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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1998.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to __________ Commission
file number 0-10560.
CTI Group (Holdings) Inc.
(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
2550 Eisenhower Avenue, Norristown, PA 19403 (Address
of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange
Common Stock, Par Value $.01 Per Share on which registered
None
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X .
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment of
this Form 10-KSB. X
The Issuer's revenues for its most recent fiscal year were $3,598,720.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of November 30, 1998 was $844,555.
The number of shares of common stock outstanding as of November 30, 1998 was
7,037,957.
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PART I
Item 1. Description of Business
A. Business Development
The Company was incorporated in Pennsylvania in 1968 and reincorporated
in the State of Delaware as of April 1, 1988, pursuant to a merger of the
Company into a wholly owned subsidiary formed as a Delaware corporation. In
November 1995, the Company changed its name to CTI Group (Holdings) Inc.
In 1995, the Company restructured into a holding company. In January
1995, the Company established a Delaware corporation, CTI Data Solutions (USA)
Inc. In May 1995, the Company established a UK-based company, CTI Data Solutions
(International) Ltd. In December 1995, the Company established a Delaware
corporation, CTI Delaware Holdings, Inc. In December 1996, the Company completed
acquisition of Soft-Com Inc., a New York corporation, which was re-established
as a Delaware corporation, CTI Soft-Com Inc. In February 1998, the Company
completed an acquisition of a UK-based company, the Databit Ltd., a subsidiary
of Siemens plc through its wholly-owned subsidiary CTI Data Solutions
(International) Ltd. Subsequent to the acquisition, the Company changed the name
of CTI Data Solutions (International) Ltd. to CTI Data Solutions Ltd. These
organizations are wholly owned subsidiaries of the Company.
CTI Data Solutions (USA) Inc. and CTI Soft-Com Inc. own all of the
tangible assets and liabilities of the Company's U.S. operations and perform all
of the necessary functions to conduct the Company's U.S. businesses. CTI Data
Solutions Ltd. owns all of the tangible assets and liabilities of the Company's
international operations and performs all of the necessary functions to conduct
the Company's international businesses. CTI Delaware Holdings, Inc. owns all of
the intangible assets of the Company. CTI Delaware Holdings, Inc. has research
and development royalty agreements between itself and its operating
subsidiaries: CTI Data Solutions (USA) Inc., CTI Data Solutions Ltd. and CTI
Soft-Com Inc. These agreements provide CTI Delaware Holdings, Inc. with
appropriate resources to develop the Company's proprietary software products
while allowing the Company's operating subsidiaries to market and use the
software products to conduct business in their respective market sectors.
The Company's executive offices are located at 2550 Eisenhower Avenue,
Norristown, Pennsylvania 19403. The Company's telephone number is
(610) 666-1700.
B. Business of Issuer
The Company designs, develops, markets and supports software and
services for managing telecommunications systems. The Company competes in
complementary market sectors: network management solutions for corporate users
of telecommunications services and billing solutions for providers of
telecommunications services. All of the Company's business relates to
information processing, specifically, the collection, formatting and processing
of electronic event records into data reporting instruments. The Company obtains
its revenue from service bureau operations, software licensing and software
maintenance agreements.
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Clients. Telemanagement products are marketed to organizations with
internal telecommunications systems supporting an aggregate of telephone, fax
and modem equipment. The Company's clients include Fortune 500 companies,
mid-size and small-cap companies, hospitals, universities and government
agencies (local, county, state and federal).
The Company's billing products are marketed to providers of
telecommunications services. Generally, clients are switched and switchless
resellers of long-distance (includes international) voice and data services, who
purchase services wholesale from IXCs (inter-exchange carriers) for resale to
business and residential end-users. The Company's billing products are also
available to wholesalers to bill their resellers. Since passage of the
Telecommunications Act of 1996, CLECs (competitive local exchange carriers),
ISPs (Internet service providers), cellular and PCS (personal communications
systems) companies, cable television operators, utility companies and
universities have become future candidates for the Company's billing products.
The Company is disposed to targeting all types of telecommunications service
providers pending advancement of technological capabilities by its own
development efforts, by partnering with companies offering complementary
technology and through acquisitions. The Company works toward the capability to
retrieve and process all forms of billable electronic event records.
Revenue Generation. The Company generates revenue through service
bureau contracts, software licensing agreements and maintenance agreements
supporting licensed software. Maintenance agreements are either on a time and
material basis or full service agreements which are generally for periods of 12
months. The Company also generates revenue from invoice printing and mailing
services which it subcontracts to third-party vendors.
For software licensing agreements on a direct distribution basis,
payment terms are 50% deposit upon receipt of order and 50% balance upon
installation which is normally completed within 60 days. Occasionally, larger
software orders may require up to six months to complete custom software
development and installation. For software licensing via distributor channels,
payment terms are net 30 days.
Service bureau contracts provide monthly recurring revenue. Generally,
contracts of 12 to 36 months carry automatic 12-month renewals until canceled.
The Company purchases data collection devices specifically designed for
use with telecommunications switches and other hardware such as modems as are
necessary to perform its business. The Company rents or resells such equipment
to end-users.
Sales Channels. All sales for billing software and services are Company
direct. Telemanagement product sales use direct and distributor sales channels.
Telecommunications Data Processing. The Company processes event records
generated by telecommunications switching vehicles that, to date, include
telephone PBX (private branch exchange) and CENTREX (central office exchange)
equipment. The Company anticipates processing records from computer-telephone
LAN servers and other electronic event systems such as utility metering systems
and cable television head-end controllers.
The event records, processed by the Company, detail billable activity:
e.g., call origin and destination numbers, date and time stamping, call
duration, etc. The records are processed against pricing algorithms and other
tables to derive data necessary to support a provider's need to invoice
customers or a volume-user's need to track telecommunications activity.
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Outputs from the Company's software and services are various summary
and detail reports and statements which are generally provided as hard copy
printouts. Outputs are also available for viewing on computer monitors and are
transportable via modem, magnetic media (e.g. tapes, disks, CD-ROMs) and e-mail.
Data Collection. Event records are collected and stored in real-time by
solid-state devices specifically designed for use with telecommunications
switches, or by computer memory. Data is obtained for processing by polling the
storage devices, by reading the data from a magnetic media prepared by the
client or the client's service provider, or by e-mail.
Billing Products: General. The Company's billing products support
telecommunications providers' needs to invoice customers. Software and services
are designed to collect and process data describing accounts receivable; to
generate and deliver invoices; to support a customer service call center; and,
to interface with other operational support systems (OSS). The billing products
are mission-critical to providers insomuch as they affect cash flow, customer
service and capabilities to define, design, package and market competitive
services. Billing products are presently provided on a service bureau basis
exclusively; however, the Company does consider proposals for restricted object
code/source code licensing that the Company assesses to be non-competitive to
its billing business.
Service bureau billing solutions require a "front-end" software to be
licensed by the client. The client uses the software to maintain a customer
database and to fulfill needs to maintain customer profiles; to define services,
packaging and pricing plans; to operate a customer service call center; and to
control all parameters for the invoice processing performed by the Company.
Invoices are generated at the Company's service bureau by processing extracts
from the client's customer database against customers' call/event records. After
processing a client's data and creating invoice image files, the Company
outsources most invoice printing and mailing to mail houses. Invoice data is
returned to the client for updating the customer database.
Windows OS Platform. The Company began delivery of its new NEPTUNE
Billing and Customer Care System for the telecommunications billing market
sector during the year ended March 31, 1997. Nine clients have implemented the
Company's NEPTUNE services. All contracts are with providers of telephony
services.
NEPTUNE, written in Visual C++, is designed to operate on
Windows-based LAN and PC platforms and, with additional programming, for
coexistence with DOS mainframe computers and competing client/server systems
such as Unix and Novell NetWare. Initial product implementation supports
wireline telephony billing applications. With continuing product development
and/or integration with third-party complementary-technology systems, NEPTUNE's
open system design is intended to be capable of billing for convergent cellular,
PCS and cable television services, and of integrating other operational support
functions such as service provisioning and trouble/repair tracking into a
single, coherent system.
