be given
any effect whatsoever in construing this Lease.
-39-
<PAGE>
ARTICLE 37
SUBORDINATION AND MISCELLANEOUS
37.01 (a) This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all covenants, agreements
and restrictions of record as of the date hereof, with respect to the
land and/or the Building, including but not limited to those
restrictions and conditions contained in the deed from the City of
Stamford, Connecticut to Landlord or Landlord's predecessor in title.
In said deed, Landlord agrees in part, that in the sale, lease or
occupancy of the property, it would not effect or execute any
agreement, lease, conveyance or other instrument whereby the property
or any part thereof is restricted upon the basis of race, sex,
religion, color or national origin, and it would comply with all state
and local laws in effect from time to time prohibiting discrimination
or segregation by reason of race, sex, religion, color or national
origin.
(b) Tenant shall not take or permit any action with respect to the
Demised Premises which would violate any covenants, agreements and
restrictions of record with respect to the land and/or the Building.
37.02 (a) Promptly after the execution of this Lease, Landlord shall have the
right to submit a copy of the Lease to Landlord's mortgagee for
approval. If the Lease has not been approved by the mortgagee within
thirty (30) days after its execution, then Landlord shall have the
right to cancel this Lease by written notice to Tenant within five (5)
days after the expiration of such thirty (30) day period. Upon such
cancellation, neither party shall have any further liability to the
other by reason of this Lease.
(b) If Landlord fails to cure any default on its part under this Lease,
the holder of any superior mortgage shall have the right, at its
option, to cure such default in order to prevent termination of this
Lease by Tenant.
ARTICLE 38
[INTENTIONALLY OMITTED]
ARTICLE 39
TENANT'S AUTHORITY TO ENTER LEASE
39.01 In the event that the Tenant hereunder is a corporation, Tenant represents
that the officer or officers executing this lease have the requisite authority
to do so.
ARTICLE 40
PARKING
40.01 (a) Provided Tenant is not in default under any material terms,
conditions or covenants of this Lease, Tenant is entitled to two (2)
parking cards for employees use for parking in undesignated spaces in
the Landmark Square parking garage at the prevailing parking rate
throughout the term of the Lease. At any time during the term of the
Lease, Landlord shall have the right to require Tenant use the valet
service in the parking garage rather than the self-parking privilege.
Tenant must provide name and registration of vehicle of each person in
its employment who will have the right to use said parking cards and
all such persons shall be subject to all rules and regulations as may
be prescribed by Landlord from time to time and to any modifications
and/or additions thereto regarding the use of said parking cards in the
parking garage.
-40-
<PAGE>
(b) All parking by Tenant's employees shall be on a first come, first
serve basis.
(c) All parking garage spaces, ramps and driveways, walkways, lobbies
and elevators used by Tenant, its employees and patrons will be
specifically and exclusively at their own risk, and Landlord shall not
be liable for any damage to any vehicle or its contents, resulting from
theft, collision, vandalism or any other cause whatsoever or for harm
or injury to any person from any cause whatsoever, the failure of any
garage attendant or other personnel or device to patrol, monitor, guard
or service such parking garage, and Landlord shall in no way be liable
for any acts or omissions of such personnel, or device in failing to
prevent any such theft, vandalism or loss or damage by other cause.
Tenant's' indemnity in Article 21 hereof shall include the parking
garage and all related parts thereof and thereto as though specifically
set forth therein.
(d) There shall not be any overnight parking in the garage. Tenant
shall, and shall cause its personnel and visitors to, remove all
automobiles from the parking garage at the end of Normal Business
Hours. If any automobile owned by Tenant or by its personnel or
visitors remains in the parking garage overnight and the same
interferes with the cleaning or maintenance of said area (including,
without limitation, snow removal), any costs or liabilities reasonably
incurred by Landlord in removing said automobile to effectuate cleaning
or maintenance, or any damages resulting to said automobile or to
Landlord's equipment or equipment owned by others by reason of the
presence or removal of said automobile shall be paid by Tenant to
Landlord, as Additional Rent.
ARTICLE 41
RIDER
41.01 The Rider comprises two (2) pages and is attached hereto and hereby made a
part of this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers hereunder affixed the date and year
first above written.
SIGNED AND DELIVERED
IN THE PRESENCE OF: RECKSON OPERATING PARTNERSHIP, L.P.
BY: RECKSON ASSOCIATES REALTY CORP.,
- - -------------------------- GENERAL PARTNER
- - -------------------------- BY: F.D. Rich III
---------------------------------------------
Name: F.D. Rich III
Its: Senior Vice President and Managing Director
TOTAL-TEL USA COMMUNICATIONS, INC.
- - -------------------------- BY: Thomas P. Gunning
---------------------------------------------
Name: Thomas Gunning
Its: Secretary/Treasurer
-41-
<PAGE>
RIDER TO LEASE
BETWEEN
RECKSON OPERATING PARTNERSHIP, L.P.
AND
TOTAL-TEL USA COMMUNICATIONS, INC.
ARTICLE 42
RENEWAL OPTION
42.01 Tenant shall have the right, to be exercised as hereinafter provided, to
extend the term of this lease for one (1) period of three (3) years (the
"Renewal Term") upon the following terms and conditions:
(a) That at the time of the exercise of such right and at the
commencement of the Renewal Term, Tenant shall not be in default of the
performance of any of the terms, covenants or conditions which Tenant is
required to perform under this lease beyond applicable notice and cure periods
provided herein for the cure thereof.
(b) Except as otherwise specifically provided in Article 43 herein,
that Tenant shall notify Landlord in writing that Tenant intends to exercise
such option at least twelve (12) months prior to the termination of the initial
term set forth in Article 1 of this lease.
(c) That the Renewal Term shall be upon the same terms, covenants and
conditions as in this lease provided, except that (i) there shall be no further
option to extend this lease beyond the one (1) Renewal Term referred to above;
(ii) the Demised Premises shall be delivered in its then "as is" condition at
the commencement of the Renewal Term; and (iii) the fixed rent to be paid by
Tenant during the Renewal Term shall be the then fair market rent being received
by Landlord for comparable size space in the Building.
For purposes of this Article 42, "Fair Market Rent" shall mean the
rate Landlord generally receives or that is received for three (3) year renewals
of comparable class A office space with similar views in its then "as is"
condition within the central business district of Stamford, Connecticut,
including consideration, if any, for any rent concessions and other concessions
then commonly provided to tenants for comparable space and in comparable
buildings. Any dispute between Landlord and Tenant as to the applicable Fair
Market Rent shall be resolved by an appraisal pursuant to the procedure set
forth in this Article 42.01(c). Landlord and Tenant shall each promptly choose
an independent appraiser and shall give a written notice to the other
designating its appraiser. Each appraiser chosen, including any third appraiser
required to be appointed, must be an MAI appraiser or a real estate broker with
at least five (5) years' experience in retail and office space in the Stamford,
Connecticut real estate market and shall have not less than five (5) years'
experience appraising properties of similar kind in the general location of the
Premises. Whichever of Landlord and Tenant is the later to choose an appraiser
shall choose its appraiser and give a written notice to such other party
designating its appraiser within ten (10) days after receipt from the other
party of the written notice appointing that party's appraiser. If the second
appraiser has not been appointed within the aforesaid ten (10) day period, such
appointment shall be made pursuant to the rules then in effect of the American
Arbitration Association or any successor organization thereto. If, within
fifteen (15) days after the appointment of the second appraiser by either method
-42-
<PAGE>
described above, the two appraisers are unable to agree upon the Fair Market
Rent, each shall name his or her best estimate of the Fair Market Rent, and a
third independent appraiser shall be chosen within five (5) days thereafter by
the mutual consent of such first two appraisers. If the first two appraisers
shall fail to agree on the appointment of a third appraiser, such appointment
shall be made pursuant to the rules then in effect of the American Arbitration
Association or any successor organization thereto. The decision of the third
appraiser so appointed and chosen shall be given within ten (10) days after the
selection of such third appraiser, and must be one of the two proposed amounts
of Fair Market Rent proposed by the two originally appointed appraisers. Such
decision shall be binding and conclusive upon Landlord and Tenant. Landlord and
Tenant shall pay the fees and expenses of their respective appraisers and shall
share equally the fees and expenses of any third appraiser.
This Renewal Option is offered exclusively to Total-Tel USA
Communications, Inc. and may not be assigned, pledged or otherwise transferred.
ARTICLE 43
EXPANSION OPTION
43.01 Provided Tenant is not then in default of any terms and/or conditions of
the Lease, Tenant shall have one (1) Option to Expand (the "Expansion Option")
into any available office space (the "Expansion Premises") within Landmark
Square at any time throughout the term of the Lease by giving Landlord written
notice of its desire to exercise such Option.
(a) The terms of the Expansion Option shall be at 100% of the then current
fair market value, taking into consideration items including, but not limited
to, brokerage commissions, tenant improvements, unamortized costs associated
with the Demised Premises and the remaining term of the Lease.
(b) (i) If Landlord and Tenant execute a mutually acceptable lease or
amendment to Lease for such Expansion Premises, Landlord shall release Tenant
from its obligations for the Demised Premises upon rent commencement for the
Expansion Premises.
(ii) If Landlord is unable to accommodate Tenant's need for Expansion
Premises, or if Landlord and Tenant can not agree to terms for such Expansion
Premises, this Lease shall remain in full force effect.
(c) The Expansion Option is subject to other tenants rights throughout
Landmark Square, and Tenant shall not have the exclusive right on any
available space in Landmark Square.
(d) The Expansion Option is offered exclusively to Total-Tel USA
Communications, Inc. and may not be assigned, pledged or otherwise
transferred.
ARTICLE 44
TENANT'S SOLICITATION
44.01 Tenant shall be prohibited from soliciting other tenants in Landmark
Square for the provision by Tenant of telecommunications services, including,
without limitation, the provision of local and long-distance telephone
services and internet access services.
-43-
<PAGE>
EXHIBIT A
FLOOR PLANS
A - 1 -
<PAGE>
EXHIBIT B
CLEANING SCHEDULE
Subject to Section 18.02, Landlord covenants and agrees to provide the following
basic cleaning services to the Demised Premises:
Daily (5 days per week Monday to Friday, legal holidays excepted):
* Sweep hard surface floors with treated dust mop
* Empty and wipe all ash trays
* Empty waste paper baskets
Low dusting
* Vacuum all carpeted areas
Weekly:
* Damp mop all hard surface floors.
Every three (3) months:
* Clean windows inside and out
RECYCLING
Tenant is advised that the Building is subject to a mandatory recycling program
for disposables and waste materials. Tenant shall abide by all rules and
regulations as may be promulgated for compliance with the program.
B- 1 -
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, lobby, elevators, vestibules,
stairways, corridors or halls outside the Demised Premises shall not be
obstructed or encumbered by any tenant or used for any purpose other than
ingress and egress to and from the Demised Premises and Tenant shall not permit
any of its employees, agents or invitees to congregate in any said areas. No
door mat of any kind whatsoever shall be placed or left in any public hall or
outside and entry door of the Demised Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with any window or door of the Demised
Premises without the prior written consent of Landlord. Such curtains, blinds,
shades or screens must be of a quality type, design and color, and attached in
the manner, approved by Landlord.
3. No sign, insignia, advertisement, object, notice or other
lettering shall be exhibited, inscribed, painted, or affixed by any tenant on
any part of the outside of the Demised Premises or the Building without the
prior written consent of Landlord. In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability, and
may charge expense incurred in such removal to the tenant or tenants violating
this rule. Interior signs and lettering on doors and directory tablet outside of
the Demised Premises shall, if and when approved by Landlord, be inscribed,
painted or affixed for each tenant by Landlord at the expense of such tenant,
and shall be of a size, color and style acceptable to Landlord.
4. The sashes, sash doors, skylights, windows and doors that reflect
or admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels, or other articles be placed on the window sills.
5. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules outside the Demised Premises.
6. The water and wash closets and other plumbing fixtures shall not
be used for any purpose other than those for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other substances shall be
thrown or deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors or licenses shall have caused the same.
7. No boring, cutting or stringing of wires in violation of
applicable laws, codes or regulations shall be permitted, except with the prior
written consent of Landlord, and as Landlord may reasonably direct. No tenant
shall lay linoleum, or other similar floor covering, so that the same shall come
in direct contact with the floor of the Demised Premises.
8. No bicycles, vehicles, animals, fish or birds of any kind shall be
brought into or kept in or about the premises.
9. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio, or television which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any Tenant. Nothing shall be done or permitted in the Demised
Premises by Tenant which would unreasonably impair or interfere with the use or
enjoyment by any other tenant of any other space in the Building. No tenant
shall throw anything out of the doors, windows or skylights or down the
passageways.
10. Tenant, its servants, employees, agents, visitors or licensees,
shall not at any time bring or keep upon the Demised Premises any explosive
fluid, chemical or substance, nor any inflammable or combustible objects or
materials, in violation of any applicable law, ordinance or governmental
regulation.
11. Additional locks or bolts of any kind which shall not be operable
by the Grand Master Key for the Building shall not be placed upon any of the
doors or window by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said Grand Master
Key. Each tenant shall, upon the termination of its tenancy, turn over to the
Landlord all keys of stores, offices and toilet rooms, either furnished to, or
otherwise provided by, such tenant and in the event of the loss of any keys
furnished by Landlord, such tenant shall pay to Landlord the cost thereof.
Tenant shall have the right to install additional security systems for the
Demised Premises, which systems will be coordinated with those operated by
Landlord and its managing agent. Keys or cards used in connection with such
systems shall be furnished to Landlord or its managing agent.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description must take place during such hours and in such elevators as Landlord
or its agent may reasonably determine from time to time. Landlord reserves the
right to inspect all objects and matter to be brought into the Building and to
exclude from the Building all objects and matter which violate any of these
Rules and Regulations or the Lease
C- 1 -
<PAGE>
of which these Rules and Regulations are a part. Landlord may require any person
leaving the Building with any package or other object or matter to submit a
pass, listing such package or object or matter, from the tenant from whose
premises the package or object or matter is being removed, but the establishment
and enforcement of such requirement shall not impose any responsibility on
Landlord for the protection of any tenant against the removal of property from
the premises of such tenant. Landlord shall, in no way, be liable to Tenant for
damages or loss arising from the admission, exclusion or ejection of any person
to or from the Demised Premises or the Building under the provisions of this
Rule 12 or of Rule 16 hereof.
13. Tenant shall not occupy or permit any portion of the Demised
Premises to be occupied as an office for a public stenographer or public typist,
or for the warehousing, manufacture or sale to the general public of beer, wine,
liquor, narcotics, or as a barber, beauty or manicure shop, or as an employment
bureau. Tenant shall not engage or pay any employees on the Demised Premises,
except those actually working for Tenant or its affiliates. Tenant shall not use
the Demised Premises or any part thereof, or permit the Demised Premises or any
part thereof to be used, for manufacturing, or sale at auction of merchandise,
goods or property of any kind, except for promotional purposes.
14. Tenant shall not obtain, purchase or accept for use in the
Demised Premises cleaning, floor polishing or other similar services from any
persons not authorized by Landlord in writing to furnish such services, provided
always that the charges for such services by persons authorized by Landlord are
not excessive. Such services shall be furnished only at such hours, in such
places, within the Demised Premises, and under such regulations as may be fixed
by Landlord. Tenants shall not purchase or contract for waxing, rug shampooing,
venetian blind washing, furniture polishing, lamp servicing, cleaning of
electric fixtures, removal of garbage or towel service in the Demised Premises
except from companies or persons approved by the Landlord. Landlord will be
reasonable in its decision.
15. Landlord shall have the right to prohibit any advertising, or
identifying sign by any tenant which in Landlord's reasonable judgment tends to
impair the reputation of the Building or its desirability as a building for
offices, and upon written notice from Landlord, such tenant shall refrain from
or discontinue such advertising or identifying sign.