NEPTUNE is currently marketed as a service bureau product. The Company
considers proposals for restricted object code/source code licensing that the
Company assesses to be non-competitive to its billing business. The Company
anticipates at some future time the packaging and marketing of NEPTUNE as a
licensed software product to complement its billing service bureau product.
Should the Company license NEPTUNE as a complete billing software package, the
product would include a pricing module and invoice/statement generation module
in addition to database management/reporting software already licensed to
service bureau clients.
DOS Platform. For the year ended March 31, 1998, seven billing clients
representing approximately 35 reseller sites remained under contract for the
Company's legacy Billing Systems. The legacy systems employ DOS mainframe
processing to generate invoices and require users to license a proprietary
PC-based customer database software.
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The Company anticipates migrating these legacy clients to the Company's
service bureau processing platform or year 2000 compliant platform. Such
migration will be affected by the complexity of each client's billing
applications, resources available to the Company without impacting new business,
and a client's urgency to migrate. The Company expects to complete migration
prior to December 31, 1999.
Telemanagement Products: General. Telemanagement products are used by
companies, institutions and government agencies for fiscal or legal purposes to
track telecommunications activity and to control costs associated with operating
telecommunications networks. They perform functions of call recording, call
accounting, cost allocation, client bill-back, analyses of trunk traffic and
calling patterns, toll fraud detection, directory services and integration with
other PBX peripheral products. (See "Telecommunications Data Processing" and
"Data Collection.")
The Company's CTI Data Solutions Ltd. subsidiary has introduced a new
telemanagement function, carrier cost comparisons, which seizes upon the
competition among carriers due to deregulating telecommunications markets. This
new function allows a corporate telecom manager to compare performance and cost
benefits of different carriers using the actual call data and unique calling
patterns of their organization. The benefits to the telecom manager are new
capabilities to select carrier services precisely to need and at minimal costs.
The availability of Internet access to employees via corporate networks
introduces new areas of fiscal and legal concern for telecommunications managers
such that the Company anticipates new telemanagement applications for usage
tracking and cost allocation of Internet activity over its clients' networks.
With the acquisition of Soft-Com Inc., now "CTI Soft-Com Inc.," in
December 1996, and Databit Ltd., now CTI Data Solutions Ltd., in February 1998,
the Company's installed customer base increased substantially to over 13,500
systems total. Moreover, the acquisitions accelerated the Company's initiatives
to build its critical mass, to strengthen its product portfolio with
state-of-the-art Windows OS products, to expand sales distribution channels and
to market products internationally.
TMS Service Bureau. The Company's TMS (Telephone Management System)
Service Bureau processes clients' telecommunications data into management
reports on a monthly basis. The Company's service bureau account managers
oversee processing schedules, collection of data to be processed, quality
control and shipments of deliverables. Account managers work with clients as
necessary to help interpret reports, answer questions about telecommunications
systems and providers, and make recommendations when improvements to clients'
systems are sought. Clients achieve the intended purposes of routine
telemanagement tasks with minimal responsibilities.
Windows OS Software Systems. The Company licenses software products to
clients who prefer and have the personnel resources to operate and maintain a
call accounting or telemanagement system in-house. Such clients have advantages
of near-real-time call record processing, ad hoc system queries and on-demand
management reporting in addition to routine, end-of-month telemanagement
reports. However, clients assume all responsibilities for collecting, storing
and interpreting data. Clients are supported by the Company with routine updates
of time-sensitive tariff files and V&H coordinate files which correlate area and
exchange codes to city, state and country locations.
The Company's current portfolio of Windows OS telemanagement products
by its subsidiaries includes "UNITY" (CTI Soft-Com Inc.) and Cpro and C6win (CTI
Data Solutions Ltd.).
All Windows OS products apply state-of-the-art technology to upgrade
and expand traditional call accounting and telemanagement market applications.
New Windows platform features for example include: call accounting report
distribution via e-mail; CDR (call detail record) polling via Internet,
Intranets or WANs; TAPI (telephony applications programming interface) dialer
which facilitates point-and-click dialing
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from database-resident corporate and local directories; and 911 notification
which allows organizations to assign any number of Windows-based PCs on their
corporate LAN with an immediate screen-pop notification when a 911 call is made
(the screen-pop pinpoints the caller's exact location within the building).
MS-DOS Software Systems. For the year ended March 31, 1998, most
installations of the Company's telemanagement software base remained under
license agreements for the Company's older call accounting and telemanagement
products designed for PCs and LANs using MS-DOS. In the U.S., DOS products
include: ITMS/III (Interactive Telecommunications Management System, Version 3),
CMS (Call Management System), SCOUT Call Accounting System, and COMMANDER
Telemanagement System. Internationally, DOS products include CLAIREPRO and
CLAIRE 6 Call Management Systems. The Company anticipates substantial
repeat-sales opportunities over the next several years as it seeks to upgrade
this telemanagement software base to its new Windows OS products.
Interactive Service Bureau. The Company has deployed on a Ltd. basis
hybrid systems which combine the most desirable benefits of service bureau
outsourcing and in-house telemanagement. Under Interactive Service Bureau
agreements, clients' routine telemanagement processing and monthly reporting are
performed by the Company's service bureau while an on-site terminal facilitates
add system queries and reporting.
Toll-Fraud Monitoring Service. The Company provides a service for
24-hour alarm monitoring of toll-fraud detection equipment. All call accounting
clients are offered the option of toll-fraud protection. Detection equipment is
purchased by the Company and resold or rented to clients. (A majority of clients
elect to assume responsibility for monitoring and responding to alarms in lieu
of the Company's service.)
Employees. As of March 31, 1998, the Company employed 90 people on a
full-time basis, of whom three persons were executive officers and the balance
were engaged in development, installation and servicing of software, data
processing, customer service, sales and marketing, and general administrative
services.
Patents. The Company has not applied for patent protection with respect
to any of its software programs or other technology that it deems proprietary.
Management believes that available patent protection would not afford the
Company significant protection against competitors' development of infringing
software or other technology. The Company seeks to protect the confidentiality
of its proprietary software and other technology through non-disclosure
agreements with its employees, clients and prospective clients.
Trademarks. During the year ended March 31, 1997, a trademark
registration was issued for the Company's CTI1 logo. The Company owns no other
trademarks and does not have any trademark applications pending.
Environment. The Company does not anticipate that compliance with
federal, state or local environmental regulations will have any material effect
on its capital expenditures, operating results or competitive position, or that
it will be required to make any material capital expenditures for environmental
protection in the current fiscal year.
Competition: Billing Sector. Aside from highly-capitalized subsidiaries
of major telecommunications companies, led by Cincinnati Bell Information
Systems (CBIS), and large multi-industry information processing companies, such
as Electronic Data Systems (EDS), the third-party telecommunications billing
marketplace is fragmented with fractional shares distributed among many
competitors. Deregulation of the telecommunications industry and the advent of
convergence, which is the delivery of multiple telecommunications services from
a single provider, casts such new and urgent importance to upgrading
mission-critical billing systems that the sector is attracting substantial
attention and investment. As convergence evolves, major billing companies can be
expected to compete increasingly in fewer, broader arenas with a complete
portfolio of convergent billing solutions. Deregulation is also inviting
substantial new entrepreneurial enterprise for niche providers, which
consequently can sustain a lucrative market for billing companies with partial
convergence capabilities.
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There are an increasing number of competitors with billing experience
who offer or are positioning to offer convergent billing solutions. Other
competitors are attempting to enter the market or expand from niche market
positions. While projections for growth in telecommunications billing are
robust, the market can be expected to become increasingly competitive.
Telemanagement Sector. Telemanagement market opportunities are strong
for Windows-based products since telecommunications software has trailed other
PC software in migrating to true Windows platforms. Many DOS and Unix systems at
corporations, hospitals, universities and government agencies are ripe for
replacement. Furthermore, these systems must be upgraded for year 2000
compliancy, which should move most organizations to replace them with
state-of-the-art Windows technology rather than absorb inescapable programming
costs.
Of the competitive Windows-based telemanagement systems on the market
today, the Company believes most to be direct functional translations of older
DOS products and lack many of its product's new features and functionality. The
telemanagement market is highly competitive and competition is expected to
remain strong for the foreseeable future.
Year 2000 Compliance Issues: See Note 11 of the consolidated financial
statements.
Item 2. Description of Properties
The Company entered into an operating lease for its office facilities
for its prior corporate headquarters in September 1992. The Company leased
12,000 square feet of a 15,000 square foot facility. The term of the agreement
was for ten years commencing on January 1, 1993, and ending on December 31,
2002. Annual rent of $72,000, payable in equal monthly installments, commenced
on July 1, 1993. Annual rent increases became effective on the anniversary of
the initial rent payment as provided for in the lease.
The Company negotiated an early termination of its lease during the
fiscal year ended March 31, 1998, such that this lease terminated on July 31,
1998.
The Company entered into a new operating lease for its corporate
headquarters in July 1998. The Company is now leasing a 5,082 square foot
facility. The term of the lease is for 5 1/2 years which commenced on July 25,
1998, and will end on December 2003. Annual rent of $43,200 in equal monthly
installments commenced as of August 1, 1998. Annual rent increases become
effective on the anniversary of the initial rent payment as provided for in the
lease.
The Company's subsidiary, CTI Data Solutions Ltd., leases office space
at 854 Brighton Road, Purley, Surrey, UK. The Company is currently negotiating a
new lease for this space. At present, the annual rent is approximately $124,700.
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Item 3. Legal Proceedings
In September 1990, the Company, through the loss adjusting service of
its former general liability insurance carrier, was advised of five Summons and
Complaints filed in the Superior Court of Bergen County, New Jersey. The suit
was filed on behalf of the Estates of five deceased plaintiffs who alleged that
the failure of communications equipment used by the Hackensack Fire Department,
and allegedly maintained by a subsidiary of the Company, impaired rescue
operations while fighting a fire in Hackensack, New Jersey. Currently,
plaintiffs' allegations have not supported the claim that the Company's
subsidiary, who is the named insured under an insurance policy, was involved in
the maintenance of the communication equipment in question. the above
During the fiscal year ended March 31, 1997, three of the cases were
settled. The Company's share of the settlements totaled $17,000. The Company's
former general liability insurance carrier will bear the cost of these
settlements. Discovery is proceeding on the remaining two cases; however,
further settlement discussions are to be held with the remaining claimants. As a
result of these settlements, and after consulting with the Company's counsel and
liability insurance carrier, it is the opinion of management that the final
outcome of the above matter will not have a material effect, if any, on the
financial statements of the Company.
On August 11, 1997, John Perri, the former President of the Company's
CTI Soft-Com Inc. subsidiary and Soft-Com Inc., filed suit in the United States
District Court for the Eastern District of Pennsylvania against the Company, CTI
Data Solutions (USA), Inc., Anthony P. Johns and Mark Daugherty, in connection
with the Company's termination of Mr. Perri's employment on July 28, 1997, and
the Company's acquisition of Soft-Com Inc. in January 1997. On November 11,
1997, the parties to this litigation entered into a settlement agreement
pursuant to which, among other things: (i) no party admitted liability to
another party; (ii) the Company agreed to pay an aggregate of $100,000 payable
in monthly installments of $5,000 and issue options to purchase 100,000 shares
of common stock of the Company to Mr. Perri to resolve the litigation and buy
out the remainder of Perri's employment contract. The options issued as part of
this settlement were in substitution for the options granted under his
employment agreement; (iii) Perri filed a stipulation terminating the litigation
with prejudice; and, (iv) the parties released each other from any further
liability
On March 11, 1998, Colmen Capital Advisors, Inc. ("Colmen"), the
Company's former financial advisors, filed suit in the Court of Common Pleas,
Montgomery County, Pennsylvania against the Company for breach of contract. This
is an action seeking damages of in excess of $80,000 and the grant of an option
for 100,000 shares of stock. Colmen's complaint seeks to recover a "success fee"
to which it claims entitlement as investment advisor to the Company pursuant to
a contract dated August 8, 1997. That contract entitled Colmen to a success fee
of 4% of new financing secured and an option for 100,000 shares of stock if
Colmen presented a financing proposal accepted by the Company and new financing
was obtained relating to the acquisition of Databit Ltd., a subsidiary of
Siemens plc. This acquisition eventually was closed by the Company itself on the
basis of seller financing which was subsequently renegotiated in which Colmen
played no role. The Company paid Colmen the advisory fee called for under the
contract and Colmen was reimbursed for all out-of-pocket expenses. Nevertheless,
Colmen has sued the Company for the success fee.
The Company has filed Preliminary Objections to Colmen's complaint
seeking that it be dismissed on the basis that the language of the contract,
drafted by Colmen, provides for payment of the success fee only if Colmen was
responsible for procuring financing for the acquisition. Colmen has responded to
the Preliminary Objections by arguing that the Company did not cancel the
contract prior to the acquisition and that the contract entitled Colmen to the
success fee as long as any financing is obtained from any source during the
pendency of the contract.
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The Company intends to vigorously contest this action and believes it
has meritorious defense to Colmen's claims.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
A. The shares of the Company's Common Stock are traded on the OTC
Bulletin Board (Symbol "CTIG"). Prior to January 4, 1996, the Company's common
stock had been trading on the OTC Bulletin Board under the symbol "CMMG". The
table below sets forth for the indicated periods the bid price ranges for the
common stock as furnished by the National Daily Quotation Bureau. These prices
representing prices between dealers, do not include retail markups, markdowns or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Quarterly Common Stock Price Ranges
(for the fiscal year ended March 31,)
1998 1997
---- ----
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter $ .44 $.19 $ 1.06 $.50
2nd Quarter $ .63 $.20 $ .63 $.19
3rd Quarter $ .56 $.25 $ .47 $.25
4th Quarter $ .50 $.25 $ .50 $.19
</TABLE>
B. At November 30, 1998, the bid and ask price for such shares was
$.12.
C. At November 30, 1998, the number of shareholders of record of Common
Stock approximated 490.
D. No dividends were paid in the fiscal years ended March 31, 1998 and
1997.
The Company's ability to predict projected results or the effect of
certain events on the Company's operating results is inherently uncertain.
Therefore, the Company wishes to caution each reader of this report to carefully
consider the following factors, any or all of which have in the past and could
in the future affect the ability of the Company to achieve its anticipated
results and could cause actual results to differ materially than those discussed
herein: ability to attract and retain customers to purchase its products,
ability to commercialize and market products, results of research and
development, technological advances by third parties and competition, future
capital needs of the Company, history of operating losses, dependence upon key
personnel and general economic and business conditions.
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Item 6. Management's Discussion and Analysis or Plan of Operation
Cautionary Statement Regarding Forward-Looking Statements
This report contains "forward-looking" statements. The Company is
including this statement for the express purpose of availing itself of
protections of the safe harbor provided by the Private Securities Litigation
Reform Act of 1995 with respect to all such forward-looking statements. Examples
of forward-looking statements include, but are not Ltd. to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital structure
and other financial matters; (b) statements of plans and objectives of the
Company or its management or Board of Directors; (c) statements of future
economic performance; (d) statements of assumptions underlying other statements
and statements about the Company and its business relating to the future; and
(e) any statements using the words "anticipate", "expect", "may", "project",
"intend" or similar expressions.
Results of Operations
Revenues from operations increased $375,430 (12%) for the fiscal year
ended March 31, 1998, as compared to the prior year period. The increase was
due, in part, to the acquisition of Databit Ltd. as of February 2, 1998 through
the Company's wholly-owned subsidiary CTI Data Solutions Ltd. Since its
acquisition, the newly acquired business generated $902,670 in sales for the
fiscal year ended March 31, 1998.
Sales associated with the Company's telemanagement service bureau
products decreased $360,190 (24%) for the fiscal year ended March 31, 1998, as
compared to the prior year period. The reduction was the result of a couple of
our larger customers terminating during the fiscal year ended March 31, 1998.