16. Landlord reserves the right to exclude from the Building during
hours other than Business Hours (as defined in the foregoing Lease) all persons
who do not present a pass to the Building signed by Landlord. All persons
entering and/or leaving the Building during hours other than Business Hours may
be required to sign a register. Landlord will furnish passes to persons for whom
any tenant requests same in writing. Tenant, provided Tenant has such pass, will
be permitted access to the Building and the Demised Premises 24 hours a day,
seven days a week.
17. All entrance doors in the Demised Premises shall be left locked
by Tenant when the Demised Premises are not in use. Entrance doors shall not be
left open at any time. Landlord or its agents or contractors will turn off
lights upon completion of cleaning services.
18. Unless Landlord shall furnish electrical energy hereunder as a
service included in the rent, Tenant shall, at Tenant's expense, provide
artificial light and electrical energy for the employees of Landlord and/or
Landlord s contractors while doing janitor service or other cleaning in the
Demised Premises and while making repairs or alterations in the Demised
Premises.
19. The Demised Premises shall not be used for lodging or for any
illegal purpose.
20. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
21. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
22. There shall not be used in any space or in the public halls of
the Building, either by any tenant or by jobbers or any others, in the moving or
delivery or receipt of safes, freight, furniture, packages, boxes, crates,
paper, office material, or any other matter or thing, any hand trucks except
those equipped with rubber tires, side guards and such other safeguards as
Landlord shall reasonably require. No hand trucks shall be used in passenger
elevators, and no such passenger elevators shall be used for the moving,
delivery or receipt of the aforementioned articles.
23. Tenant shall not cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the Demised
Premises which would annoy other tenants or create a public or private nuisance.
No cooking shall be done in the Demised Premised except as is expressly
permitted in the foregoing Lease.
C- 2 -
<PAGE>
24. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system and if requested by Landlord shall lower and
close blinds, drapes and curtains when the sun's rays fall directly on the
windows of the Demised Premises.
25. Subject to the provisions of Section 13.01, Landlord in its
reasonable judgment, reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building when, in its reasonable
judgment, it deems it necessary or desirable for the reputation, safety, care or
appearance of the Building, or the preservation of good order therein, or the
operation or maintenance of the Building or the equipment thereof, or the
comfort of tenants or others in the Building.
26. Cigarette, pipe and cigar smoking is allowed only in tenant's
demised premises. Smoking is prohibited in all interior public areas including
but not limited to: public corridors, elevators, elevator lobbies and toilet
rooms.
C- 3 -
<PAGE>
EXHIBIT "D" - WORK LETTER
1.01 The Demised Premises shall be delivered to Tenant in its "as is"
condition, except that in accordance with Section 3.01 of the Lease, Landlord
shall perform the following work, at Landlord's sole cost and expense:
1. Paint the Demised Premises, using Landlord standard paint and
colors.
2. Clean the existing carpets at the Demised Premises.
3. Re-bulb the Demised Premises.
4. Replace broken ceiling tiles.
5. Complete all work necessary to legally demise the Demised Premises.
Landlord shall act as General Contractor for all tenant improvements.
1.02 Telephone installation and all costs therefor shall be the sole
responsibility of Tenant, and Tenant shall make all necessary arrangements. Such
telephone installations are subject to reasonable approval by Landlord and must
be performed in strict compliance with all government codes, including a low
voltage permit from the City of Stamford. At the expiration or earlier
termination of the Lease, Tenant shall be responsible for the removal of all
telecommunications and data wiring and any affiliated equipment in the Demised
Premises and the Demised Premises (or New Demised Premises).
1.03 Tenant shall, within thirty (30) days after the Demised Premises
Commencement Date install drapes or vertical blinds as approved by Landlord, at
Tenant's sole cost and expense, on all exterior windows; such drapes to be a
solid, light color or having a solid light color lining facing the exterior of
the Building; such blinds shall be G-71 vertical blinds in fabric kinetics,
#0112, alabaster, and no other type of window covering will be used. Landlord
reserves the right to substitute alternate window treatments throughout the term
of the Lease.
D-1-
<PAGE>
INSTRUCTIONS TO MOVING CONTRACTORS
1. The directions of the Landlord and/or his managing agent will be
followed at all times.
2. No furniture and/or building materials will be moved in or out of
the building from 7:00 a.m. to 6:00 p.m., Monday through Friday, unless approved
by the Landlord and/or his managing agent.
3. The moving contractor must submit, not later than two weeks prior to
the move, a written schedule which indicates the date and time the move will
commence and also the same for the completion of the move.
4. All routes over finished floors will be protected with masonite,
plywood or similar material runway, which is to be picked up at the close of
work each day.
5. Appropriate warning signs are to be posted in all public corridors
and lobbies used.
6. Temporary staging of furniture and equipment in public areas is not
permitted.
7. All areas traveled are to be broom cleaned at the close of each day.
Elevators are to be swept and debris carried from the car, NOT swept across the
door opening.
8. Workmen should use the toilet facilities provided by the Landlord or
Managing Agent.
9. The load limit of 3,000 pounds in the passenger elevator is NOT to
be exceeded.
10. Generally only two (2) trailers will be allowed at the Loading
Dock. Arrangements to accommodate more than two (2) must be made in advance with
the Property Management Office.
11. Only rubber wheeled dollies and carts, in good operating condition,
may be used. Excess oil and grease must be removed from wheels to prevent
staining flooring.
12. Reasonable care must be taken at all times to avoid any personal
injury or property damage.
13. All packing and crating materials must be removed at the end of
each day, and NOT be left to accumulate overnight (fire hazard).
14. The moving contractor must utilize labor that will work in harmony
with other labor in the building. In addition, Landlord's office should receive
not later than two weeks prior to move, insurance certificates evidencing the
following minimum coverages:
(i) Insurance carrier must have a Best's rating of A VIII or
better.
(ii) Certificates of insurance must be provided prior to the
commencement of any work performed.
(iii) Type of insurance:
<TABLE>
<S> <C>
A. Commercial General Liability:
General Aggregate $2,000,000
Products/Completed Operations Aggregate $1,000,000
Personal & Advertising Injury, per occurrence $1,000,000
Each Occurrence $1,000,000
Fire Damage Liability $ 50,000
Medical Expense $ 5,000
Broad Form Property Damage Included
Explosion, Collapse & Underground Hazard Included
B. Automobile Liability:
Bodily Injury/Property Damage Liability
Each Occurrence (Combined Single Limit) $1,000,000
</TABLE>
D-1-
<PAGE>
<TABLE>
<S> <C>
C. Excess or Umbrella Liability:
Each Occurrence $5,000,000 (Coverage to be at
least on a "follow
form" basis)
D. Worker's Compensation & Employer's Liability:
Per statutory requirements of the state in which work is to
be provided or performed.
E. Connecticut State Short Term Disability:
Per statutory requirements of the state in which work is to
be provided or performed.
</TABLE>
All certificates are to stipulate that ten (10) days prior notice of
cancellation will be given to the Tenant and to:
RECKSON ASSOCIATES REALTY CORP.
One Landmark Square
Stamford, Connecticut 06901
D-2
<PAGE>
INSTRUCTIONS TO TENANT'S CONTRACTORS
1. It shall be Tenant's contractor's responsibility to schedule the
performance of his work and notify the Landlord's Property Manager of his
proposed schedule, so that the contractor's elevator usage for material
deliveries and rubbish removal may be coordinated with the over-all project
(reserved) hoisting usage.
Elevator use for construction and moves may only occur during the hours
of 6:00 P.M. through 7:00 A.M. on business days and only with prior notice and
approval of the Landlord. Elevator use on non-business days may occur at any
time and again only with prior notice and approval of the Landlord. Tenant is
responsible for all building standard charge normally associated with such use.
2. The Tenant's contractor shall notify Landlord's Property Manager at
least four (4) weeks prior to his proposed starting date to perform Tenant's
Work and at that time will discuss the arrangements and requirements of his
schedule. The following items will be discussed to determine the scheduled
reservation time:
a. Material delivery, schedule - dates - times
b. Number of vehicles
c. Elevator Service and hoist reservation time
d. Docking arrangements and reservation time
e. Insurance requirements
f. Names and telephone numbers of contact and coordinator
g. General instructions - rules and regulations
3. The Tenant's contractor shall confirm his schedule with the
Landlord's Property Manager, not less than 48 hours in advance of his
pre-scheduled material deliveries. It shall be Tenant's contractor's sole
responsibility to confirm his reservation times, and in the event that the
confirmation is not verified and re-executed it shall be deemed that his
reservations are to be voided (cancelled) and allocated to others. He shall then
be required to re-schedule both his deliveries and his reservations through the
Landlord's Property Manager. In all fairness to the other Tenants going into the
building, if Tenant's contractor fails to meet or confirm the date, his
contractor will have to wait until there is free time in the material delivery
and hoisting schedule before they will be allowed to perform Tenant's Work.
Landlord's Property Manager will make every effort to accommodate the Tenant's
contractor as early as possible, but it is very likely that to re-schedule would
effect a serious time delay; you can clearly see, then, that it is extremely
important to confirm the schedule not less than 48 hours in advance, and if
possible, preferably three to five days ahead of time.
4. Tenant and its contractors shall remain responsible for the
scheduling and transportation of material and equipment used in the performance
of Tenant's Work and for the removal from the Building of waste and debris
resulting from the performance of Tenant's Work, and Landlord shall not be
responsible for coordination of the work of Tenant's contractors with the work
of Landlord's contractors. However, Landlord and Tenant shall cooperate in their
respective performances of Landlord's and Tenant's Work in order to enable the
same to be properly coordinated. Tenant shall not be under any obligation to
employ any of Landlord's contractors or to pay any charge to any of them by
reason of Tenant's having other contractors or purchasing any materials or labor
or employing any labor from other sources. Tenant and its contractors shall not
be under any obligation to pay for water, electricity, heat, ventilation or
cooling provided in the Premises during the performance of any of Tenant's Work
during normal working hours of the Building construction project.
5. Temporary staging of materials and equipment in public areas is not
permitted.
6. Should large equipment or materials need to be transported via
dollies and/or carts, then the contractor transporting such equipment or
materials shall protect all routes over finished floors with a minimum of 3/8"
plywood runway, which will be picked up at the close of work each day.
7. All areas traveled are to be broom cleaned at the close of each day.
Elevators are to be swept and debris carried from the car, NOT swept across the
door opening.
8. Workmen should use the toilet facilities provided by the general
contractor.
9. The hoisting load limit of 3,000 pounds in passenger elevator is NOT
to be exceeded.
10. All packing and crating materials must be removed at the end of each
day, and not be left to accumulate overnight (fire hazard).
D-3
<PAGE>
11. The Tenant's contractor must utilize labor that will work in harmony
with other labor in the Building. In addition, Landlord's Property Manager
should receive not later than two weeks prior to contractor's performance of
Tenant's Work, insurance certificates evidencing the following minimum
coverages:
(i) Insurance carrier must have a Best's rating of A VIII or better.
(ii) Certificates of insurance must be provided prior to the commencement
of any work performed.
(iii) Type of insurance:
<TABLE>
<S> <C>
A. Commercial General Liability:
General Aggregate $2,000,000
Products/Completed Operations Aggregate $1,000,000
Personal & Advertising Injury, per occurrence $1,000,000
Each Occurrence $1,000,000
Fire Damage Liability $ 50,000
Medical Expense $ 5,000
Broad Form Property Damage Included
Explosion, Collapse & Underground Hazard Included
B. Automobile Liability:
Bodily Injury/Property Damage Liability
Each Occurrence (Combined Single Limit) $1,000,000
</TABLE>
D-4
<PAGE>
<TABLE>
<S> <C>
C. Excess or Umbrella Liability:
Each Occurrence $5,000,000 (Coverage to be at
least on a "follow
form" basis)
D. Worker's Compensation & Employer's Liability:
Per statutory requirements of the state in which work is to
be provided or performed.
E. Connecticut State Short Term Disability:
Per statutory requirements of the state in which work is to
be provided or performed.
</TABLE>
All certificates are to stipulate that ten (10) days prior notice of
cancellation will be given to the Tenant and to:
RECKSON ASSOCIATES REALTY CORP.
One Landmark Square
Stamford, Connecticut 06901
D-5
<PAGE>
EXHIBIT E
ELECTRICITY SCHEDULE
1. Landlord and Tenant have agreed that Landlord will furnish electrical
energy ("Landlord's Standard Electrical Service") to Tenant for use in the
"Demised Premises"; the annual cost of such electrical energy (based on 7 watts
of combined connected electrical load for lighting and convenience outlets per
square foot of Demised Premises for up to 240 hours of use per month) shall be
as set forth in the rate schedule below, and shall be considered to be
additional rent:
<TABLE>
<CAPTION>
SIZE OF RATE PER YEAR
DEMISED PREMISES PER RENTABLE
RENTABLE SQ. FT. SQUARE FOOT
<S> <C>
0 - 399 $1.92
400 - 799 1.82
800 - 899 1.79
900 - 999 1.77
1,000 - 1,999 1.63
2,000 - 2,999 1.57
3,000 - 3,999 1.54
4,000 - 4,999 1.53
5,000 - 6,999 1.52
7,000 - 10,999 1.51
11,000 & ABOVE 1.50
</TABLE>
Adjustments: (a) For each additional two (2) hours of use per week add $.031
per rentable square foot per year.
(b) For each additional watt per square foot, add $0.3005 per
rentable square foot per year.
2. For the purpose of the provisions of this Exhibit "E" of this Lease,
the Demised Premises shall be deemed to be a floor area of 2,186 rentable square
feet.
3. Landlord shall furnish to the Demised Premises Landlord's Standard
Electrical Service through the transmission facilities initially installed by
Landlord in the Building, in the form of alternating electrical energy, to be
used by Tenant for the operation of lighting fixtures and electrical outlets
initially installed in the Demised Premises.
4. It is specifically understood that:
(a) All installations of electrical fixtures, appliances and
equipment within the Demised Premises shall be subject to
Landlord's prior written approval; and
(b) In the event that Tenant shall require additional electrical
energy for use in the Demised Premises and if, in Landlord's sole
judgment, Landlord's facilities are inadequate for such additional
requirements, and if electrical energy for such additional
requirements is available to Landlord, Landlord, upon written
request and the sole cost and expense of Tenant, will furnish and
install such additional wires, risers, conduits, feeders, panels
and switchboards as reasonably may be required to supply such
additional requirements of the Tenant provided: (1) that same shall
be permitted by applicable laws and not in violation of any
insurance regulations or recommendations, (2) that, in Landlord's
sole judgment, the same are necessary and will not cause permanent
damage or injury to the Building or the Demised Premises or cause
or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations or repairs or interfere with or disturb
other tenants or occupants of the Building, (3) that Tenant, at
Tenant's expense, shall, concurrently with the making of such
written request, execute and deliver to Landlord Tenant's written
undertaking, with a surety and in form and substance satisfactory
to Landlord, obligating Tenant to fully and promptly pay the entire
cost and expense of so furnishing and installing any such
additional wires, risers, conduits, feeders, panels, and/or
switchboards, and (4) that such installation does not preclude
expansion of electrical service for other tenants. Tenant covenants
and agrees that at all times its use of electrical current shall
never exceed the capacity of the feeders to the Building or the
risers or wiring installation. It is further covenanted and agreed
by Tenant that all the aforesaid costs and expenses are chargeable
and collectable as additional rent and shall be paid by Tenant to
Landlord within five (5) days after rendition of any bill or
statement to Tenant therefore.
5. Tenant shall pay Landlord for Landlord's Standard Electrical Service
an amount computed by multiplying the rate
E- 1 -
<PAGE>
per rentable square foot as set forth in Paragraph 1 above, as adjusted, times
the rentable square feet of floor area of the Demised Premises as set forth in
Paragraph 2 above. The resulting product shall be paid by Tenant to Landlord in
advance in twelve (12) equal monthly installments as additional rent.