Sales associated with the Company's billing products decreased $513,340
(44%) for the fiscal year ended March 31, 1998. The reduction was the result of
a major customer termination effective as of September 1996. This customer
accounted for sales of $578,880 for the fiscal year ended March 31, 1997 and
none during the fiscal year ended March 31, 1998.
Sales associated with the Company's telemanagement licensed software
products increased $1,248,960 (218%) of which $902,670 was the result of the
Databit Ltd. acquisition. The Company's US based sales of telemanagement
licensed software products increased $346,290 (60%) for the fiscal year ended
March 31, 1998, as compared to the prior year period. This increase was the
result of a full year of operations of the Company's subsidiary, CTI Soft-Com
Inc. combined with the full release of its Windows based Unity software product.
Cost of sales were 56% of sales in 1998 and 43% of sales in 1997. Cost
of sales increased $644,880 (47%) for the fiscal year ended March 31, 1998, as
compared to the prior year period. The increase was primarily due to the
combination of operating CTI Soft-Com Inc. for a full year vs. three months in
the previous year and the costs incurred in operating CTI Data Solutions Ltd.
since the date of acquisition. The cost of sales for CTI Soft-Com Inc. increased
$144,320 for the fiscal year ended March 31, 1998, as compared to the prior
year. The cost of sales for CTI Data Solutions Ltd. was $464,046 since the date
of acquisition.
Selling, general and administrative ("SG&A") expenses were 68% of sales
in 1998 and 55% of sales in 1997. The increase was primarily the direct result
of operating CTI Data Solutions Ltd. since the date of acquisition, whose SG&A
expense totaled $699,882. SG&A expenses for the Company's US based operations
decreased $224,522 (13%) despite operating CTI Soft-Com Inc. for a full year
ended March 31, 1998 vs. a three month period in the year ended March 31, 1997.
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Depreciation and amortization expenses increased $473,789 (193%) for
the fiscal year ended March 31, 1998 as compared to the prior year period. This
increase is the result of the Company continuing to amortize its new Windows
based software products, plus amortization of software acquired with Databit
Ltd. which amounted to $65,752.
Bad debt expense increased by $133,200 (972%) primarily as a result of
invoices billed from the CTI Soft-Com Inc. subsidiary prior to the termination
of employment of that company's president on July 28, 1997. These invoices for
maintenance services were not supported by a customer purchase order and
subsequently had to be written off.
Other expenses of $107,070 are primarily the result of the litigation
settlement between John Perri and the Company. This settlement involves a
non-interest bearing promissory note of $100,000 discounted at 11%. The note is
payable at $5,000 per month until paid in full.
Other income of $102,080 consists of 1) $17,920 of debt which was
assumed by North American Venture Capital Fund in October, 1997; 2) $74,970
reduction in rent accruals resulting from the Company's renegotiation of its
lease term; and, 3) $9,190 of miscellaneous income.
Liquidity and Capital Resources: Working capital was a deficit of
$1,340,890 and $377,750 at March 31, 1998 and 1997, respectively. The working
capital ratio decreased to .61 to 1 at March 31, 1998 and from .70 to 1 at March
31, 1997. The 1998 decrease in working capital was partly due to the acquisition
of Databit Ltd. Also, the Company's working capital was negatively impacted due
to the losses incurred in its US based operations. The Company has a line of
credit with its bank in the amount of $200,000, which was fully utilized at
March 31, 1998. The bank has extended the maturity for this line of credit to
September 30, 1998, and has granted a further extension for the line to
September 30, 1999. Management believes that actions presently being considered
to revise the Company's operating and financial requirements provide an
opportunity for the Company to continue. These actions include restructuring the
business to eliminate some overhead expenditures, selective marketing efforts,
consolidation of the product line, potential for private placement financing,
seeking invoice financing for CTI Data Solutions Ltd., and the pursuit of joint
venture partnerships / source code transactions.
Item 7. Financial Statements
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors F - 1
Consolidated Balance Sheets at March 31, 1998 and 1997 F - 2
Consolidated Statements of Operations for the
years ended March 31, 1998 and 1997 F - 4
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
ended March 31, 1998 and 1997 F - 5
Consolidated Statements of Cash Flows for the
years ended March 31, 1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 8
</TABLE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
11
<PAGE>
[Letterhead]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
CTI Group (Holdings), Inc.
Norristown, Pennsylvania
We have audited the accompanying consolidated balance sheets of CTI GROUP
(HOLDINGS), INC. AND SUBSIDIARIES as of March 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CTI GROUP (HOLDINGS), INC. AND SUBSIDIARIES as of March 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed more fully in Note 4D, the Company has a deficiency in working
capital of $1,340,890 at March 31, 1998, and a net loss of $1,727,821 for the
year ended March 31, 1998. Management plans to improve the Company's operating
performance and financial condition, as also discussed in Note 4D.
/s/ ZELENKOFSKE AXELROD AND CO., CPA'S INC.
-------------------------------------------
ZELENKOFSKE AXELROD AND CO., CPA'S INC.
Jenkintown, Pennsylvania
July 29, 1998, except for
Note 3 as to which the
date is November 13, 1998
F-1
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-------------------------
1998 1997
ASSETS
-------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 628,329 $ 105,700
Receivables:
Trade, less allowance for doubtful
accounts of $281,399 and $65,000 at
March 31, 1998 and 1997, respectively 1,239,353 649,250
Inventories 48,674 42,360
Prepaid expenses 145,894 76,430
--------------------------
Total current assets 2,062,250 873,740
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $314,540
and $431,830 at March 31, 1998 and 1997,
respectively 405,135 210,530
Computer software licensed to customers,
net of accumulated amortization of $1,885,961
and $1,328,930 at March 31, 1998 and 1997,
respectively 2,080,811 1,579,330
Excess of cost over net assets of acquired
business, net of accumulated amortization of
$6,660 and $2,200 at March 31, 1998 and 1997,
respectively 37,905 42,360
Other assets 16,812 49,810
Deferred tax asset 76,500 --
--------------------------
$4,679,413 $2,755,770
--------------------------
--------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-2
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 293,820 $ 57,360
Accounts payable 779,336 519,750
Accrued commissions and other compensation 25,323 24,990
Other accrued expenses 1,232,645 283,510
Deferred revenue 1,072,016 365,880
-----------------------------------
Total current liabilities 3,403,140 1,251,490
-----------------------------------
Long-term debt, less current portion 1,267,743 25,280
-----------------------------------
Commitments and
contingencies
Stockholders' equity:
Common stock, par value $.01; 10,000,000 shares
authorized; 6,989,681 issued at March 31, 1998
and 6,530,564 shares issued at March 31, 1997 69,900 65,310
Capital in excess of par value 8,028,230 7,769,180
Accumulated deficit (7,670,841) (5,943,020)
-----------------------------------
427,289 1,891,470
Equity adjustment from foreign currency
translation (12,359) (6,070)
Less - Treasury stock, 140,250 shares at
March 31, 1998 and 1997, at cost (406,400) (406,400)
-----------------------------------
Total stockholders' equity 8,530 1,479,000
-----------------------------------
$4,679,413 $2,755,770
-----------------------------------
-----------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 31,
------------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Net sales $ 3,598,720 $ 3,223,290
-----------------------------------
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 2,028,950 1,384,070
Selling, general and administrative expenses 2,459,722 1,773,470
Bad debt expense 146,900 13,700
Depreciation and amortization 719,589 245,800
-----------------------------------
5,355,161 3,417,040
-----------------------------------
Loss from operations before other income
(expenses) and provision for income
taxes (benefits) (1,756,441) (193,750)
Other income (expenses)
Interest expense (76,425) (5,440)
Other, net 28,545 6,480
-----------------------------------
Loss before provision for income taxes (benefit) (1,804,321) (192,710)
Provision for income taxes (benefits) (76,500) 4,800
-----------------------------------
Net loss $(1,727,821) $ (197,510)
-----------------------------------
-----------------------------------
Net loss per common share $ (0.27) $ (0.04)
-----------------------------------
-----------------------------------
Weighted average common shares outstanding 6,479,341 5,641,765
-----------------------------------
-----------------------------------
</TABLE>
F-4
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
adjustment
Common Stock Total in from foreign
------------------- excess of Accumulated Treasury currency
Shares Par value par value deficit Stock translation Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1996 5,522,006 $ 55,220 $7,214,730 $(5,745,510) $(406,400) (4,850) $1,113,190
Employee stock awards 139,708 1,400 26,540 27,940
Exercise of stock option 50,000 500 9,500 10,000
Issuance of stock and stock
options in connection with
acquisition 818,850 8,190 461,370 469,560
Issuance of employee stock
options 50,220 50,220
Issuance of directors' stock
options 6,820 6,820
Equity adjustment from
foreign currency translation (1,220) (1,220)
Net loss year ended March 31,
1997 (197,510) (197,510)
- --------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1997 6,530,564 65,310 7,769,180 (5,943,020) (406,400) (6,070) 1,479,000
Stock issued in connection
with raising capital 165,000 1,650 53,980 55,630
Stock issued to directors for
payment of directors' fees 47,059 470 15,530 16,000
Stock issued to employees for
payment of deferred wages 247,058 2,470 81,530 84,000
Issuance of employee
stock options 91,930 91,930
Issuance of stock options
in connection with
litigation settlement 16,080 16,080
Equity adjustment from foreign
currency translation (6,289) (6,289)
Net loss year ended
March 31, 1998 (1,727,821) (1,727,821)
- --------------------------------------------------------------------------------------------------------------------------
Balances at March 31,1998 6,989,681 $69,900 $8,028,230 $(7,670,841) $(406,400) $(12,359) $ 8,530
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31,
---------------------------
1998 1997
---------------------------
<S> <C> <C>
Cash Provided By:
Operating Activities:
Net Loss $ (1,727,821) $(197,510)
Adjustments to reconcile net loss to net cash provided by
(used in)
operations:
Depreciation and amortization 719,589 245,800
Gain on sale of assets ----- (320)
Provision for doubtful accounts 216,399 (25,000)
Employee stock award ----- 35,100
Issuance of stock options in connection with litigation
settlement 16,080 -----
Issuance of stock in payment of deferred compensation 84,000 -----
Issuance of stock in connection with raising capital 55,630 -----
Issuance of stock for payment of directors' fees 16,000 -----
Issuance of employee stock options 91,930 57,040
Exercise of stock options ----- 10,000
Deferred taxes (76,500) -----
Changes in operating assets and liabilities:
Decrease in receivable, trade 330,348 372,450
Increase in inventories (4,664) (18,240)
Increase in prepaid expenses (18,314) (45,080)
Decrease in accounts payable (227,163) (67,030)
Increase (decrease) in accrued commissions and other
compensation 333 (27,610)
Increase in other accrued expenses 678,535 39,540
Increase (decrease) in deferred revenue (170,014) 16,860
----------------------------
Total operating activities (15,632) 396,000
----------------------------
Investing Activities:
Decrease (increase) in other assets 32,998 (6,400)
Additions to equipment and leasehold improvements (54,048) (38,270)
Additions to computer software (58,527) (505,160)
Sale of equipment ----- 12,020
Acquisition of businesses 404,228 (31,430)
----------------------------
Total investing activities 324,651 (569,240)
----------------------------
</TABLE>
F-6
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended March 31,
1998 1997
---------------------------
<S> <C> <C>
Financing Activities:
Repayment of debt (86,718) (33,710)
Proceeds from borrowings 299,802 25,000
---------------------------
Total financing activities 213,084 (8,710)
---------------------------
Effect of exchange rate changes on cash 526 (1,220)
---------------------------
Increase (decrease) in cash and cash equivalents 522,629 (183,170)
Cash and cash equivalents, at beginning of year 105,700 288,870
Cash and cash equivalents, at end of year $ 628,329 $ 105,700
---------------------------
---------------------------
Supplemental disclosures:
Cash paid during the year for:
Interest $ 17,495 $ 6,040
------------ ----------
------------ ----------
Income taxes $ ----- $ 770
------------ ----------
------------ ----------
Non-cash investing and financing activities:
Acquisition of businesses
Working capital other than cash $ 443,850 $ 98,010
Equipment and leasehold Improvements (268,950) (5,170)
Capitalized software at appraised value (1,017,923) (556,000)
Intangibles and other assets ----- (58,590)
Long-term debt 1,247,251 27,920
Stock and stock options issued ----- 462,400
---------------------------
Cash generated (paid) to acquire businesses $ 404,228 $ (31,430)
---------------------------
---------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-7
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: In 1995 the Company restructured into a holding company. In January
1995, the Company established a Delaware corporation, CTI Data Solutions (USA)
Inc. In May 1995, the Company established a UK-based company, CTI Data Solutions
(International) Ltd. In December 1995, the Company established a Delaware
corporation, CTI Delaware Holdings, Inc. In December 1996, the Company completed
acquisition of Soft-Com Inc., a New York corporation, which was re-established
as a Delaware corporation, CTI Soft-Com Inc. As discussed in Note 10, in
February 1998, the Company completed an acquisition of a UK-based company, the
Databit Ltd. a subsidiary of Siemens plc through its wholly-owned subsidiary CTI
Data Solutions (International) Ltd. Subsequent to the acquisition, the Company
changed the name of CTI Data Solutions (International) Ltd to CTI Data Solutions
Ltd. These organizations are wholly-owned subsidiaries of the Company.
CTI Data Solutions (USA) Inc. and CTI Soft-Com Inc. own all of the tangible
assets and liabilities of the Company's U.S. operations and perform all of the
necessary functions to conduct the Company's U.S. businesses. CTI Data Solutions
Ltd. owns all of the tangible assets and liabilities of the Company's U.K.
operations and performs all of the necessary functions to conduct the Company's
international businesses. CTI Delaware Holdings, Inc. owns all of the intangible
assets of the Company. CTI Delaware Holdings, Inc. has research and development
royalty agreements between itself and its operating subsidiaries: CTI Data
Solutions (USA) Inc., CTI Data Solutions Ltd. and CTI Soft-Com Inc. These
agreements provide CTI Delaware Holdings, Inc. with appropriate resources to
develop the Company's proprietary software products while allowing its operating
subsidiaries to market and use the software products to conduct business in
their respective market sectors.
The Company is engaged in the sale of telephone management software and services
designed to assist customers in the management and control of their business
telephone costs. The Company provides telephone call accounting services on a
contractual service bureau basis, as well as the licensing of software whereby
customers may perform these functions on site using personal and mini computers.
The Company also services the billing and telecommunication needs of shared
tenant service providers and telephone long distance resellers, who provide
centralized sale and service of telecommunication products and networks to
customers. This service is available on both a service bureau basis and on the
Company's licensed software for in-house applications. The Company grants credit
to its service bureau and licensed software end users, the majority of which are
located throughout the continental United States.
The following is a summary of significant accounting policies utilized by the
Company:
CONSOLIDATION POLICY: The consolidated financial statements include the accounts
of CTI Group (Holdings) Inc. and its domestic and foreign subsidiaries, all of
which are wholly-owned (collectively referred to as the "Company"). As of March
31, 1998, the Company's subsidiaries were: CTI Data Solutions (USA) Inc., CTI
Soft-Com Inc., CTI Data Solutions Ltd, CTI Delaware Holdings, Inc., Telephone
Budgeting Systems, Inc. and Plymouth Communications Inc. All material
inter-company accounts and transactions have been eliminated in consolidation.
CURRENCY TRANSLATION: The financial statements of CTI Data Solutions Ltd., a UK
based wholly-owned subsidiary, have been included in the consolidated financial
statements and have been translated to U.S. dollars in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Assets and liabilities are translated at current rates in effect
at the consolidated balance sheet date and stockholders' equity is translated at
historical exchange rates. Revenue and expenses are translated at the average
exchange rate for the applicable period. Any resulting translation adjustments
are made directly to a separate component of stockholders' equity.
F-8
<PAGE>
CASH EQUIVALENTS: The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash equivalents.
USE OF ESTIMATES: The preparation of the financial statements in conformity with
the accounting and reporting practices prescribed by generally accepted
accounting principles, requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
INVENTORIES: Inventories consisting of equipment purchased for resale, are
stated at the lower of cost or market with cost determined on the first-in,
first-out (FIFO) method.
FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS: Furniture, fixtures,
equipment and leasehold improvements are stated at cost. Depreciation and
amortization are calculated on a straight-line basis over the estimated useful
lives of the assets ranging from 3 to 5 years.
COMPUTER SOFTWARE: Expenditures for producing product masters incurred
subsequent to establishing technological feasibility are capitalized and are
amortized on a product-by-product basis. The amortization is computed using the
straight-line method over the remaining estimated economic life of the product.
The unamortized capitalized costs are compared annually to estimated net
realizable value of the related product based upon independent appraisals.
Because of competitive factors, and the inherent tendency in the software
industry toward rapid obsolescence, the estimated value of the Company's
software is subject to material revision in the near term. Cost of maintenance
and customer support is expensed as incurred or when related revenue is
recognized, whichever comes first.
The Company follows Statement of Position 91-1 (SOP 91-1), "Software Revenue
Recognition" which requires, in part, the deferral of revenue on software
licenses with significant vendor obligations and the amortization of
post-contract customer support over the life of the contract. A new accounting
pronouncement, SOP 97-2, "Software Revenue Recognition" will be effective for
the fiscal year ended March 31, 1999. This new SOP is not expected to have a
material effect on the Company when adopted.
The Company capitalized $58,527 and $500,750 in the fiscal years ended March 31,
1998 and 1997, respectively, in additional costs related to its software. The
amortization expense for developed software was $584,692 in the fiscal year
ended March 31, 1998 and $168,540 in the fiscal year ended March 31, 1997.
STOCK BASED COMPENSATION: The Company accounts for stock options and awards in
accordance with SFAS No. 123, "Accounting for Stock-based Compensation".
INCOME TAXES: The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". Under the liability method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
F-9
<PAGE>
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common share are computed
on the basis of the weighted average number of common shares outstanding during
each period. Per share computations do not assume the exercise of common stock
options outstanding in 1998 and 1997 because such exercise would be
anti-dilutive. The Company has elected to defer adoption of SFAS 128, "Earnings
Per Share". The adoption of SFAS 128 is not expected to have a material effect
on the consolidated financial statements, when adopted, for the year ending
March 31, 1999.
RECLASSIFICATION: Certain reclassifications have been made to the comparative
March 31, 1997 amounts to conform to the current year's presentations.
NOTE 2 - FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS The
Company's fixed assets consist of the following:
<TABLE>
<CAPTION>
March 31,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Equipment $589,465 $515,090
Furniture and fixtures 14,500 14,500
Leasehold improvements 115,710 112,770
------------------------------
719,675 642,360
Less accumulated depreciation and amortization (314,540) (431,830)
------------------------------
$405,135 $210,530
------------------------------
------------------------------
</TABLE>
NOTE 3 - DEBT
<TABLE>
<CAPTION>
The following table summarizes long-term debt: March 31,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Secured promissory note (the Siemens' note)
maturing on February 2, 2001 for the purchase
of Databit Ltd. (see Note 10) The promissory note
is secured by the assets of the subsidiary and
has been discounted at 10%. The amount discounted
at March 31, 1998 was $251,707. $1,248,293 -----
Line of credit, requiring monthly interest payments,
maturing on September 30, 1999 (as extended
November 13, 1998) bearing interest at the bank's
prime rate, plus 0.5%. (Effective 9.0% at March 31,
1998) secured by the receivables of the Company.
The line of credit contains various restrictive
covenants, among which include maintaining
a certain level of stockholders' equity and
debt to net worth ratio on CTI Data Solutions Inc. 200,000 25,000
F-10
<PAGE>
Other: 113,270 57,640
--------- ---------
1,561,563 82,640
Less current portion 293,820 57,360
-------- ---------
$1,267,743 $25,280
--------------------------------
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
The following table represents debt maturities for fiscal years ending March 31, 1999: $ 293,820
2000: 19,450
2001: 1,248,293
---------
$1,561,563
---------
---------
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS - The Company leases its office facilities, certain
equipment and its main-frame operating software under non-cancelable long-term
operating leases which expire at various dates. Minimum aggregate annual rentals
subject to certain escalation clauses, under non-cancelable long-term operating
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending March 31, 1999 $227,400
2000 151,310
2001 173,500
2002 11,050
---------
Total minimum lease payments $463,260
</TABLE>
Rent expense for operations under all operating leases was $223,600 and $207,420
for the fiscal years ended March 31, 1998 and 1997, respectively.
B. CONTINGENCIES: On August 11, 1997, John Perri, the former President of the
Company's CTI Soft-Com Inc. subsidiary and Soft-Com Inc., filed suit in the
United States District Court for the Eastern District of Pennsylvania against
the Company, CTI Data Solutions (USA), Inc., Anthony P. Johns and Mark
Daugherty, in connection with the Company's termination of Mr. Perri's
employment on July 28, 1997 and the Company's acquisition of Soft-Com Inc. in
January 1997. On November 11, 1997, the parties to this litigation entered into
a settlement agreement pursuant to which, among things: (i) no party admitted
liability to another party; (ii) the Company agreed to pay an aggregate of
$100,000 payable in monthly installments of $5,000 and issue options to purchase
100,000 shares of common stock of the Company to Perri to resolve the litigation
and buy out the remainder of Perri's employment contract. The options issued as
part of this settlement were in substitution for the options granted under his
employment agreement; (iii) Perri filed a stipulation terminating the litigation
with prejudice; and, (iv) the parties released each other from any further
liability. As part of the Settlement Agreement dated November 11, 1997 between
John Perri and the Company, the Company entered into a distributor agreement
with Mr. Perri. The agreement is for the distribution of the Company's Unity
software and is for a period of two years ending November 7, 1999. The agreement
provides a credit on account for the first $100,000 of Unity software purchases.
As of March 31, 1998, Mr. Perri has utilized $3,940 of this credit.
F-11
<PAGE>
The Company is involved in certain litigation in the normal course of business.
It is the opinion of management that the final outcome of these matters will not
have a material effect, if any, on future consolidated financial statements of
the Company and, accordingly, no provision has been made with regard thereto in
the consolidated financial statements.
C. EMPLOYMENT AGREEMENTS: In conjunction with an employment contract effective
April 1, 1995, the Company has agreed to pay an aggregate of 5% of pre-tax
profit as incentive compensation to the President/CEO during each fiscal year
ended March 31, 1997 and 1998. No accrual was required for the fiscal years
ended March 31, 1998 and 1997. The employment agreement with Mr. Johns was
reviewed on April 1, 1998 and extended to March 31, 2001. The aggregate minimum
annual salary commitment under this agreement is $175,000 per annum.
On September 15, 1998 the Chief Financial Officer, Mark H. Daugherty, was asked
to resign from the Company as part of the restructuring and the finance director
of CTI Data Solutions Ltd., Geoffrey L. Powell, assumed additional
responsibilities to his existing duties in the UK.
D. MANAGEMENT'S PLAN FOR CONTINUING OPERATIONS: The Company has a deficiency in
working capital of $1,340,890 at March 31, 1998 and has incurred a loss for this
year of $1,727,821.
The Company restructured its business operations in CTI Data Solutions Ltd. and
CTI Data Solutions Inc. to reduce its operating expenses. This is expected to
lead to savings in the 1998/1999 financial year, and in subsequent financial
years.
Management believes that actions presently being taken to revise the Company's
operating and financial requirements will stabilize its requirement for working
capital and provide a stable base from which the Company can grow. Future
actions could include further restructuring of overhead in the businesses,
selective marketing efforts, consolidation of the product line, potential for
additional private placement financing, seeking invoice based financing for the
Company's CTI Data Solutions Ltd. subsidiary, and the pursuit of joint venture
partnerships/source code transactions.