6. The cost of electrical energy as shown in Paragraph 1 above, has been
based on The Connecticut Light and Power Company's current rates for General
Service Electric Rate 30 and the applicable State of Connecticut sales taxes. If
the filed Rate 30 (or any successor classification reflecting similar service)
of Connecticut Light and Power Company (or its successor) and/or the State of
Connecticut sales taxes shall be increased or decreased from and after the date
hereof, the parties agree that the Utility Charge shall be increased or
decreased, as the case may be, by applying the new rates to the connected load
and hourly use factor as set forth in Paragraph 1 above, as adjusted, such
increase or decrease to go into effect on the first day of the month following
such decrease or increase in such Rate 30 (or its successor) and/or the State of
Connecticut sales taxes. Such increase or decrease in rates shall apply not only
to the Demised Premises under this Lease but also to any option area referred to
herein, so that, at the time such area shall become part of the Demised Premises
(if it shall become part of the Demised Premises) the increase in additional
rent for the Utility Charge to be paid by Tenant at such time shall be increased
or decreased to reflect all changes in the aforesaid rates from the date hereof
to the time such area shall become part of the Demised Premises.
7. The Connecticut Public Utilities Commission has granted Connecticut
Light and Power Company the right to add to customers' bills the increase in
cost of fuel oil used to manufacture electricity. Such a fuel cost adjustment
will be effected by adding a monthly surcharge to the normal bills based on the
monthly kilowatt-hours used. It is expected that such an increase cost factor
will change from month to month. It is hereby agreed and understood, that the
Landlord, at it's option, has the right to pass on such surcharge to the Tenant
by billing Tenant monthly or annually, as elected by Landlord, for such monthly
increase amounts retroactively (increase factor multiplied by monthly
kilowatt-hours as established elsewhere in this Exhibit "E"). It is further
agreed and understood that the operation of this Paragraph 7 shall survive the
termination of this Lease.
E-2-
<PAGE>
EXHIBIT F
COMMON AREAS
F-1-
<PAGE>
EXHIBIT (10)(AH)
OFFICE LEASE AGREEMENT
for
TOTAL-TEL USA COMMUNICATIONS, INC.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Section Name..............................................................Page
- - ------- ---- ----
<S> <C> <C>
1. Definitions and Certain Basic Provisions........................... 1
2. Lease and Demise................................................... 1
3. Term .............................................................. 2
4 Use ............................................................... 2
5. Base Rental........................................................ 2
6. Base Rental Adjustment............................................. 2
7. Basic Costs Defined................................................ 3
8. Completion of Leasehold Improvements............................... 4
9. Acceptance of Premises and Building By Tenant...................... 4
10. Services to Be Furnished By Landlord............................... 4
11. Keys and Locks..................................................... 5
12. Graphics........................................................... 5
13. Maintenance and Rep airs by Landlord............................... 5
14. Repairs by Tenant.................................................. 5
15. Care of premises................................................... 5
16. Peaceful Enjoyment................................................. 6
17. Holding Over....................................................... 6
18. Alterations, Additions, and Improvements........................... 6
19. Legal Use and Violations of Insurance.............................. 6
20. Compliance with Laws and Regulations; Indemnification.............. 6
21. Nuisance........................................................... 7
22. Entry by Landlord.................................................. 7
23. Assignment and Subletting.......................................... 7
24. Transfers by Landlord.............................................. 8
25. Subordination to Mortgage.......................................... 8
26. Construction Lien.................................................. 9
27. Estoppel Certificate............................................... 9
28. Events of Default.................................................. 9
29. Lien for Rent..................................................... 10
30. Attorneys' Fees................................................... 10
31. No Implied Waiver................................................. 11
32. Casualty Insurance................................................ 11
33. Liability Insurance............................................... 11
34. Indemnity......................................................... 11
35. Waiver of Subrogation Rights...................................... 11
36. Casualty Damage................................................... 12
37. Condemnation...................................................... 12
38. Damages from Certain Causes....................................... 12
39. Notice and Cure................................................... 12
40. Personal Liability................................................ 12
41. Notice............................................................ 12
42. Captions ......................................................... 13
43. Entirety and Amendments........................................... 13
44. Severability...................................................... 13
45. Binding Effect.................................................... 13
46. Number and Gender of Words........................................ 13
47. Recordation....................................................... 13
48. Governing Law..................................................... 13
49. Interest Rate..................................................... 13
50. Force Majeure..................................................... 13
51. Rules and Regulations............................................. 13
52. Reserved Rights................................................... 13
53. Approval by Landlord's Mortgagees................................. 14
54. Brokers........................................................... 14
55. Substitute Space.................................................. 14
56. Time of Essence................................................... 14
57. Best Efforts...................................................... 14
58. No Reservation.................................................... 14
59. Consents.......................................................... 15
60. Legal Authority................................................... 15
61. Hazardous Materials............................................... 15
62. Waiver of Jury Trial.............................................. 15
63. Exhibits, Riders and Addenda...................................... 16
</TABLE>
i
<PAGE>
EXHIBITS:
- - --------
EXHIBIT A DESCIIIPTION OF LAND
EXHIBIT B FLOOR PLAN OF PREMISES
EXHIBIT C BUILDING RULES AND REGULATIONS
EXHIBIT D WORK LETTER
EXHIBIT E PARKING AGREEMENT
EXHIBIT F RENEWAL OPTION
ii
<PAGE>
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into as of the 6th day of
December, 1999, between COMMERCE CENTER HOLDINGS, INC., a Delaware corporation
("Landlord"), whose address is c/o GE Capital Realty Group, Inc., 16479 Dallas
Parkway, Suite 400, Addison, Texas 75001-2512, Attention: Asset Management and
Legal Department, and TOTALTEL USA COMMUNICATIONS, INC., a
_____________________________ ("Tenant"), whose address until the Commencement
Date (as hereinafter defined) is , and whose address thereafter will be that of
the Premises (as hereinafter defined).
W I T N E S S E T H:
1. Definitions and Certain Basic Provisions. The following capitalized
terms shall have the meaning indicated for purposes of this Lease:
(a) Tenant's Guarantor (if applicable, attach Guaranty as an
exhibit): None.
(b) "Building": Landlord's property known as Commerce Center
located at 1810 Chapel Avenue West in the Township of Cherry Hill, New
Jersey, the land on which such property is located being described or
shown on EXHIBIT A attached hereto.
(c) "Premises": the leased premises located in the Building
and being conclusively deemed to contain 1,926 square feet (the "Net
Rentable Area"), as shown on the floor plan attached as Exhibit B
hereto.
(d) "Commencement Date": October 1, 1999, which date may be
extended in accordance with Section 3 below.
(e) "Lease Term": Commencing on the Commencement Date and
continuing for three (3) years and zero (0) months after the
Commencement Date; provided that if the Commencement Date is a date
other than the first day of a calendar month, the Lease Term shall be
extended by the number of days remaining in the calendar month in which
the Commencement Date occurs.
(f) "Base Rental": $38,520.00 per year, payable in monthly
installments of$3,210.00, at the commencement of the Lease Term,
subject to adjustment in accordance with Section 6 of this Lease.
(g) "Security Deposit": $3,210.00, such Security Deposit being
due and payable upon execution of this Lease.
2. Lease and Demise. Subject to the terms and conditions hereinafter
set forth, and each in consideration of the duties, covenants, and obligations
of the other hereunder, Landlord does hereby lease to Tenant, and Tenant does
hereby tease from Landlord, the Premises.
3. Term.
(a) Subject to the terms and conditions set forth herein, this
Lease shall continue in force for the Lease Term.
(b) If the Premises are not ready for occupancy by Tenant on
the Commencement Date, Landlord shall not be liable for any costs, claims,
damages, or liabilities incurred by Tenant as a result thereof and the Lease
Term and the obligations of Tenant hereunder shall nonetheless commence and
continue in full force and effect; provided, however, if the Premises are not
ready for occupancy on the Commencement Date due to omission, delay, or default
on the part of Landlord, the Lease Term shall not commence until the Premises
are ready for occupancy by Tenant. In such event, the Commencement Date shall be
deemed to be postponed to the date the Premises are ready for occupancy,
whereupon the Lease Term shall commence. Such postponement of rent and of the
Commencement Date of this Lease shall constitute fall settlement of all claims
that Tenant might otherwise have against Landlord by reason of the Premises not
being ready for occupancy by Tenant on the stated Commencement Date. Should the
Lease Term commence on a date other than that specified in Paragraph 1(d) above,
Landlord will send Tenant a written statement of such adjusted Commencement
Date, and Tenant will, if Landlord requests, confirm such adjusted date in
writing. The Premises shall be deemed to be ready for occupancy on the first to
occur of: (i) the date that all work required to be completed pursuant to the
terms of the Work Letter attached hereto as Exhibit D has been substantially
completed (except for minor finishing jobs); provided, however, that if such
work is delayed because of a default or failure, or both, of Tenant, then the
Premises shall also be deemed ready for occupancy when such work would have been
substantially completed if Tenant's default or failure had not occurred; such
date shall be deemed to have occurred on the date there is delivered to Tenant a
certificate from Landlord's architect that all improvements required to be
constructed by Landlord in the Premises under the terms of this Lease are
substantially complete (except for minor finishing jobs) (or would have been
complete but for the default or failure of Tenant), which certificate shall be
binding and conclusive upon Tenant in the absence ofbad faith and collusion on
the part of or between Landlord and Landlord's architect; or (ii) the date on
which Tenant begins occupancy of the Premises.
1
<PAGE>
4. Use. The Premises are to be used and occupied by Tenant solely for
office purposes and for no other purpose or use without the prior written
consent of Landlord.
5. Base Rental.
(a) Tenant hereby agrees to pay to Landlord, without any set
off or deduction whatsoever, the Base Rental. Tenant shall also pay, as
additional rent, all other sums of money that become due and payable by Tenant
to Landlord under this Lease (Base Rental, any adjustment thereto pursuant to
Paragraph 6 hereof, and all other sums of money due and payable by Tenant to
Landlord under this Lease are sometimes hereinafter collectively called "rent").
Tenant shall also pay with each Base Rental payment the amount of any
transaction, privilege, sales, or similar taxes incurred by Landlord on the rent
transactions. The annual Base Rental, as adjusted from time to time pursuant to
Paragraph 6 hereof, shall be due and payable in advance in twelve (12) equal
installments on the first (1st) day of each calendar month during the term of
this Lease and any extensions or renewals thereof and Tenant hereby agrees to
pay Base Rental as so adjusted to Landlord at Landlord's address provided herein
(or such other address as may be designated by Landlord in writing from time to
time) monthly, in advance, and without demand or set-off. If the term of this
Lease commences on a day other than the first (1st) day of a month, then the
first installment of Base Rental as adjusted pursuant hereto shall be prorated,
based on thirty (30) days per month, and such installment so prorated shall be
paid in advance on the Commencement Date.
(b) Upon the execution of this Lease, Tenant agrees to pay to
Landlord the Security Deposit, to be held by Landlord as security for the
performance by Tenant of Tenant's covenants and obligations under this Lease, it
being expressly understood that the Security Deposit shall not be considered an
advance payment of rental or measure of Landlord's damages in case of default by
Tenant. Upon default by Tenant, Landlord, from time to time, without prejudice
to any other remedy, may (but shall not be required to) apply the Security
Deposit against any arrearages of Base Rental, or other rent, or any other
damage, injury, expense or liability caused to Landlord by such default on the
part of Tenant. Should all or any portion of the Security Deposit be used for
the purposes described above during the Lease Term, then Tenant shall remit to
Landlord on the first day of the month following notice of such use the amount
necessary to restore the Security Deposit to its original balance. Tenant's
failure to restore the Security Deposit upon notice from Landlord shall be a
material breach of this Lease.
No interest shall be payable on the Security Deposit and Landlord shall
have no obligation to keep the Security Deposit separate from its general funds
unless otherwise required by applicable law.
(c) If Tenant fails to pay any regular monthly installment of rent by
the tenth (10th) day of the month in which the installment is due, or any other
amount constituting rent within ten (10) days after accrual thereof or billing
therefor, there shall be added to such unpaid amount a late charge of five
percent (5%) of the installment or amount due in order to compensate Landlord
for the extra administrative expenses incurred.
6. Base Rental Adjustment. The Base Rental payable hereunder shall be
adjusted from time to time in accordance with the following provisions:
(a) Tenant shall pay Tenant's Proportionate Share (hereinafter defined)
of Basic Costs in excess of the Basic Costs for calendar year 2000 ("Excess
Basic Costs"). Prior to January 1 of each calendar year during the Lease Term,
Landlord shall provide a good faith estimate of Excess Basic Costs for the
forthcoming calendar year. Tenant shall pay Base Rental for such forthcoming
calendar year adjusted upward by Tenant's Proportionate Share of the amount of
such forthcoming year's estimated Excess Basic Costs, or downward if the
estimate of Excess of Basic Costs for such forthcoming calendar year is less
than the prior year's estimate, but in no event shall Base Rental be less than
the amount specified in Paragraph 1.
(b) By June 1 of each calendar year during the Lease Term commencing
June 1,2001, or as soon thereafter as possible, Landlord shall furnish to Tenant
a statement of Landlord's Basic Costs for the previous calendar year or partial
calendar year, if applicable. If actual Basic Costs are greater than Landlord's
estimate thereof, a lump sum payment (which payment shall be deemed a payment of
rent hereunder for all purposes) will be made from Tenant to Landlord within
thirty (30) days of the delivery of such statement equal to Tenant's
Proportionate Share of the amount by which actual Excess Basic Costs exceeded
Landlord's estimate thereof. If actual Excess Basic Costs are less than
Landlord's estimate thereof; Landlord shall, within thirty (30) days after
delivery of such statement, make a lump sum payment to Tenant (or at Landlord's
option, Landlord may credit such lump sum amount against the rent installment
due in the immediately succeeding month) equal to Tenant's Proportionate Share
of the amount by which estimated Excess Basic Costs exceeded the actual amount
thereof. The effect of this reconciliation payment or credit, as applicable, is
that Tenant will pay during the Lease Term Tenant's Proportionate Share of
Excess Basic Costs, and no more.
(c) All rent attributable to Excess Basic Costs shall be paid by Tenant
in the proportion that the Net Rentable Area of the Premises bears to the Net
Rentable Area of the Building ("Tenant's Proportionate Share").
2
<PAGE>
7. Basic Costs Defined. "Basic Costs" consist of all operating expenses
of the Building, the land on which the Building is located, and parking areas,
facilities, structures and drives thereon, and any future additions or
improvements thereto (collectively, the "Complex"). All operating expenses shall
be computed on the accrual basis in accordance with generally accepted
accounting principles consistently applied. Operating expenses consist of all
expenses, costs, and disbursements (but not specific costs billed to and paid by
specific tenants) of every kind and nature that Landlord shall pay or become
obligated to pay in connection with the ownership and operation of the Complex,
including, but not limited to the following:
(a) Wages, salaries, and fees of all employees of Landlord
and/or Landlord's agents (whether paid directly by Landlord itself or reimbursed
by Landlord to such other party) engaged in the operation, maintenance, leasing,
or security of the Complex and personnel who may provide traffic control
relating to ingress and egress from the parking areas of the Complex to the
surrounding public streets. All taxes, insurance, and benefits for employees
providing these services are also included. Notwithstanding anything herein to
the contrary, Basic Costs shall not include any leasing commissions paid by
Landlord.
(b) Cost of all supplies, materials and equipment rented or
used in the operation or maintenance of the Complex.
(c) Cost of all utilities for the Complex, including, but not
limited to, the cost of water and power, gas, heating, lighting, air
conditioning and ventilating for the Complex.
(d) Management costs and the cost of all maintenance,
janitorial, and service agreements for the Complex and the equipment therein,
including, but not limited to, alarm service, window cleaning, elevator
maintenance, security service, traffic control, and janitorial service
consistent with that comparable buildings in Cherry Hill, New Jersey.
(e) Cost of all insurance relating to the Complex, including,
but not limited to, the cost of fire and extended coverage insurance, rental
loss or abatement insurance, casualty and liability insurance applicable to the
Complex and Landlord's personal property used in connection therewith.
(f) All taxes, assessments, and other governmental charges,
whether federal, state, county or municipal (other than federal taxes on
Landlord's net income and Landlord's franchise taxes), and whether they be by
taxing districts or authorities presently taxing the Complex or by others,
subsequently created or otherwise, and any other taxes and assessments
attributable to the Complex or its operation. It is agreed that Tenant will be
responsible for ad valorem taxes on its personal property and on the value of
leasehold improvements to the extent that the same exceed standard Building
allowances.
(g) Costs of repairs and general maintenance (excluding
repairs and general maintenance paid by proceeds of insurance or by Tenant or
other third parties, and alterations attributable solely to tenants of the
Building other than Tenant or any structural repair).
(h) Amortization of the cost of capital investment items which
are primarily for the purpose of reducing operating costs or which may be
required by governmental authority All such costs shall be amortized over the
reasonable life of the capital investment items by including in Basic Costs the
annual amortized amount thereof, with the reasonable life and amortization
schedule being determined by Landlord in accordance with generally accepted
accounting principles, but in no event to extend beyond the useful life of the
Building.
(i) Landlord's central accounting costs applicable to the
Complex.
(j) Cost of an office in the Building maintained for
management of the Complex.
Landlord and Tenant agree that the foregoing enumeration of specific types of
costs and expenses is intended as illustrative only and shall not be construed
so as to limit the inclusion of any types of costs or expenses otherwise
intended to be included within the term Basic Costs but not set forth above or
to obligate Landlord to provide any services contemplated thereby. In addition
to the direct costs described above, Landlord shall have the right to establish
reasonable reserves for capital improvements, repairs and maintenance as
Landlord may from time to time deem necessary or appropriate. The amount of such
reserves shall be an additional component of Basic Costs. Should such capital
improvements be necessary due to casualty damage, ordinary wear and tear,
compliance with any governmental law, ordinance or requirement or for any other
reason, the cost of such capital improvements in excess of the currently
available reserves shall be amortized over a period of time designated by
Landlord in its reasonable discretion as a component of Basic Costs.
Notwithstanding any other provision herein to the contrary, if the
Building is not filly occupied during any year of the Lease Term, an adjustment
shall be made in computing the Basic Costs for such year so that the Basic Costs
shall be computed for such year as though the Building had been filly occupied
during such year. Tenant at its expense shall have the right at any reasonable
time within twelve (12) months after the end of an applicable year for which
additional rent is due, upon prior written notice to Landlord, to audit
Landlord's books and records relating to this Lease for the immediately
preceding calendar year in which Base Rental was adjusted pursuant to Paragraph
6 hereof.
3
<PAGE>
8. Completion of Leasehold Improvements. Tenant shall submit to
Landlord for approval full definitive plans and specifications for ail leasehold
improvements (the "Leasehold Improvements") to be constructed or installed or
other work to be performed by Tenant in the Premises, including but not limited
to, all architectural, electrical and mechanical plans, room finish schedules,
millwork detail, and air conditioning layout drawings , all in accordance with
the terms and provisions of the Work Letter attached hereto as Exhibit 0. The
Work Letter sets forth certain dates by which plans and specifications for the
Leasehold Improvements must be prepared, reviewed and approved, and further
describes the circumstances, if applicable, under which the Commencement Date
hereof may be delayed.
9. Acceptance of Premises and Building By Tenant. The taking of
possession of the Premises by Tenant shall be conclusive evidence (a) that
Tenant accepts the Premises as suitable for the purposes for which the same are
leased, (b) that Tenant accepts the Building and each and every part and
appurtenance thereof as being in a good and satisfactory condition, and (c) that
Landlord has filly complied with Landlord's obligations contained in this Lease
with respect to the construction of the Building and the Leasehold Improvements.
10. Services to Be Furnished By Landlord. During Tenant's occupancy of
the Premises, Landlord shall furnish (as a part of the Basic Costs of the
Complex) the following services:
(a) Hot and cold water at those points of supply provided for
general use of other tenants in the Building and central heat and air
conditioning in season, at such temperatures and in such amounts as are
considered by Landlord to be standard; provided, however, such service at times
other than normal business hours (as set forth in EXHIBIT C, Building Rules and
Regulations) for the Building shall be furnished only upon the prior request of
Tenant, who shall bear the entire cost thereof.
(b) Routine maintenance and electric lighting service for all
public areas and special service areas of the Building in the manner and to the
extent deemed by Landlord to be standard.
(c) Janitorial service, Mondays through Fridays, exclusive of
holidays.
(d) Electrical facilities to furnish sufficient power for
typewriters, word processors, photocopying machines, personal computers, and
other machines of similarly low electrical consumption (total consumption not to
exceed one (1) watt per square foot of Net Rentable Area per month) but not for
electronic data processing equipment, special lighting in excess of Building
standard, or any other item of electrical equipment which (singly) consumes more
than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts
single phase. If Tenant's electrical equipment requires additional air
conditioning capacity above that provided by the Building standard system, then
the additional air conditioning installation and operating costs will be payable
by Tenant on demand there for by Landlord.
(e) All Building standard fluorescent bulb replacement in all
areas of the Building and all incandescent bulb replacement in public areas,
toilet and restroom areas, and stairwells.
(f) Security to the Complex. Landlord shall not be the sole
determinant of the type and amount of security services to be provided, if any.
Landlord shall not be liable to Tenant, and Tenant hereby waives any claim
against Landlord for (i) any unauthorized or criminal entry of third pates into
the Premises or Complex, (ii) any damage to persons or property, or (iii) any
loss of property in and about the Premises or Complex from an unauthorized or
criminal acts of third parties, regardless of any action, inaction, failure,
breakdown or insufficiency of security.
(g) Passenger elevator(s) for ingress to and from the Premises
(if applicable).
At Landlord's election Landlord may cause to be installed and
maintained, at Tenant's expense, metering devices for any utility service
provided to the Premises, and Tenant will reimburse Landlord within ten (10)
days after invoicing by Landlord for the cost of such utility service. Landlord
shall be deemed to have observed and performed the terms and conditions to be
performed by Landlord under this Lease, including those relating to the
provisions of utilities and services, if Landlord acts in accordance with a
directive, policy or request of a governmental or quasi-governmental authority
servicing the public interest in the fields of energy, conservation or security.
Tenant shall pay to Landlord on demand, and as additional rental, the
costs incurred by Landlord for (a) extra cleaning work in the Premises required
because of (i) misuse or neglect on the part of Tenant or Tenant's permitted
subtenants or the employees or visitors of Tenant or Tenant's permitted
subtenants, (ii) the use of portions of the Premises for special purposes
requiring greater or more difficult cleaning work than office areas (including,
without limitation, kitchens, breakrooms, reproduction rooms, computer areas or
similar facilities in the Premises), (iii) interior glass partitions or unusual
quantity of interior glass surfaces, and (iv) non-building standard materials or
finishes installed by Tenant or at Tenant's request, and (b) removal from the
Premises and the Building of any refuse and rubbish of Tenant that in Landlord's
judgement exceeds that ordinarily accumulated in business office occupancy or at
times other than Landlord's standard cleaning times.
Water, gas, electrical, and sewer services included in the foregoing
Building services will be provided through available public utilities. The
failure by Landlord to any extent to furnish these services, any cessation,
malfunction, fluctuation, variation, or interruption thereof, or any breakdown
or malfunction of equipment in the Complex resulting from causes beyond the
reasonable control of Landlord shall not render Landlord liable in any respect
for damages, direct or consequential, to either persons or property, nor be
construed as an eviction of Tenant, nor work an abatement of rent, nor relieve
Tenant from the obligation to fulfill any covenant or agreement hereof Should
any of Tenant's office equipment or machinery break down, be damaged, or for any
cause cease to function properly as a result of the cessation, malfunction,
fluctuation, variation, interruption, or breakdown of services or equipment in
the Complex, Tenant shall have no claim for rebate, offset or reduction of rent
or damages. Tenant represents that Tenant has rental interruption insurance.
4
<PAGE>
11. Keys and Locks. Landlord shall furnish Tenant a Building standard
number of keys for each corridor entering the Premises. Additional keys will be
furnished at a charge by Landlord on receipt of an order signed by Tenant. All
keys shall remain the property of Landlord. No additional locks shall be allowed
on any door of the Premises without Landlord's written permission, and Tenant
shall not make or permit to be made any duplicate keys, except those furnished
by Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord
all keys to the Premises, and give to Landlord the explanation of the
combination of all locks for safes, safe cabinets, and vault doom, if any, in
the Premises.
12. Graphics. Landlord shall provide and install, at Tenant's cost,
chargeable against any available Tenant improvement allowance, all letters or
numerals on doors in the Premises. All such letters and numerals shall be in the
standard graphics for the Building, and no others shall be used or permitted on
the Premises. Landlord also agrees to provide and install, at Landlord's cost, a
listing on the Building directory board.
13. Maintenance and Repairs by Landlord. Unless otherwise stipulated
herein, Landlord shall not be required to make any improvements or repairs of
any kind or character on the Premises during the Lease Term, except such repairs
as may be deemed necessary by Landlord for normal maintenance operations. The
obligation of Landlord to maintain and repair the Premises shall be limited to
the repair of Building standard items. Any Leasehold Improvements will, at
Tenant's written request, be maintained by Landlord at Tenant's expense, at a
cost or charge equal to all costs incurred in such maintenance plus an
additional charge to cover overhead, which costs and charges shall be payable by
Tenant on demand there for by Landlord.
14. Repairs by Tenant. Tenant shall repair or replace, at Tenant's cost
and expense, any damage done to the Complex, or any part thereof, caused by
Tenant or Tenant's agents, employees, invitees, or visitors, and shall restore
the Complex to the same or as good a condition as it was prior to such damage.
All repairs and replacements shall be effected in compliance with all building
and fire codes and other applicable laws and regulations. If Tenant fails to
make such repairs or replacements promptly, Landlord may, at its option, make
the repairs or replacements, and Tenant shall pay the cost thereof to Landlord
on demand. Any repairs required to be made by Tenant to the mechanical,
electrical, sanitary, heating, ventilating, air conditioning or other system of
the Building shall be performed only by contractor(s) designated by Landlord and
only upon the prior written approval of Landlord as to the work to be performed
and materials to be furnished in connection therewith. Any other repairs in or
to the Building, the Complex, and the facilities and systems thereof for which
Tenant is responsible shall be performed by Landlord at Tenant's expense; but
Landlord may, at Landlord's option, before commencing any such work or at any
time thereafter, require Tenant to furnish to Landlord such security, in form
(including, without limitation, a bond issued by a corporate surety licensed to
do business in the state in which the Building is situated) and in such amount
as Landlord shall deem necessary to assure the payment for such work by Tenant.
15. Care of Premises. Tenant shall not commit or allow any waste or
damage to be committed on any portion of the Premises, and at the termination of
this Lease, by lapse of time or otherwise, to deliver possession of the Premises
to Landlord in as good a condition as at the Commencement Date, ordinary wear
and tear excepted. Upon any termination of this Lease, Landlord shall have the
right to reenter and resume possession of the Premises.
16. Peaceful Enjoyment. Tenant shall be entitled to hold and enjoy the
Premises subject to the terms hereof, provided that Tenant timely pays the rent
and other sums herein required to be paid by Tenant and timely performs all of
Tenant's covenants and agreements herein contained. This covenant and any and
all other covenants and agreements of Landlord contained in the Lease shall be
binding upon Landlord and its successors only with respect to breaches occurring
during its or their respective periods of ownership of Landlord's interest
hereunder.
17. Holding Over. If after expiration or other termination of this
Lease Tenant holds over without the prior written consent of Landlord, Tenant
shall, throughout the entire holdover period, pay rent equal to the greater of
twice the Base Rental (with such adjustments to Base Rental as would otherwise
have been in effect if the Lease Term had continued during such period of
holding over) or the prevailing market rent determined by Landlord, plus all
other amounts that would otherwise have been payable hereunder as rent had the
Lease Term continued through the period of such holding over by Tenant;
provided, however, that Landlord's acceptance of any such payment shall not
constitute nor imply any consent by Landlord to any such holding over by Tenant.
No holding over by Tenant after the expiration of the Lease Term shall be
construed to extend the Lease Term; and in the event of any unauthorized holding
over, Tenant shall indemnify, defend and hold Landlord harmless from and against
all claims for damages (and reimburse Landlord upon demand for any sums paid in
settlement of any such claims) by any other lessee or prospective lessee to whom
Landlord may have leased all or any part of the Premises effective before or
after the expiration of the Lease Term and by any broker claiming any commission
or fee in respect of any such lease or offer to lease. Any holding over with the
written consent of Landlord shall thereafter constitute this Lease a lease from
month to month under the terms and provisions of this Lease, to the extent
applicable to a tenancy from month to month, with a Base Rental of one and
one-half (1 1/2) times that payable at the end of the Lease Term.
5
<PAGE>
18. Alterations. Additions. and Improvements. Tenant shall not permit
the Premises to be used for any purpose other than that stated in Paragraph 4
hereof or make or allow to be made any alterations or physical additions in or
to the Premises, or place signs on the Premises which are visible from outside
the Premises, without first obtaining the written consent of Landlord in each
such instance. Tenant agrees to indemnify Landlord and hold Landlord harmless
against any loss, liability, claim, or damage resulting from any work done by
Tenant in or to the Premises. Any and all alterations, physical additions, or
improvements, including Leasehold Improvements, when made to the Premises by
Tenant, shall be done in a good and workmanlike manner, lien-free and in
accordance with all applicable laws, codes, regulations, and requirements and
shall at once become the property of Landlord and shall be surrendered to
Landlord upon termination of this Lease by lapse of time or otherwise; provided,
however, this clause shall not apply to trade fixtures, movable equipment, or
furniture owned by Tenant, which, if Tenant is not in default, may be (or if
requested by Landlord, shall be) removed by Tenant upon termination of this
Lease. Tenant agrees specifically that no food, soft drink, or other vending
machine will be installed within the Premises.
19. Legal Use and Violations of Insurance. Tenant shall not occupy or
use, or permit any portion of the Premises to be occupied or used, for any
business or purpose that is unlawful, disreputable or extra-hazardous in any
manner, or permit anything to be done that could in any way increase the rate or
result in the denial or reduction of fire, liability or any other insurance
coverage on the Complex and/or its contents. If by reason of Tenant's acts or
conduct of business, there shall be an increase in the rate of insurance on the
Building or the Building's contents, then Tenant shall pay such increase to
Landlord immediately upon demand as additional rental.
20. Compliance with Laws and Regulations: Indemnification.
(a) Tenant shall comply at its sole cost and expense with all
laws, ordinances, statutes, rules and regulations of any state, federal,
municipal, or other government or governmental agency or quasi-governmental
agency having jurisdiction of the Premises that relate to the use, condition or
occupancy of the Premises and the conduct of Tenant's business thereon,
including, without limitation, the Americans with Disabilities Act of 1990 and
the Clean Air Act and regulations issued thereunder (all of the foregoing, as
amended from time to time), provided same are applicable to Tenant's occupancy
or use of the Premises, and with any reasonable rules promulgated by Landlord in
writing for the correction, prevention and abatement of nuisances, violations or
other grievances in, upon or connected with said Premises during said Lease Term
and arising from the operations of Tenant therein, at Tenant's sole cost and
expense, subject to the right of Tenant to contest the decision by any such
department or bureau. In the event Tenant contests any such governmental
decision, it shall indemnify, defend and save Landlord harmless from any fine,
penalty, cost and liability imposed as a result of said contest by Tenant as it
pertains to the Premises. Tenant covenants and agrees, at its expense, to comply
with such regulations or requests as may be required by the fire or liability
insurance carriers providing insurance for the Complex or the Premises, and will
further comply with such other requirements that may be promulgated by the Board
of Fire Underwriters or its equivalent in connection with the use and occupancy
of the Premises in the conduct of its business.