NOTE 5 - INCOME TAXES
The provision for income taxes (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended March 31,
----------------------
1998 1997
----------- ----------
<S> <C> <C>
Federal $ (59,125) $ -----
State $ (17,375) 4,800
----------- ----------
Provision for income taxes (benefit) $ (76,500) $ 4,800
----------- ----------
----------- ----------
</TABLE>
F-12
<PAGE>
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is as follows:
<TABLE>
<CAPTION>
Years ended March 31,
1998 1997
----------- ---------------
<S> <C> <C>
Computed tax (benefit) at the expected statutory rate $ (793,800) $ (82,870)
Other 29,350 6,570
Loss from foreign subsidiary 109,210 71,250
Increase in valuation allowance 578,740 9,850
----------- ---------------
$ (76,500) $ 4,800
----------- ---------------
----------- ---------------
</TABLE>
As of March 31, 1998, temporary differences giving rise to a net deferred tax
asset consists primarily of the excess of book over tax accounting depreciation,
stock options, allowance for doubtful accounts and the excess of book over tax
accounting for computer software and net operating loss carry-forward net of a
valuation allowance.
The Company's net operating loss carry-forwards of approximately $2,369,000 are
available to reduce future taxable income through 2012. A tax benefit of only
$76,500 was recorded in the 1998 statement because of the Company's uncertainty
in being able to utilize the full benefits before carry-forwards expire.
Accordingly, the tax benefit of $1,131,200 for the temporary differences and the
loss carry-forward has been offset by a valuation allowance of $1,054,700.
The Company has not filed several Federal and State income tax returns, which
are beyond their required filing dates. The Company has accrued estimated taxes,
penalties, and interest, which are currently due with certain taxing authorities
of $135,621 and included them in the accompanying consolidated financial
statements.
NOTE 6 - CAPITAL STOCK TRANSACTIONS
A. ISSUANCE OF COMMON STOCK:
In connection with the Company's effort to raise cash for the purchase of
Databit Ltd., formerly a subsidiary of Siemens plc, the Company issued in total
165,000 shares of the Company's common stock to a director of the Company and
certain organizations involved with raising additional capital. The stock was
issued in lieu of cash compensation. The director received 15,000 shares with an
average bid and ask price of $.38 on the date of issue. The Company issued
50,000 shares to its investment banking firm with an average bid and ask price
of $.25 on the date of issue. The Company issued 100,000 shares to a potential
investor with an average bid and ask price of $.38 on the date of issue.
During the fiscal year ended March 31, 1998 the Company issued 294,117 shares of
the Company's common stock to certain employees and outside directors of the
Company. The average bid and ask price on the date of issue was $.34. The stock
issued to the employees was in lieu of a partial salary deferment. The stock
issued to the outside directors was in lieu of their deferred directors' fees.
During the fiscal year ended March 31, 1997, the Company issued 139,708 shares
of the Company's common stock to certain employees. The average bid and ask
price on the date of issue was $.20.
In connection with the acquisition of Soft-Com Inc., the company issued 795,000
shares of its common stock for all the outstanding shares of Soft-Com Inc. As
part of such acquisition, the Company also issued 23,850 shares of its common
stock, in lieu of cash, as a finder's fee.
F-13
<PAGE>
B. OPTIONS:
At the Company's 1995 Annual Meeting of Stockholders held on November 16, 1995,
the Company's stockholders voted on and approved the Company's Stock Option and
Restricted Stock Plan (the "Plan"). The Plan provides for the issuance of
600,000 shares of common stock. Individuals eligible for participation in the
Plan include key employees (including employees who also serve as Directors),
non-employee directors, independent contractors and consultants who perform
services for the Company. The exercise price of the stock options are determined
by the higher of the fair market value or the book value of the common stock at
the time the option is granted.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in November 1997 and February 1998,
respectively; no dividend yield for all years, expected volatility of 128% and
127%, risk-free interest rates of 6% for all options and expected lives of 3
years for all options.
The Company issued 360,000 stock options (50,000 of which were issued within the
stock option plan) to its employees during the fiscal year ended March 31, 1998.
The option price was $.34. Accordingly, the Company recorded compensation
expense of $91,920. The Company issued 310,000 options to certain key employees
of its newly acquired UK based business. These options vest over a three year
period and are exercisable one-third on each of the first, second and third
anniversary from the date of grant. The term is for ten (10) years from the date
of grant.
The Company issued 105,000 stock options to its employees during the year ended
March 31, 1997. The option price ranges from $.60 to $.61. Accordingly, the
Company recorded compensation expense of $50,220. The options are exercisable
upon date of grant and are for the term of ten (10) years from the date of
grant.
The Company issued 30,000 stock options to a non-employee director during the
year ended March 31, 1997. The option was issued upon his appointment to the
stock option committee. The option exercise price is $.30 and the Company
recorded an expense of $6,820 for these options. The options are exercisable 50%
on the first anniversary of the director's election to the board and 25% on each
of the second and third anniversary of the director's election, provided he is
still serving as a director. The term is for ten (10) years from the date of
grant.
The Company issued 100,000 stock options to one of Soft-Com Inc.'s stockholders
in connection with the acquisition. This individual was retained as an employee
subsequent to the acquisition. The option exercise price was $.50 and 1/3 of
such options vests on each of the first, second and third annual anniversary of
their grant. The term was for ten (10) years from date of grant. These options
terminated upon the termination of employment of this individual by the Company.
The Company issued 100,000 stock options to this individual as part of a
settlement agreement reached between the Company and him. The option exercise
price is $.35 and they are exercisable upon their date of grant. The options
expire on April 2, 2000.
Additionally, another stockholder of Soft-Com Inc. was issued 90,000 stock
options at an exercise price of $1.50, which options are exercisable upon date
of issuance. That term is for three years from date of grant. The Company
modified the exercise price of these options in consideration for this
stockholder assuming $18,850 of the remaining bank debt which was acquired in
the purchase of Soft-Com Inc. The new exercise price is $.80. All other terms of
these options are unchanged.
F-14
<PAGE>
Activity in the stock option plan for the years ended March 31, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------- --------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
-------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 495,000 $ 0.34 355,000 $ 0.22
Granted 50,000 0.34 235,000 0.54
Exercised - - (50,000) (0.20)
Terminated (190,000) (0.45) (45,000) (0.19)
-------------- ------------ ---------- -------------
Outstanding at end of period 355,000 $ 0.23 495,000 $ 0.37
-------------- ------------ ---------- -------------
-------------- ------------ ---------- -------------
Exercisable at end of period 340,000 $ 0.32 375,000 $ 0.34
-------------- ------------ --------- -------------
-------------- ------------ --------- -------------
Weighted average fair value of options
granted during the years $12,767 $25,190
------------ -------------
------------ -------------
</TABLE>
NOTE 7 - MAJOR CUSTOMERS
The Company had sales to one customer aggregating $578,880 (18% of sales) for
the fiscal year ended March 31, 1997. This customer terminated its contract with
the Company during the fiscal year ended March 31, 1997. For the fiscal year
ended March 31, 1998, the Company had sales to another customer aggregating
$291,200 (8% of sales) and $300,170 (9% of sales) respectively in 1998 and 1997.
Accordingly, future operations could be affected by adverse changes in the
Company's relationship with, or the financial condition of, this customer.
Otherwise, there are no other significant concentrations of a credit risk. .
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and
assumptions were used to estimate the fair value of financial instruments:
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, AND TRADE PAYABLES: The carrying
amounts approximate fair value because of the short maturity of those
instruments.
LONG-TERM DEBT: Except with regard to the Siemens plc note, the carrying amounts
approximate fair value because the borrowing rates currently available to the
Company are for loans with similar terms and average maturity, given the risk,
ownership and underlying collateral. The carrying value of the Siemens plc note
has been adjusted to its negotiated fair value, discounted, as discussed in Note
10.
F-15
<PAGE>
NOTE 9 - PROFIT-SHARING PLAN
The Company has established a qualified 401(k) profit-sharing plan effective
July 15, 1995. Eligible employees may defer a portion of their salaries. At the
discretion of the Board of Directors, the Company can contribute to the
profit-sharing plan, and may make a matching contribution of an additional
amount of eligible employees' deferrals. There were no contributions to the plan
during the fiscal years ended March 31, 1998 and 1997. Following the acquisition
of Databit Ltd. (see Note 10 below) CTI Data Solutions Ltd. incurred an
obligation under the terms of the purchase agreement to contribute to an
employee pension plan. The amount contributed by the Company in the fiscal year
ended March 31, 1998 was not material and contributions are not expected to be
material in future years.