(b) Tenant shall, at Tenant's own expense, comply with the New
Jersey Industrial Site Recovery Act (N.J.S.A. 13:lK-6, et sea.) and any and all
other environmental statutes, rules and regulations applicable to the Premises
and the conduct of Tenant's business (the "Environmental Laws"). Tenant shall,
at Tenant's own expense, make all submissions to, provide all information to and
comply with all requirements of the Industrial Site Evaluation Element or any
other division of the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"). Should the Industrial Site Evaluation Element or any other
division of the NJDEPE determine that a clean-up plan be prepared and that a
clean-up be undertaken because of any spills or discharges of hazardous
substances or hazardous waste at the Premises or the Complex caused by Tenant,
its agents, servants, employees or invitees, Tenant shall, at Tenant's own
expense, prepare and submit the required plans and financial assurances and
carry out the approved plans. At no expense to Landlord, Tenant shall promptly
provide all information required by Landlord for preparation of
non-applicability affidavits and shall promptly sign such affidavits when
required by Landlord. Tenant shall indemnify, defend and save harmless Landlord
from all fines, suits, procedures, claims and actions of any kind arising out of
or in any way connected with any spills, discharges of hazardous substances or
hazardous waste at the Premises or the Complex if caused by Tenant, its agents,
servants, employees or invitees; and from all fines, suits, procedures, claims
and actions of any kind arising out of Tenant's failure to comply with all
Environmental Laws or to provide all information, make all submissions and take
any and all actions required by the Industrial Site Evaluation Element or any
other division of NJDEPE which may be required in connection with any and all
applicable Environmental Laws. Tenant shall provide any information in
connection herewith that may be required by Landlord that is not otherwise
available through a reasonable diligent inquiry by Landlord. Tenant's
obligations and liability under this section shall continue so long as Landlord
remains responsible for any such spills or discharges of hazardous substances or
hazardous waste. Tenant's failure to abide by the terms of this section shall be
restrainable by injunction.
(c) Tenant acknowledges that it will be wholly responsible for
any accommodations or alterations which need to be made to the Premises (but not
the other areas of the Building) to accommodate disabled employees and customers
of Tenant, including requirements under the Americans with Disabilities Act of
1990 and the New Jersey Handicapped Access Law (N.J.S.A. 52:32-4, et seq.) and
the regulations promulgated thereunder. Any alterations made to the Premises in
order to comply with either statute and the regulations must be made solely at
Tenant's expense and in compliance with all terms and requirements of the Lease.
Landlord agrees to make reasonable efforts to ensure that the common areas of
the Complex are in compliance with the applicable disability access laws as of
the date hereof. If a complaint is received by Landlord from either a private or
government entity regarding the disability access to the common areas of the
Complex, Landlord reserves the right to mediate, contest, comply with or
otherwise respond to such complaint as Landlord deems to be reasonably prudent
under the circumstances. If Landlord decides to make alterations to the common
areas of the Complex in response to any such complaints or in response to legal
requirements Landlord considers to be applicable to the common areas of the
Complex, the cost of such alterations shall be included in the Basic Costs under
the Lease. Landlord and Tenant agree that so long as the governmental entity or
entities charged with enforcing such statutes and regulations have not expressly
required Landlord to take specific action to effectuate compliance with such
statutes and regulations, Landlord shall be conclusively deemed to be in
compliance with such statutes and regulations. Tenant agrees to provide Landlord
with written notice should Tenant become aware of a violation of such statutes
or regulations with respect to the Common Area. In the event Landlord is
6
<PAGE>
required to take action to effectuate compliance with such statutes or
regulations, Landlord shall have a reasonable period of time to make the
improvements and alterations necessary to effectuate such compliance, which
period of time shall be extended by any time necessary to cause any necessary
improvements and alterations to be made.
21. Nuisance. Tenant shall conduct its business and control its agents,
employees, invitees, and visitors in such manner as not to create any nuisance,
or interfere with, annoy, or disturb any other tenant or Landlord in its
operation of the Complex.
22. Entry by Landlord. Tenant shall permit Landlord or its agents or
representatives to enter any part of the Premises at all reasonable hours (and
in emergencies at all times) to inspect the same, or to show the Premises to
prospective tenants (no sooner than six (6) months prior to the end of he Lease
Term or extension thereof), purchasers, mortgagees, or insurers, to clean or
make repairs, alterations, or additions thereto, as Landlord may deem necessary
or desirable. Tenant shall not be entitled to any abatement or reduction of rent
by reason of such entry.
23. Assignment and Subletting.
(a) Tenant shall not, without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed, (i) assign or in
any manner transfer this Lease or any estate or interest therein, or (ii) permit
any assignment of this Lease or any estate or interest therein by operation of
law, or (iii) sublease the Premises or any part thereof, or (iv) grant any
license, concession, or other right of occupancy of any portion of the Premises,
or (v) permit the use of the Premises by any parties other than Tenant, its
agents and employees. Consent by Landlord to one or more assignments or
sublettings shall not operate as a waiver of Landlord's rights as to any
subsequent assignments and sublettings. Notwithstanding any assignment or
subletting consented to by Landlord, Tenant and any guarantor of Tenant's
obligations under this Lease shall at all times remain fully responsible and
liable for the payment of the rent herein specified and for compliance with all
of Tenant's other obligations under this Lease. If any event of default should
occur while the Premises or any part thereof are then assigned or sublet,
Landlord, in addition to any other remedies herein provided or provided by law,
may at its option collect directly from such assignee or sublessee all rents
becoming due to Tenant under such assignment or sublease, and apply such rent
against any sums due to Landlord by Tenant hereunder, and Tenant hereby directs
any such assignee or sublessee to make such payments of rent directly to
Landlord upon receipt of notice from Landlord. No direct collection by Landlord
from any such assignee or sublessee shall be construed to constitute a novation
or a release of Tenant or any guarantor of Tenant from the further performance
of its obligations hereunder. Receipt by Landlord of rent from any assignee,
sublessee or occupant of the Premises shall not be deemed a waiver of the
covenant contained in this Lease against assignment and subletting or a release
of Tenant from any obligation under this Lease. The receipt by Landlord to any
such assignee or sublessee obligated to make payments of rent shall be a full
and complete release, discharge, and acquittance to such assignee or sublessee
to the extent of any such amount of rent so paid to Landlord. Landlord is
authorized and empowered, on behalf of Tenant, to endorse the name of Tenant
upon any check, draft, or other instrument payable to Tenant evidencing payment
of rent, or any part thereof, and to apply the proceeds therefrom in accordance
with the terms hereof Tenant shall not mortgage, pledge, or otherwise encumber
its interest in this Lease or in the Premises. Any attempted assignment or
sublease or encumbrance by Tenant in violation of the terms and covenants of
this paragraph shall be void and constitute an event of default under this
Lease.
(b) Notwithstanding anything to the contrary contained herein,
and without prejudice to Landlord's right to require a written assumption from
each assignee, any person or entity to whom this Lease is assigned including,
without limitation, assignees pursuant to the provisions of the Bankruptcy Code,
11 U.S.C. Paragraph 101 et seq. (the "Bankruptcy Code") shall automatically be
deemed, by acceptance of such assignment or sublease or by taking actual or
constructive possession of the Demised Premises, to have assumed all obligations
of Tenant arising under this Lease effective as of the earlier of the date of
such assignment or sublease or the date on which the assignee or sublessee
obtains possession of the Demised Premises. In the event this Lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, any
and all monies or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord and shall
remain the exclusive property of Landlord and not constitute the property of
Tenant or Tenant's estate within the meaning of the Bankruptcy Code. In the
event of any default described in subsection 28(a)(iv) below, in order to
provide Landlord with the assurances contemplated by the Bankruptcy Code, in
connection with any assignment and assumption of this Lease Tenant must fulfill
the following obligations, in addition to any other reasonable obligations that
Landlord may require, before any assumption of this Lease is effective: (i) all
defaults under subsection (a) of Section 28 of this Lease must be cured within
ten (10) days after the date of assumption; (ii) all other defaults under
Section 28 of this Lease other than under subsection (a)(iv) of Section 28 must
be cured within fifteen (15) days after the date of assumption; (iii) all actual
monetary losses incurred by Landlord (including, but not limited to, reasonable
attorneys' fees) must be paid to Landlord within ten (10) days after the date of
assumption; and (iv) Landlord must receive within ten (10) days after the date
of assumption a security deposit in the amount of six (6) months Base Rental
(using the Base Rental in effect for the first full month immediately following
the assumption) and an advance prepayment of Base Rental in the amount of three
(3) months Base Rental (using the Base Rental in effect for the first lull month
immediately following the assumption), both sums to be held by Landlord in
accordance with Section 5(b) above and deemed to be rent under this Lease for
the purposes of the Bankruptcy Code as amended and from time to time in effect.
In the event this Lease is assumed in accordance with the requirements of the
Bankruptcy Code and this Lease, and is subsequently assigned, then, in addition
to any other reasonable obligations that Landlord may require and in order to
provide Landlord with the assurances contemplated by the Bankruptcy Code,
Landlord shall be provided with (i) a financial statement of the proposed
assignee prepared in accordance with generally accepted accounting principles
consistently applied, though on a cash basis, which reveals a net worth in an
amount sufficient, in Landlord's reasonable judgment, to assure the future
performance by the proposed assignee of Tenant's obligations under this Lease;
or (ii) a written guaranty by one or more guarantors with financial ability
sufficient to assure the future performance of Tenant's obligations under this
Lease, such guaranty to be in form and content satisfactory to Landlord and to
cover the performance of all of Tenant's obligations under this Lease.
7
<PAGE>
(c) If Tenant requests Landlord's consent to an assignment of
the Lease or subletting of all or a part of the Premises, Tenant shall submit to
Landlord in writing, at least forty-five (45) days in advance of the date on
which Tenant desires to make such an assignment or sublease, notice of the name
of the proposed assignee or subtenant and the proposed commencement date of such
assignment or subletting, together with copies of all agreements entered into or
contemplated to be entered into regarding such subletting or assignment, and
such information as Landlord may request regarding the nature and character of
the business of the proposed assignee or subtenant. Landlord shall have the
option (to be exercised within thirty (30) days from Landlord's receipt of
Tenant's submission of written request and all information requested by Landlord
in connection therewith), (i) to permit Tenant to assign or sublet such space to
the proposed assignee or sublessee (in which event Tenant shall deliver to
Landlord fully-executed legible, correct and complete copies of all agreements
relating to such assignment or subletting); if, however, the rental or other
consideration payable in respect of such subletting or assignment exceeds the
rent payable hereunder by Tenant, then fifty percent (50%) of such excess rent
(after Tenant has deducted its reasonable expenses paid to third panics in
connection with such subletting) and other consideration shall be deemed
additional rent owed by Tenant to Landlord, and shall be payable to Landlord by
Tenant in the same manner and on the same terms as installments of Base Rental
are payable by Tenant hereunder (or upon Tenant's receipt thereof, whichever is
earlier); or (ii) to refuse to consent to Tenant's assignment or subleasing of
such space and to continue this Lease in full force and effect as to the entire
Premises; or (iii) to cancel this Lease (or the applicable portion thereof as to
a partial subletting) as of the commencement date stated in the above-mentioned
notice from Tenant of its desire to enter into such subletting or assignment, in
which event the term of this Lease, and the tenancy and occupancy of the
Premises (or the applicable portion thereof as to a partial subletting) by
Tenant thereunder, shall terminate as if the cancellation date was the original
termination date of this Lease. If Landlord should fail to notify Tenant in
writing of such election within such thirty (30) day period, Landlord shall be
deemed to have elected option (ii) above. If Landlord elects to exercise option
(i) above, Tenant agrees to provide, at its expense and at a location approved
by Landlord, direct access from such sublet space to a public corridor of the
Building. Notwithstanding Landlord's consent to any assignment or subletting, no
further or subsequent assignment or subletting shall be permitted unless
Landlord consents in writing thereto.
24. Transfers by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and in
the Complex and other property referred to herein, and in such event and upon
such transfer (any such transferee to have the benefit of, and be subject to,
the rights and obligations of Landlord hereunder), Landlord shall be released
from any further obligations hereunder to the extent Landlord's successor has
assumed Landlord's obligations hereunder, and Tenant agrees to look solely to
such successor in interest of Landlord for the performance of such obligations.
25. Subordination to Mortgage. This Lease is subject and subordinate to
any mortgage or deed of trust that may now or hereafter encumber the Complex,
and to all renewals, modifications, consolidations, replacements, and extensions
thereof. This clause shall be self-operative and no further instrument of
subordination need be required by any mortgagee or beneficiary; provided that
any such mortgagee or beneficiary may elect to make this Lease superior to such
mortgage or deed of trust by written instrument delivered to Tenant. In
confirmation of such subordination, however, Tenant shall, within five (5) days
after Landlord's request, execute any certificate or instrument evidencing such
subordination that Landlord may request. Tenant hereby constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute any such certificate or
instrument for and on behalf of Tenant, which appointment shall be coupled with
an interest and shall be irrevocable. Landlord agrees to use commercially
reasonable efforts to obtain a non-disturbance agreement from any Mortgagee or
beneficiary. In the event of the enforcement by the mortgagee or beneficiary
under any such mortgage or deed of trust of the remedies provided for by law or
by such mortgage or deed of trust, Tenant will, at the option of any person or
party succeeding to the interest of Landlord as a result of such enforcement,
attorn to and automatically become the Tenant of such successor in interest
without change in the terms or other provisions of this Lease; provided,
however, that such successor in interest shall not be (a) bound by any payment
of rent or additional rent for more than one (1) month in advance, except
advance rental payments expressly provided for in this Lease; (b) bound by any
modification of this Lease made without the written consent of such mortgagee or
beneficiary or such successor in interest; (c) liable for any act or omission of
Landlord; or (d) subject to any offset or defense arising prior to the date such
successor in interest acquired title to the Building. Upon request by any
mortgagee or beneficiary, Tenant shall execute and deliver an instrument or
instruments confirming the attornment provided for herein.
26. Construction Lien. Tenant shall not permit any Construction lien or
liens to be placed upon the Premises, the Leasehold Improvements thereon or the
Complex during the Lease Term caused by or resulting from any work performed,
materials furnished, or obligation incurred by or at the request of Tenant, and
nothing contained in this Lease shall be deemed as constituting the consent or
request of Landlord, express or implied, to any contractor, subcontractor,
laborer, or materialman for the performance of any labor or the furnishing of
any materials for any specific improvement, alteration, or repair to the
Premises, or any part thereof, nor as giving Tenant any authority to contract
for or permit the rendering of any services or the furnishing of any materials
that would give rise to the filing of any Construction or other liens against
the interest of Landlord in the Premises. If a lien or Notice of Unpaid Balance
and Right to File Lien pursuant to N.J.S. A. 2A:44A-20 is filed upon the
interest of Landlord, Tenant or any party having any interest in the Premises,
Tenant shall cause the same to be discharged of record within ten (10) days
after the filing of same, shall bear all costs and expenses by reason thereof,
shall obtain, at its own expense, surety company bonds to cancel or discharge
the same and shall indemnify, defend and hold harmless Landlord from any loss,
liability, cost and expense (including attorneys' fees) relating to such action.
If Tenant shall fail to discharge such Construction lien within such period,
then, in addition to any other fight or remedy of Landlord, Landlord may
discharge the same, either by paying the amount claimed to be due, or by
procuring the discharge of such lien by deposit in court or bonding. Any amount
paid by Landlord for any of the aforesaid purposes, or for the satisfaction of
any other lien not caused by Landlord, with interest thereon at the rate
hereinafter provided from the date of payment, shall be paid by Tenant to
Landlord immediately on demand as additional rent.
8
<PAGE>
27. Estoppel Certificate. Tenant will, at any time and from time to
time, within five (5) days from any written request by Landlord, execute,
acknowledge, and deliver to Landlord a statement in writing executed by Tenant
certifying to Landlord and/or any party designated by Landlord that Tenant is in
possession of the Premises under the terms of this Lease, that this Lease is
unmodified and in full effect (or, if there have been modifications, that this
Lease is in full effect as modified, and setting forth such modifications), the
dates to which the rent has been paid, that to the knowledge of Tenant no
default exists hereunder or specifying each such default of which Tenant may
have knowledge, and such other matters as may be reasonably requested by
Landlord. Any such statement by Tenant may be relied upon by any prospective
purchaser or mortgagee of the Complex.
28.Events of Default.
(a) The following events shall be events of default by Tenant
under this Lease:
(i) Tenant shall fail or refuse to pay any
installment of the rent hereby reserved or other sum of money payable
hereunder or under any other agreement between Landlord and Tenant when
due and such failure or refusal shall continue for ten (10) days after
written notice thereof to Tenant; provided, however, that for each
calendar year during which Landlord has already given Tenant one
written notice of the failure to pay an installment of rental, no
further notice shall be required (i.e., the event of default will
automatically occur on the tenth day after the day upon which the
rental was due).
(ii) Tenant shall fail or refuse to comply with any
term, provision, or covenant of this Lease, other than the payment of
rent, or any term, provision, or covenant of any other agreement
between Landlord and Tenant, and shall not cure such failure or refusal
within thirty (30) days after written notice thereof from Landlord to
Tenant.
(iii) Tenant or any guarantor of Tenant's obligations
hereunder (hereinafter called "Guarantor") shall become insolvent, make
a transfer in fraud of creditors, make a general assignment for the
benefit of creditors, or admit in writing its inability to pay its
debts as they become due.
(iv) Tenant or any Guarantor shall file a petition
under any section or chapter of the Federal Bankruptcy Code, as amended
from time to time, or under any similar law or statute or the United
States or any State thereof, or an order for relief shall be entered
against Tenant or any Guarantor in any bankruptcy or insolvency
proceedings, or a petition or answer proposing the entry of an order
for relief against Tenant or any Guarantor in a bankruptcy or its
reorganization proceedings under any present or future federal or state
bankruptcy or similar law shall be filed in any court and not
discharged or denied within twenty (20) days after its filing.
(v) A receiver, trustee or custodian shall be
appointed for all or substantially all of the assets of Tenant or any
Guarantor or of the Premises or any of Tenant's property located
therein in any proceeding brought by Tenant or any Guarantor, or any
such receiver, trustee or custodian shall be appointed in any
proceeding brought against Tenant or any Guarantor and shall not be
discharged within twenty (20) days after such appointment, or Tenant or
such Guarantor shall consent to or acquiesce in such appointment.
(vi) Tenant's leasehold interest hereunder shall be
taken in execution or other process of law in any action against
Tenant.
(vii) Intentionally Deleted.
(viii) Tenant shall fail or refuse to move into or
take possession of the Premises within fifteen (15) days after the
Commencement Date.
9
<PAGE>
(b) If an event of default occurs, Landlord shall have the
right to pursue anyone or more of the following remedies in addition to all
other rights or remedies provided herein or at law or in equity:
(i) Landlord may terminate this Lease or, without
terminating this Lease, terminate Tenant's right of possession and
forthwith repossess the Premises by forcible entry and detainer suit or
otherwise without liability for trespass or conversion and be entitled
to recover as damages a sum of money equal to the total of (A) the cost
of recovering the Premises, (B) the unpaid rent due and payable at the
time of termination, plus interest thereon at the rate hereinafter
specified from the due date, (C) the balance of the rent for the
remainder of the Lease Term less the fair market value of the Premises
for such period, and (D) any other sum of money and damages owed by
Tenant to Landlord.
(ii) Landlord may terminate Tenant's right of
possession and may repossess the Premises by forcible entry or detainer
suit or otherwise without liability for trespass or conversion, without
demand or notice of any kind to Tenant and without terminating this
Lease, in which event Landlord may, but shall be under no obligation
to, relet the same for the account of Tenant for such rent and upon
such terms as shall be satisfactory to Landlord. For the purpose of
such reletting, Landlord is authorized to decorate or to make any
repairs, changes, alterations, or additions in or to the Premises that
may be necessary or convenient. If Landlord exercises the remedies
provided in this subparagraph, Tenant shall pay to Landlord, and
Landlord shall be entitled to recover from Tenant, an amount equal to
the total of the following: (A) unpaid rent, plus interest (accruing
from the date any such amounts are due) at the rate hereinafter
provided, owing under this Lease for all periods of time that the
Premises are not relet; plus (B) the cost of recovering possession, and
all of the costs and expenses of such decorations, repairs, changes,
alterations, and additions, and the expense of such reletting and of
the collection of the rent accruing therefrom to satisfy the rent
provided for in this Lease to be paid; plus (C) any deficiency in the
rentals and other sums actually received by Landlord from any such
reletting from the rent and additional rent required to be paid under
this Lease with respect to the periods the Premises are so relet, and
Tenant shall satisfy and pay any such deficiency upon demand therefor
from time to time. Tenant agrees that Landlord may file suit to recover
any sums falling due under the terms of this subparagraph from time to
time; and that no delivery or recovery of any portion due Landlord
hereunder shall be a defense in any action to recover any amount not
theretofore reduced to judgment in favor of Landlord, nor shall such
reletting be construed as an election on the part of Landlord to
terminate this Lease unless a written notice of such intention be given
to Tenant by Landlord. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate
this Lease for such previous default.
(iii) Offset against any rents, damages, or other
sums of money owed by Tenant any security deposit and/or any advance
rent applicable to any time period after the occurrence of the default
and any sums which would then or thereafter otherwise be due from
Landlord to Tenant.
(iv) Landlord may alter locks and other security
devices at the Premises.
29. Lien for Rent. Intentionally Deleted.
30. Attorneys' Fees. If Tenant defaults in the performance of any
terms, covenants, agreements, or conditions contained in this Lease and Landlord
places the enforcement of this Lease or the collection of any rent due or to
become due hereunder, or recovery of the possession of the Premises in the hands
of an attorney, or files suit upon the same, Tenant agrees to pay Landlord's
reasonable attorneys' fees. In addition, if Tenant requests any consent or other
action on the part of Landlord, in connection with which Landlord deems it
necessary for any documents to be prepared or reviewed by its counsel, Tenant
shall pay all reasonable attorneys' fees and expenses incurred by Landlord in
such connection.
31. No Implied Waiver. The failure of Landlord to insist at any time
upon the strict performance of any covenant or agreement or to exercise any
option, right, power, or remedy contained in this Lease shall not be construed
as a waiver or a relinquishment thereof for the future. The waiver of or redress
for any violation of any term, covenant, agreement, or condition contained in
this Lease shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. No express waiver shall affect any condition other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. A receipt by Landlord of any rent with knowledge of the
breach of any covenant or agreement contained in this Lease shall not be deemed
a waiver of such breach, and no waiver by Landlord of any provision of this
Lease shall be deemed to have been made unless expressed in writing and signed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installment of rent due under this Lease shall be deemed to be other
than on account of the earliest rent due hereunder, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
32. Casualty Insurance. Landlord shall maintain fire and extended
coverage insurance on the Complex (not including any improvements to the Complex
made by parties other than Landlord). Such insurance shall be maintained with an
insurance company authorized to do business in the State in which the Building
is located, in amounts and with deductibles desired by Landlord at the expense
of Landlord (as a part of the Basic Costs), and payments for losses thereunder
shall be made solely to Landlord. Tenant shall maintain at its expense fire and
extended coverage insurance on all of its personal property, including removable
trade fixtures, located in the Premises and on all additions and improvements
made by Tenant and not required to be insured by Landlord above. If the annual
premiums to be paid by Landlord shall exceed the standard rates because Tenant's
operations, contents of the Premises, or improvements with respect to the
Premises beyond Building standard result in extra-hazardous exposure, Tenant
shall pay the excess amount of the premium upon request therefor by Landlord.
10
<PAGE>
33. Liability Insurance. Tenant shall, at its expense, maintain a
policy or policies of comprehensive general liability insurance, with coverages
reasonably acceptable to Landlord, naming Landlord and Landlord 5 property
manager as additional insureds, with the premiums thereon fully paid on or
before the due date, issued by and binding upon an insurance company with an
A.M. Best Rating of at least A-VII and acceptable to Landlord, such insurance to
afford minimum protection in limits of not less than $1,00O,O00.O0 Combined
Single Limits of coverage for Personal Injury and Property Damage and
$1,000,000.00 Annual Aggregate. At least fifteen (15) days prior to Tenant's
occupancy of the Premises, Tenant shall deliver to Landlord a copy of all policy
provisions intended to be included the coverage to be provided by Tenant, and a
valid certificate of insurance issued to Landlord, effective as of the dates
applicable under the terms of this Lease, which certificate of insurance shall
include, without limitation: (A) provisions requiring notice by the insurer to
Landlord at least thirty (30) days in advance of any contemplated, intended or
effective cancellation, nonrenewal, or material change or modification of
coverage provisions or limits; and (B) a Waiver of Subrogation in favor of
Landlord and agents, employees, servants, officers, directors, contractors, and
subcontractors of Landlord, with respect to the insurance coverage and claims of
Tenant.
34. Indemnity. Landlord shall not be liable to Tenant, or to Tenant's
agents, contractors, servants, employees, customers, or invitees, and Tenant
shall indemnify, defend and hold harmless Landlord, Landlord's asset manager,
Landlord's subasset manager, Landlord's partners, any subsidiary or affiliate of
Landlord and the officers, directors, shareholders, partners, employees,
managers, independent contractors, attorneys and agents of any of the foregoing
(collectively, the "Indemnitees") from and against any and all claims, demands,
causes of action, judgments, costs and expenses, and all losses and damages
(including consequential and punitive damages) arising from the use by Tenant or
its agents, independent contractors, servants, employees, customers, or invitees
of the Premises or the Complex or from the conduct of its business or from any
activity, work, or other acts or things done, permitted or suffered by Tenant in
or about the Premises or the Complex, and shall further indemnify, defend and
hold harmless the Indemnitees from and against any and all claims arising from
any breach or default in the performance of any obligation on Tenant's part to
be performed under the terms of this Lease, or arising from any act, omission or
negligence or willful or criminal misconduct of Tenant, or by Tenant or its
agents, independent contractors, servants, employees, customers, or invitees and
from all reasonable costs, attorneys' fees and disbursements, and liabilities
incurred in the defense of any such claim or any action or proceeding which may
be brought against, out of or in any way related to this Lease. Upon notice from
Landlord, Tenant shall defend any such claim, demand, cause of action or suit at
Tenant's expense by counsel satisfactory to Landlord in its sole discretion. As
a material part of the consideration to Landlord for this Lease, Tenant hereby
assumes all risk of damage to property or injury to persons in, upon or about
the Premises from any cause, and Tenant hereby waives all claims with respect
thereto against Landlord. The provisions of this Section shall survive the
expiration or sooner termination of this Lease.
35. Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each hereby waives all rights of
recovery, claim, action, or cause of action, against the other, its agents,
officers, or employees, for any loss or damage that may occur to the Premises,
any Leasehold Improvements, or the Complex of which the Premises are a part, by
reason of fire, the elements, or any other cause which is insured against under
the terms of standard fire and extended coverage insurance policies referred to
in Paragraph 32 hereof or is otherwise insured against under an insurance policy
maintained by the party suffering such loss or damage, regardless of cause or
origin, including any negligence of the other party hereto and/or its agents,
officers, or employees, and each party covenants that no insurer shall hold any
right of subrogation against such other party. Each party hereto agrees to give
immediately to any insurer that has issued to it policies of fire and extended
coverage insurance written notice of the mutual waiver contained in this
provision and to have such policies endorsed, if necessary, to prevent the
invalidation of insurance coverage by reason of such mutual waiver.
36. Casualty Damage. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. If the Complex shall be so damaged by fire or other
casualty that substantial alteration or reconstruction of the Complex shall, in
Landlord's sole opinion, be required (whether or not the Premises shall have
been damaged by such fire or other casualty), or if any mortgagee or beneficiary
under a mortgage or deed of trust covering the Complex should require that the
insurance proceeds payable as a result of said fire or other casualty be applied
to the balance of the mortgage debt, Landlord may, at its option, terminate this
Lease and the term and estate hereby granted by notifying Tenant in writing of
such termination within sixty (60) days after the date such insurance proceeds
are applied to such mortgage debt, in which event the Base Rental hereunder
shall be abated as of the date of such damage. If Landlord does not thus elect
to terminate this Lease, Landlord shall within one hundred eighty (180) days
after the date of such damage commence to repair and restore the Complex and
shall proceed with reasonable diligence to restore the Complex (except that
Landlord shall not be responsible for delays outside its control) to
substantially the same condition in which it was immediately prior to the
happening of the casualty, except that Landlord shall not be required to
rebuild, repair, or replace any part of Tenant's furniture or furnishings or
fixture and equipment removable by Tenant under the provisions of this Lease,
but such work shall not exceed the scope of the work done by Landlord in
originally constructing the Complex and installing Building standard items in
the Premises, nor shall Landlord in any event be required to spend for such work
an amount in excess of the insurance proceeds actually received by Landlord as a
result of the fire or other casualty. Tenant agrees that promptly after
completion of such work by Landlord, Tenant will proceed with reasonable
diligence and at Tenant's sole cost and expense to restore, repair and replace
all alterations, additions, improvements, fixtures and equipment installed by
Tenant. Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such damage
or the repair thereof, except that, subject tote provisions of the next
sentence, Landlord shall allow Tenant a fair diminution of rent during the time
and to the extent the Premises are unfit for occupancy. If the Premises or any
other portion of the Complex be damaged by fire or other casualty resulting from
the fault or negligence of Tenant or any of Tenant's agents, employees, or
invitees, the rent hereunder shall not be diminished during the repair of such
damage, and Tenant shall be liable to Landlord for the cost and expense of the
repair and restoration of the Complex caused thereby to the extent such cost and
expense is not covered by insurance proceeds. Any insurance which may be carried
by Landlord or Tenant against loss or damage to the Complex or to the Premises
shall be for the sole benefit of the party carrying such insurance and shall be
under its sole control. Tenant shall use proceeds from insurance carried by
Tenant to repair and restore Tenant's property in such manner as Tenant sees fit
in its reasonable discretion.
11
<PAGE>
37. Condemnation. If the Premises shall be taken or condemned for
public purpose to such extent as to render the Premises untenantable, this Lease
shall, at the option of either party, cease and terminate as of the date of such
taking or condemnation. Either party may exercise such option to terminate by
written notice to the other party within fifteen (15) days after such taking or
condemnation. All proceeds from any taking or condemnation of the Premises shall
belong to and be paid to Landlord. Upon termination pursuant to this Section,
Tenant shall immediately vacate the Premises.
38. Damages from Certain Causes. Landlord shall not be liable to Tenant
for any delay or for any loss or damage to any property or person occasioned by
theft, fire, act of God, public enemy, injunction, riot, strike, insurrection,
war, court order, requisition, or order of government body or authority, or for
any damage or inconvenience which may arise through repair or alteration of, or
failure to repair, any pan of the Complex or Premises necessitated by such
causes. Tenant, to the fullest extent permitted under applicable law, hereby
waives any claim or cause of action which may now exist or hereafter arise under
any applicable deceptive trade practices law or consumer protection law or any
successor statute.