NOTE 10 - ACQUISITION OF BUSINESSES
On February 2, 1998, in a transaction accounted for as a purchase, the Company
completed the acquisition of Databit Ltd., a subsidiary of Siemens plc through
its wholly-owned subsidiary CTI Data Solutions (International) Ltd. Subsequent
to the acquisition, the Company changed the name of CTI Data Solutions
(International) Ltd. to CTI Data Solutions Ltd. In connection with the
acquisition, the Company initially issued a secured promissory note to Siemens
plc for $2,278,000 on March 27, 1998. The secured promissory note originally
required quarterly interest payments at the rate of 10%. The note matures on
February 2, 2001. The Company had issued 165,000 shares of its common stock,
valued at $55,630, in an unsuccessful attempt to raise funds for this
acquisition which was therefore expensed.
On September 29, 1998, the Company renegotiated the purchase price along with
the value of the note and the underlying software acquired with the Databit Ltd.
business. The note was reissued at face amount of $1,500,000 with no interest
payments and recorded at the discounted value of $1,248,293.
The following unaudited pro forma financial information for the Company gives
effect to the Databit Ltd. acquisition as if it had occurred on April 1, 1996.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually would
have resulted had the acquisition occurred on the date indicated, or which may
result in the future.
<TABLE>
<CAPTION>
Years ended March 31,
1998 1997
-------------------------------
<S> <C> <C>
Net Sales $ 8,598,081 $11,728,000
------------ ------------
------------ ------------
Net income (loss) $ (2,433,967) $ 86,000
------------ ------------
------------ ------------
Net income (loss) per common share $ (.38) $ 0.02
-----------------------------
-----------------------------
</TABLE>
On January 2, 1997, the Company acquired Soft-Com Inc. through a tax-free merger
accounted for as a purchase. Soft-Com is primarily engaged in the business of
designing, developing, and marketing software for managing telecommunications
services. The results of operations of Soft-Com Inc. are included in the
accompanying consolidated financial statements since the date of acquisition.
The total cost of the acquisition was $404,228; the majority of which was in the
form of the Company's common stock and options to purchase the Company's common
stock. The total acquisition cost exceeded the fair value of the net assets of
Soft-Com Inc. by $44,560. The excess is being amortized on the straight-line
method over ten (10) years.
F-16
<PAGE>
NOTE 11- YEAR 2000 COMPLIANCE ISSUES
All of the Company's software products and services are Year 2000 compliant
with the exception of remote buffer software supplied to customers by CTI Data
Solutions Ltd. and the service bureau operations for CTI Data Solutions Inc. For
most customers of CTI Data Solutions Ltd., management believes it will be
possible to recover from the customer, the cost of converting this software to
become Year 2000 compliant. For a minority of customers, this will not be
possible and the net cost to the Company of conversion of such customers is
anticipated to be not material. The Company is converting the service bureau
customers of CTI Data Solutions Inc. to a Year 2000 compliant system. The cost
of this is estimated to be no more than $25,000 in total. There will also be
additional costs to convert some of the Company's internal computer systems to
become Year 2000 compliant. The computer systems affected are administrative in
nature and will not of themselves disrupt the operations of the Company, in the
event of failure. The cost of converting the internal computer systems is
estimated to be $40,000 and a plan is in place to replace the relevant systems
during the first half of 1999.
NOTE 12 - GEOGRAPHIC SEGMENT INFORMATION
The Company conducts business in the UK and the USA. A summary of the Company's
operations by geographic area for the years ended March 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
UK USA Consolidated
--------------------------------------------
1998
----
<S> <C> <C> <C>
Total net sales $ 902,670 $ 2,696,050 $ 3,598,720
---------------- ------------- -----------
---------------- ------------- -----------
Loss from operations $ (424,204) $ (1,332,237) $(1,756,441)
---------------- ------------- -----------
---------------- ------------- -----------
Net loss $ (439,811) $ (1,288,010) $(1,727,821)
---------------- ------------- -----------
---------------- ------------- -----------
Identifiable assets $ 2,328,201 $ 2,351,212 $ 4,679,413
---------------- ------------- -----------
---------------- ------------- -----------
1997
----
Total net sales $ 40,324 $ 3,182,966 $ 3,223,290
---------------- ------------- -----------
---------------- ------------- -----------
Income (loss) from operations $ -- $ (193,750) $ (193,750)
---------------- ------------- -----------
---------------- ------------- -----------
Net loss $ (31,826) $ (165,684) $ (197,510)
---------------- ------------- -----------
---------------- ------------- -----------
Identifiable assets $ -- $ 2,755,770 $ 2,755,770
---------------- ------------- -----------
---------------- ------------- -----------
</TABLE>
The foregoing disclosure has been prepared in accordance with SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." The Company will
adopt SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," for the fiscal year ending March 31, 1999, which is not expected
to have a material effect.
F-17
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of Securities Exchange Act of
1934
The following Directors were elected by the Shareholders at the 1996
Annual Meeting of Shareholders held on October 15, 1996 and the Board of
Directors appointed the following officers. All Directors will hold office until
the next Annual Meeting of Shareholders of the Company and until their
successors shall be elected and qualify. All officers of the Company serve at
the discretion of the Board.
<TABLE>
<CAPTION>
Name and Age Occupation during past five (5) years
------------ -------------------------------------
<S> <C>
Anthony P. Johns (49) Mr. Johns, a UK citizen, has served as Chairman of the Board since
October, 1996, and President, Chief Executive Officer and Director
of the Company since March, 1990. He was Chairman of the Board of
Directors of Britannic Group Holdings Ltd., Britannic Telecom
Company Ltd. and Britannic Telecare Ltd. from December 1989 to May
1995.
Francis O. Hunnewell (59) Mr. Hunnewell has been a Director since November 1993 and served
as Chairman of the Board from November 1993 to August 1995. Mr.
Hunnewell is Managing Director at Aldrich Eastman Waltch
International, real estate pension fund managers with offices in
Boston, Los Angeles, Mexico City and Moscow. He is also President
of Hunnewell & Co., Investment Bankers and Vice Chairman of Asian
Capital Partners Ltd., an Asian regional merchant bank,
headquartered in Hong Kong.
Rupert D. Armitage (50) Mr. Armitage, a UK citizen, has been a Director since November
1995. He is founding member, Chairman and Managing Director of
three software related companies in the United Kingdom: Ambit
Research Ltd. formed in 1987; Information from Data Ltd. formed in
1993; and Personal and Corporate Training Systems Ltd. formed in
1995.
William Driscoll (56) Mr. Driscoll, a UK citizen, has been a Director since March 1998.
He is Managing Director and Chairman of Siemens Network Systems
Ltd. in the UK since December 1997. Before joining Siemens in
1994, Mr. Driscoll was Managing Director of ACT Cablestream Ltd.
when that company was acquired by Siemens plc
Fred H. Rohn (72) Mr. Rohn has been a Director since May 1998. He is presently
General Partner in North American Venture Capital Funds and
President of American Venture Management, Inc. He serves on
Corporate Boards of the following corporations: Pratt-Read Corp.,
The Futures Group, New Jersey Title Insurance Co., Weldotron
Corp.,. Deck The Walls, Inc., Peacock Papers, Inc., Scandia
Packaging Machinery Corp., and Moretrench American Corp.
12
<PAGE>
Mary Ann Davis (59) Ms. Davis has been Corporate Secretary since May 1989. Prior to
that, Ms. Davis was an Administrative Assistant from May 1982, to
a Judge of the Common Pleas Court of Montgomery County,
Pennsylvania.
Geoffrey Powell (48) Mr. Powell has been Acting Chief Financial Officer since September
1998. Mr. Powell had been Finance Director of Databit Ltd. when
the company became CTI Data Solutions Ltd. Previously Mr. Powell
was Finance Director of PSINet UK, a subsidiary of PSI Net Inc
(USA). Prior to that time, Mr. Powell was Finance Director at
Cyberscience plc and