39. Notice and Cure. In the event of any act or omission by Landlord
that would give Tenant the right to damages from Landlord or the right to
terminate this Lease by reason of a constructive or actual eviction from all or
part of the Premises or otherwise, Tenant shall not sue for such damages or
exercise any such right to terminate until it shall have given written notice of
such act or omission to Landlord and tonic holder(s) of the indebtedness or
other obligations secured by any mortgage or deed of trust affecting the
Premises, and a reasonable period of time (not to exceed sixty (60) days unless
such act or omission cannot be cured in sixty (60) days and Landlord is
diligently pursuing cure of such act or omission) for remedying such act or
omission shall have elapsed following the giving of such notice, during which
time Landlord and such holder(s), or either of them, their agents or employees,
shall be entitled to enter upon the Premises and do therein whatever may be
necessary to remedy such act or omission. During the period after the giving of
such notice and during the remedying of such act or omission, the Base Rental
payable by Tenant for such period as provided in this Lease shall be abated and
apportioned only to the extent that any part of the Premises shall be
untenantable.
40. Personal Liability. The liability of Landlord any, agent of
Landlord, or any of their respective officers, directors, shareholders, or
employees to Tenant for or in respect of any default by Landlord under the terms
of this Lease or in respect of any other claim or cause of action shall be
limited to the interest of Landlord in the Complex, and Tenant agrees to look
solely to Landlord's interest in the Complex for the recovery and satisfaction
of any judgment against Landlord, any agent of Landlord, or any of their
respective officers, directors, shareholders, and employees.
41. Notice. Any notice, communication, request, reply or advice
(hereinafter collectively called "notice") provided for in this Lease must be in
writing, and shall, unless otherwise expressly provided in this Lease, be given
or be served by depositing the same in the United States mail, postpaid and
certified and addressed to the party to be notified, with return receipt
requested, or by delivering the same in person to an officer of such party, or
by consigning the same to a recognized overnight delivery service operating on a
nationwide basis, addressed to the party to be notified. Notice deposited in the
mail in the manner hereinabove described shall be effective, unless otherwise
stated in this Lease, three (3) days after it is so deposited. Notice given in
any other manner shall be effective upon delivery. The addresses for the
delivery of any notices hereunder shall, until changed as herein provided, be
those specified on the first page of this Lease. A party hereto may change its
address by at least fifteen (15) days written notice to the other party
delivered in compliance with this paragraph; provided, however, that no such
notice shall be effective until actually received by the other party and
provided further that during the tease Term any notice to Tenant shall be deemed
duly given if delivered to Tenant at the Premises.
42. Captions. The captions and headings appearing in this Lease are
solely for convenience and shall not be given any effect in construing this
Lease.
43. Entirety and Amendments. This Lease embodies the entire contract
between the parties hereto, relative to the subject matter hereof. Except as
otherwise herein provided, no variations, modifications, changes, or amendments
hereof shall be binding upon any party hereto unless in writing, executed by a
duly authorized officer or agent of the particular party. Landlord and Tenant
have fully negotiated the provisions of this Lease and, notwithstanding any rule
or principle of law or equity to the contrary, no provision of the Lease shall
be construed in favor of or against either party by virtue of the authorship or
purported authorship thereof.
12
<PAGE>
44. Severability. If any term or provision of this Lease shall be
invalid or unenforceable to any extent, the remainder of this Lease shall be not
be affected thereby, and each term and provision of this Lease shall be valid
and enforced to the fullest extent permitted by law.
45. Binding Effect. All covenants and obligations contained within this
Lease shall bind and inure to the benefit of Landlord, its successors and
assigns, and shall be binding upon Tenant, its permitted successors and assigns.
46. Number and Gender of Words. All personal pronouns used in this
Lease shall include the other gender, whether used in the masculine, feminine,
or neuter gender, and the singular shall include the plural whenever and as
often as may be appropriate.
47. Recordation. Tenant shall not record this Lease or any memorandum
thereof
48. Governing Law. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in accordance with
the laws of the State of New Jersey.
49. Interest Rate. All past-due rents or other sums payable by Tenant
hereunder, and any sums advanced by Landlord for Tenant's account pursuant to
applicable provisions hereof; shall bear interest from the date due or advanced
until paid at the maximum lawful rate in effect at the time such payment was due
or sum was advanced, or if there is no ascertainable maximum lawful rate then in
effect, at a rate of eighteen percent (18%).
50. Force Majeure. Whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such period
of time, any delays due to strikes, riots, acts of God, shortages of labor or
materials, war governmental laws, regulations or restrictions, or any act,
omission, delay, or neglect of Tenant or any of Tenant's employees or agents, or
any other cause whatsoever beyond the control of Landlord.
51. Rules and Regulations. Tenant shall comply with the Rules and
Regulations of Landlord in the form of EXHIBIT C as well as all changes therein
and additions thereto that may from time to time be adopted by Landlord for the
operation and protection of the Building and the protection and welfare of its
tenants and invitees. Landlord expressly reserves the right at any time and from
time to time to make such reasonable changes in and additions to such Rules and
Regulations, provided, however, that such changes shall not become effective and
a part of this Lease until a copy thereof shall have been delivered to Tenant.
52. Reserved Rights. Without limiting in any way Landlord's right to
promulgate rules and regulations, Landlord shall have the following rights,
exercisable without notice and without liability to Tenant for damage or injury
to property, persons or business and without effecting an eviction, constructive
or actual, or disturbance of Tenant's use or possession or giving rise to any
claim for set off or abatement of rent:
(a) To change the Building's and/or the Complex's name, design
or street address.
(b) To approve, restrict, install, affix, maintain, and remove
any and all signs on the exterior and interior of the Building.
(c) To designate and approve, prior to installation, all types
of window shades, blinds, drapes, awnings, window ventilators and other similar
equipment and to control all internal lighting that may be visible from the
exterior of the Building.
(d) To designate, restrict and control all sources from which
Tenant may obtain ice, drinking water, towels, toilet supplies, shoe shining,
catering, food and beverages, or like or other services on the Premises and in
general to reserve to Landlord the exclusive right to designate, limit, restrict
and control any business and any service (except telephone service) in or to the
Building and its tenants.
(e) To retain at all times, and to use in appropriate
instances, keys to all doors within and to the Premises.
(f) To decorate and to make repairs, alterations, additions,
changes or improvements, whether structural or otherwise, in and about the
Complex, or any part thereof, and for such purposes to enter upon the Premises
and, during the continuance of any such work, to temporarily close doors,
entryways, public space and corridors in the Complex, to interrupt or
temporarily suspend Complex services and facilities and to change the
arrangement and location of entrances or passageways, doors and doorways,
corridors, elevators, stairs, toilets or other public parts of the Complex, all
without abatement of rent or affecting any of Tenant's obligations hereunder, so
long as the Premises are reasonably accessible. Landlord agrees to use
reasonable efforts to avoid interfering with the conduct of Tenant's business
within the Premises.
13
<PAGE>
(g) To have and retain a paramount title to tile Premises free
and clear of any act of Tenant purporting to burden or encumber them.
(h) To grant to anyone the exclusive right to conduct any
business or render any service in or to the Complex, provided such exclusive
right shall not operate to exclude Tenant from the use expressly permitted
herein.
(i) To approve the weight, size and location of safes and
other heavy equipment and articles in and about tile Premises and the Complex,
and to require all such items and furniture and similar items to be moved into
and out of the Complex and tile Premises only at such times and in such manner
as Landlord shall direct in writing. Movements of Tenant's property into or out
of the Complex and within the Complex are entirely at the risk and
responsibility of Tenant, and Landlord reserves the right to require permits
before allowing any such property to be moved into or out of the Complex.
(j) To prohibit the placing of vending or dispensing machines
of any kind in or about the Premises without the prior written permission of
Landlord.
(k) To have access for Landlord and other lessees of the
Complex to any mail chutes located on the Premises according to the rules of the
United States Postal Service.
(l) To take all such reasonable measures as Landlord may deem
advisable for the security of the Complex and its occupants, including without
limitation, tile closing of the Complex after normal business hours and on
Saturdays, Sundays and holidays; subject, however, to Tenant's right to
admittance when the Complex is closed after normal business hours under such
reasonable regulations as Landlord may prescribe from time to time which may
include, by way of example but not of limitation, that persons entering or
leaving the Complex, whether or not during normal business hours, identify
themselves to a security officer by registration or otherwise and that such
persons establish their right to enter or leave the Complex.
53. Approval by Landlord's Mortgagees. Landlord's execution and
delivery of this Lease are expressly subject to and conditioned upon approval of
all of the provisions of this Lease by any lenders furnishing financing in
respect of the Building.
54. Brokers. Tenant represents and warrants that Tenant has had no
dealing with any broker other than the Trammwell Crow Company and Strategic
Alliance Realty, Inc. in connection with the negotiation or execution of this
Lease, and Tenant agrees to indemnify Landlord and hold Landlord harmless from
any and all costs, expenses or liability for commissions or other compensation
claimed by any broker or agent other than the party named above with respect to
this Lease.
55. Substitute Space. Landlord reserves the right at any time prior to
tender of possession of the Premises to Tenant or during the term of this Lease
after the Commencement Date and upon sixty (60) days' prior notice
("Substitution Notice") to substitute comparable space ("Substitute Space")
elsewhere within the Building for the Premises. Landlord shall reimburse Tenant
for all reasonable, out of pocket expenses involved in Tenant's relocation to
Substitute Space.
56. Time of Essence. Time is of the essence of this Lease and each and
every provision of this Lease.
57. Best Efforts. "Whenever in this Lease there is imposed upon
Landlord the obligation to use Landlord's best efforts or reasonable efforts or
diligence, Landlord will be required to exert such efforts or diligence only to
the extent the same are economically feasible and will not impose upon Landlord
extraordinary financial or other burdens.
58. No Reservation. Submission by Landlord of this instrument to Tenant
for examination or signature does not constitute a reservation of or option for
lease. This Lease will be effective as a lease or otherwise only upon execution
and delivery by both Landlord and Tenant.
59. Consents. In all circumstances under this Lease where the pnor
consent of one party (the "consenting party"), whether it be Landlord or Tenant,
is required before the other party (the "requesting party") is authorized to
take any particular type of action, such consent shall not be withheld in a
wholly unreasonable and arbitrary manner; however, the requesting parry agrees
that its exclusive remedy if it believes that consent has been withheld
improperly (including, but not limited to, consent required from Landlord
pursuant to Section 23) shall be to institute litigation either for a
declaratory judgment or for a mandatory injunction requiring that such consent
be given (with the requesting party hereby waiving any claim for damages,
attorneys' fees or any other remedy unless the consenting party refuses to
comply with a court order or judgment requiring it to grant its consent).
60. Legal Authority. If Tenant is a corporation (including any form of
professional association), then each individual executing or attesting this
Lease on behalf of such corporation covenants, warrants and represents that he
is duly authorized to execute or attest and deliver this Lease on behalf of such
corporation. If Tenant is a partnership (general or limited) or limited
liability company, then each individual executing this Lease on behalf of the
partnership or company hereby covenants, warrants and represents that he is duly
authorized to execute and deliver this Lease on behalf of the partnership or
company in accordance with the partnership agreement or membership agreement, as
the case may be, or an amendment thereto, now in effect.
14
<PAGE>
61. Hazardous Materials. (a) During the term of this Lease, Tenant
shall comply with all Environmental Laws and Environmental Permits (each as
defined in Section 61(d) hereof) applicable to the operation or use of the
Premises, will cause all other persons occupying or using the Premises to comply
with all such Environmental Laws and Environmental Permits, and will immediately
pay or cause to be paid all costs and expenses incurred by reason of such
compliance.
(b) Tenant shall not generate, use, treat, store, handle,
release or dispose of; or permit the generation, use, treatment, storage,
handling, release or disposal of Hazardous Materials (as defined in Section
61(d) hereof) on the Premises, or the Complex, or transport or permit the
transportation of Hazardous Materials to or from the Premises or the Complex
except for limited quantities used or stored at the Premises and required in
connection with the routine operation and maintenance of the Premises, and then
only upon the written consent of Landlord and in compliance with all applicable
Environmental Laws and Environmental Permits.
(c) Tenant agrees to defend, indemnify and hold harmless
Landlord from and against all obligations (including removal and remedial
actions), losses, claims, suits, judgments, liabilities, penalties, damages
(including consequential and punitive damages), costs and expenses (including
attorneys' and consultants' fees and expenses) of any kind or nature whatsoever
that may at any time be incurred by, imposed on or assessed against such
Indemnitees directly or indirectly based on, or arising or resulting from (a)
the actual or alleged presence of Hazardous Materials on the Complex which is
caused or permitted by Tenant and (b) any Environmental Claim relating in any
way to Tenant's operation or use of the Premises (the "Hazardous Materials
Indemnified Matters"). The provisions of this Section 61 shall survive the
expiration or sooner termination of this lease.
(d) As used herein, the following terms shall have the
following meanings: "Hazardous Materials" means (i) petroleum or petroleum
products, natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and radon gas; (ii) any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes, "'toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (iii) any other substance exposure which is regulated by any
governmental authority. "Environmental Law" means any federal, state or local
statute, law, rule, regulation, ordinance, code, policy or rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
'SS''SS' 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
'SS''SS' 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
'SS''SS' 1801 et seq.; the Clean Water Act 33 U.S.C. 'SS''SS' 1251 et seq.; the
Toxic Substances Control Act, 15 U.S.C. 'SS''SS' 2601 et seq.; the Clean Air
Act, 42 U.S.C. 'SS''SS' 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
'SS''SS' 300f et seq.; the Atomic Energy Act, 42 U.S.C. 'SS''SS' 2011 et seq.;
the Federal Insecticide, Fungicide and Rodenticide Act, 7U.S.C. 'SS''SS' 136 et
seq.; the Occupational Safety and Health Act, 29 U.S.C. 'SS''SS' 651 et seq.
"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations, proceedings, consent orders or
consent agreements relating in any way to any Environmental Law or any
Environmental Permit, including without limitation (i) any and all Environmental
Claims by governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Environmental Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Permits" means all permits, approvals, identification numbers,
licenses and other authorizations required under any applicable Environmental
Law.
62. Waiver of Jury Trial. LANDLORD AND TENANT HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
LEASE OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THE
PREMISES (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS
LEASE OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY
INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT
FOR LANDLORD TO ENTER AND ACCEPT THIS LEASE.
63. Exhibits. Riders and Addenda. Exhibits A and B and any other
exhibits, riders and addenda attached hereto are incorporated herein and made a
part of this Lease for all purposes.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the date and year first above written.
LANDLORD:
COMMERCE CENTER HOLDINGS, INC.,
a Delaware corporation
By: GE CAPITAL REALTY GROUP INC.,
a Texas Corporation, Its Servicer
By: ______________________________________
Name: _____________________________
Title: V.P. _______________________
TENANT:
TOTALTEL COMMUNICATIONS, INC.,
a New Jersey corporation
By:
--------------------------------------
Name: Dennis Spina
-----------------------------
Title: President & CEO
----------------------------
16
<PAGE>
EXHIBIT "A"
DESCRIPTION OF PROPERTY
ALL THAT CERTAIN tract or parcel of land SITUATE in the Township of Cherry Hill,
County of Camden, and State of New Jersey, being more particularly described as
follows:
BEGINNING at a point at the intersection of the Southeasterly line of
Haddonfield Road (as measured 33.00 feet from the original centerline) and the
Northeasterly line of Chapel Avenue (as measured 35.00 feet from the original
centerline) and from said beginning point runs; thence, along said Haddonfield
Road (1) N. 19[d] 19' 50" E. 301,00 feet to a point corner to lands now or
formerly of Cherry Hill Inn, Inc. thence, along the same (2) S. 74[d] 23'
41" E. 334.68 feet to a point corner to a 5.130 acre tract of land; thence,
along the same the following ten courses (3) S. 04[d] 00' 39" W. 245.75
feet to a point; thence (4) S. 40[d] 59' 21" E. 160.00 feet to a point;
thence (5) S. 85[d] 59' 21" E. 188.09 feet to a point; thence (6) S.
40[d] 59' 21" E. 20.42 feet to a point; thence (7) S. 49[d] 00' 39" W.
97.00 feet to a point; thence (8) S. 40[d] 59'" 21 E. 240.00 feet to a
point; thence (9) S. 49[d] 00' 39" W. 8.00 feet to a point; thence (10) S.
40[d] 59' 21" E. 44.27 feet to a point in the Northwesterly line of an
access easement; thence, along the same (11) S. 19[d] 19' 51" W. 39.08 feet
to a point of curvature in the same; thence, still along the same on a curve to
the right with a radius of 600.00 feet (12) Southwestwardly, an arc distance of
279.75 feet to a point in the aforementioned line of Chapel Avenue; thence along
the same (13) N. 40[d] 59' 21" West 999.09 feet to the point and place of
beginning.
SAID ABOVE DESCRIBED tract of land containing within said bounds 7.910 Acres.
BEING 1800 and 1810 Chapel Avenue, West.
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
1. Landlord will provide and maintain an alphabetical directory board
on the ground floor of the Building and allot one (1) name strip to Tenant's
use.
2. Tenant will refer all contractors, contractors' representatives and
installation technicians rendering any service to Tenant, to Landlord's
supervision, approval, and control before performance of any contractual
service. This provision shall apply to all work performed in the Building
including the installation of telephones, telegraph equipment, electrical
devices, and attachments, and all installations of any nature affecting floors,
walls, woodwork, trim, windows, ceilings, equipment or any other physical
portion of the Building.
3. Movement in or out of the Building of furniture or office equipment
or the dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators or stairways or the movement through Building
entrances or lobbies shall be restricted to hours designed by Landlord. All such
movement shall be under the supervision of Landlord and shall be performed in
the manner agreed upon in writing between Tenant and Landlord before
performance. Such agreement initialed by Tenant will include the determination
by Landlord, and such movement shall be subject to Landlord's sole decision and
control, in regard to the time, method, and routing of movement, limitations
imposed by safety or other concerns which may prohibit any article, equipment or
any other item from being brought into the Building. Tenant shall assume all
risk as to damage to articles moved and injury to persons or public property,
and personnel of Landlord if damaged or injured as a result of acts in
connection with such service performed for Tenant.
4. Unless otherwise expressly agreed in writing by Landlord, (i) no
signs will be allowed in any form on the exterior of the Building or the
interior or exterior of windows, (ii) no signs except in uniform location and
uniform style fixed by Landlord will be permitted in the public corridors or on
corridor doors or entrances to Tenant's space, and (iii) the construction and/or
installation of all authorized signs will be contracted for by Landlord for
Tenant at the rate fixed by Landlord from time to time and Tenant will be billed
and pay for such service promptly on receipt thereof
5. No portion of Tenant's Premises or any other part of the Building
shall at any time be used or occupied as sleeping or lodging quarters.
6. Tenant shall not place, install or operate on the Premises or in any
part of the Building, any engine, stove, or machinery, or conduct mechanical
operations. or cook thereon or therein, or place or use in or about the Premises
any explosives, gasoline, kerosene, oil, acids, caustics, or any other
inflammable, explosive, or hazardous material without written consent of
Landlord.
7. Landlord shall not be responsible for lost or stolen personal
property, equipment, money or jewelry from Tenant's area or public rooms
regardless of whether such loss occurs when such area is locked against entry or
not.
8. Landlord will not permit entrance to Tenant's offices by use of pass
keys controlled by Landlord to any person at any time without the prior 'written
permission of Tenant except only employees, contractors, or service personnel
directly supervised by Landlord.
9. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, nor shall any rubbish,
litter, trash, or material of any nature be placed, emptied or thrown into these
areas, nor shall such areas be used at any time except for ingress and egress by
Tenant, Tenant's agents, employees, or invitees.
10. Tenant shall not do, or permit anything to be done in or about the
Building, or bring or keep anything therein that will in any way increase the
rate of fire or other insurance on the Building, or on property kept therein, or
obstruct or interfere with the rights of, or otherwise injure or annoy, other
tenants, or do anything contrary to or in conflict with valid laws, rules or
regulations of any municipal or governmental authority or Ewe, safety or
building authority or regulation.
11. Should a tenant require telegraphic, telephonic, annunciator, or
data processing equipment, prior approval of such equipment and such equipment's
location by Landlord will be required. Contractors performing installation shall
submit plans and receive Landlord's approval on method of installation and will
be subject to Landlord's supervision on location and means of making cuts or
wiring procedure.
12. Landlord specifically reserves the right to refuse admittance to
the Building from 6:00 p.m. to 7:00 am. daily, or on Sundays or legal holidays,
to any person who cannot furnish satisfactory identification, or to any person
who, for any other reason in the Landlord's judgment, should be denied access to
the Premises. Landlord, for the protection of the tenants and their effects, may
prescribe hours and intervals during the night, on Sundays and holidays, when
all persons entering and departing the Building shall be required to enter their
names, the offices to which they are going or from which the are leaving, arid
the time of entrance or departure in a register provided for that purpose by
Landlord.
13. Landlord reserves the right to rescind any of these rules and make
such other and further rules and regulations as in Landlord's reasonable
judgment shall from time to time be needful for the operation thereof, the
preservation of good order therein, and the protection and comfort of its
tenants, their agents, employees and invitees, which rules when made and notice
thereof given to a tenant shall be binding upon Tenant in the manner as if
originally prescribed.
14. All lettering and signage appearing on or visible from the exterior
of the Premises shall be subject to the prior written approval of Landlord.
15. The normal business hours for the building are 8:00a.m. to 6:00p.m.
on Mondays through Fridays and 8:00 a.m. to 12:00 noon on Saturdays exclusive of
holidays.
16. The term "holiday" shall include all days on which national banks
in the municipality in which the building is located are closed to the general
public. This shall include but not be limited to New Years Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXHIBIT C -- Page 1
<PAGE>
EXHIBIT D
WORK LETTER
It is agreed that Landlord will complete construction of the initial
premises in accordance with the following terms and provisions:
1. A. No later than seven (7) days after the Lease is signed by
Landlord and Tenant, Tenant shall submit to Landlord, Tenant's proposed
complete, architectural, electrical and mechanical plans and specifications (the
"Plans") for the construction of tenant improvements to the Premises. Landlord
shall make available to Tenant the services of its Architect to assist Tenant in
the preparation of the plans, which shall be subject to Landlord's final
approval. The cost of preparing the Plans shall be applied against the Allowance
(as hereinafter defined).
B. Within five (5) days following the date of Landlord's
receipt of the Plans, Landlord will advise Tenant of Landlord's approval or
disapproval of the Plans. If Landlord disapproves any aspect of the Plans,
Landlord shall so notify Tenant and specify the reasons for such disapproval.
Landlord may also specify how any such disapproved item may be made reasonably
acceptable to Landlord, and Tenant shall, within five (5) days thereafter,
deliver to Landlord revised Plans incorporating the revisions required by
Landlord.
2. Following the approval in writing by Landlord and Tenant of the
Plans, Landlord shall construct the tenant improvements contemplated hereby
(collectively, the "Leasehold Improvements"), in accordance with the Plans. The
cost of the Improvements for the purpose of billing shall equal the cost to
Landlord of designing and constructing such Improvements (including any
contractor's fee and the cost of supervision and coordination).
All costs and expenses incurred in the design and construction of the
Leasehold Improvements shall be borne by Tenant, including requirements under
the Americans with Disabilities Act of 1990 and the New Jersey Handicapped
Access Law (N.J.S.A. 52:32-4 et seq.) and the regulations promulgated thereunder
(and are hereinafter referred to as "Tenant's Costs"); provided, however, that
Tenant shall receive a tenant improvement allowance (the "Allowance") of up to
$4,815.00, to be credited against the billing costs of constructing all
Improvements in the Premises. Any excess ("Excess") of Tenant's Costs over the
Allowance shall be payable as follows:
(a) Tenant shall pay, within five(S) days from delivery of
Landlord's invoice to Tenant therefor, to Landlord prior to the commencement of
construction of the Improvements, an amount equal to fifty percent (50%) of such
Excess (as then estimated by Landlord);
(b) After substantial completion of the Improvements, but
prior to occupancy of the Premises by Tenant, Tenant shall pay to Landlord,
within five (5) days from delivery of Landlord's invoice to Tenant therefor, an
amount equal to eighty percent (80%) of the Excess as then estimated by
Landlord, less payments received by Landlord according to (a) above;
(c) As soon as the final accounting can be prepared and
submitted to Tenant, Tenant shall pay to Landlord, within five (5) days from
delivery of Landlord's invoice to Tenant therefor, the entire unpaid balance of
the actual Excess based on the final costs to Landlord as described in Paragraph
2 hereof.
The amounts payable hereunder shall constitute rent due pursuant to this Lease
at the times specified herein, and failure to make any such payments when due
shall constitute an event of default under this Lease, entitling Landlord to all
of its remedies hereunder as well as all remedies otherwise available to
Landlord.
3. If Tenant requests any changes in the Plans, Tenant shall present
Landlord with revised drawings and specifications for Landlord's approval, which
approval will not be unreasonably withheld. If Landlord approves such. changes,
Landlord shall incorporate such changes in the Improvements following Landlord's
receipt of a change order therefor executed by Tenant. Landlord, however, may
require, prior to proceeding with any changes, additional cash advances against
the Excess in the event Landlord determines that Tenant's proposed changes will
increase the amount of the Excess.
4. Should Landlord be delayed in substantially completing the work to
be performed hereunder as a result of (i) Tenant's failure to submit the Plans
to Landlord as provided in Paragraph 1 hereof or (ii) Tenant's requests for
changes in the Plans which delay said work or (iii) the performance of any work
contemplated herein by a contractor or agent employed by Tenant (any such
contractor or agent being subject to the prior 'written approval of Landlord) or
(iv) any other delay caused by Tenant, its agents or employees, then Tenant's
obligation to pay rent under the Lease shall nevertheless commence on the date
specified in Paragraph 1(d) of this Lease and the Commencement Date under this
Lease shall not be delayed, unless such delays for which Tenant is responsible
are in addition to delays for which Landlord is responsible, in which case the
Commencement date and rental commencement date under this Lease shall be
extended for the period of delays for which Landlord was responsible,
5. For the purposes of this Work Letter, the term "substantial
completion" of the Improvements or of the work of constructing such Improvements
shall mean completion of such Improvements in all material respects excepting
only minor finish and touch-up work which does not interfere with the occupancy
of the Premises by Tenant, as determined by the Architect, whose determination
shall be binding upon Landlord and Tenant. To the extent substantial completion
is delayed by any act or omission of Tenant or its employees, agents or
contractors, the date of substantial completion shall be the date determined by
Landlord's space planner or architect when substantial completion would have
been achieved if such Tenant delay had not taken place.
EXHIBIT D -- Page 1
<PAGE>
EXHIBIT E
PARKING AGREEMENT
1. During the initial term of this Lease, provided no event of default
has occurred under this Lease, Landlord agrees to make available to Tenant for
the use of its employees four (4) nonreserved parking spaces (the "Spaces")
located within the Building's parking lot.
2. The monthly parking charges for the Spaces will be $0.00 per Space
for the initial term of this Lease.
3. All motor vehicles (including all contents thereof) shall be parked
in the Spaces at the sole risk of Tenant, its employees, agents, invitees and
licensees, it being expressly agreed and understood that Landlord has no duty to
insure any of said motor vehicles (including the contents thereof), and that
Landlord is not responsible for the protection and security of such vehicles
from theft and/or malicious mischief or any other cause of damage, injury or
harm Landlord shall have no liability whatsoever for any property damage and/or
personal injury which might occur as a result of or in connection with tile
parking of said motor vehicles in any of the Spaces (unless arising out of
Landlord's gross negligence), and Tenant hereby agrees to indemnify, defend, and
hold Landlord harmless from and against any and all costs, claims, expenses,
and/or causes of action attributable to the negligence, acts or omissions of any
party whom Tenant permits to use any of the Spaces.
4. In its use of the Spaces, Tenant and any parry whom Tenant permits
to use any of the Spaces shall follow all of the rules of the Building
applicable thereto, as the same may be reasonably amended from time to time, and
any failure to do so shall constitute an event of default hereunder.
5. To ensure that only those parties leasing spaces are utilizing such
parking spaces, Tenant shall provide Landlord with a complete list of the names
of all of Tenant's employees, which list shall contain the corresponding license
plate numbers of those automobiles owned, leased or used by each of said
employees. Such list shall be updated by Tenant periodically, as necessary, and
shall contain a specific designation as to which automobiles are entitled to use
the Spaces. If an automobile not designated on the above list as being entitled
to use one of the Spaces is found parked in any of the Spaces, Landlord shall be
entitled and is hereby authorized to have said vehicles towed away, at Tenant's
sole risk and expense. Tenant hereby agrees to pay any such amount and Tenant's
failure to do so within ten (10) days from Landlord's demand therefor shall
additionally be deemed an event of default under this Lease, entitling Landlord
to all of its rights and remedies hereunder.
6. Landlord may use a controlled access system for the Building's
parking lot and shall have the right to modify any such system from time to
time.
EXHIBIT E -- Page 1
<PAGE>
EXHIBIT F
RENEWAL OPTION
Tenant shall have the right to renew the term of this Lease for one (1)
three (3)-year term upon prior written notice ("Tenant's Election Nonce )to
Landlord given not sooner than fifteen (15) months nor later than nine (9)
months prior to the expiration of the initial term of this Lease; provided that
at the time Tenant gives such notice to Landlord and for the remainder of the
initial term of this Lease (i) this Lease has not been assigned and Tenant
continues to occupy at least eighty percent (80%) of the Net Rentable Area of
the Premises and (ii) Tenant is not in default hereunder. During the renewal
term, the provisions of this Lease, as it may be amended in writing prior to the
date of the commencement of such renewal term shall continue in effect except
that Tenant shall occupy the Premises in its then "as is" condition and there
shall be no abatement of rent, nor shall there be credit or allowances given to
Tenant for improvements to the Premises and the Base Rental will be an amount
equal to whatever monthly rental (plus whatever periodic adjustments) Landlord
is then quoting to prospective tenants for new leases of comparable space in the
Building for a comparable term (as confirmed by written statement to Tenant by a
representative of Landlord), or if no comparable space exists in the Building,
then one hundred percent (100%) of the prevailing market rate of rent for
comparable space with comparable finish-out in comparable office buildings
within the township of Cherry Hill, New Jersey as of the expiration of the
initial Lease Term of this Lease (as confirmed by written statement to Tenant by
a representative of Landlord). It is understood and agreed that Tenant's
submittal of Tenant's Election Notice shall bind Tenant to a three (3)-year
extension of this Lease.
EXHIBIT F -- Page 1
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-64611 and 333-79165 of Total-Tel USA Communications, Inc. on Forms S-8 of our
report dated April 17, 2000 (April 25, 2000 as to Note 18), appearing in this
Annual Report on Form 10-K of Total-Tel USA Communications, Inc. for the year
ended January 31, 2000.
DELOITTE & TOUCHE LLP
New York, New York
April 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2000, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JANUARY 31, 2000 IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 4,374,479
<SECURITIES> 549,580
<RECEIVABLES> 25,489,717
<ALLOWANCES> 1,827,260
<INVENTORY> 0
<CURRENT-ASSETS> 31,151,547
<PP&E> 24,604,372
<DEPRECIATION> 11,287,717
<TOTAL-ASSETS> 45,184,122
<CURRENT-LIABILITIES> 29,929,448
<BONDS> 997,171
<COMMON> 474,466
0
0
<OTHER-SE> 13,532,505
<TOTAL-LIABILITY-AND-EQUITY> 45,184,122
<SALES> 139,760,497
<TOTAL-REVENUES> 139,760,497
<CGS> 112,794,378
<TOTAL-COSTS> 112,794,378
<OTHER-EXPENSES> 32,570,919
<LOSS-PROVISION> 1,074,916
<INTEREST-EXPENSE> 147,092
<INCOME-PRETAX> (6,679,716)
<INCOME-TAX> 2,703,618
<INCOME-CONTINUING> (9,414,202)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,414,202)
<EPS-BASIC> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
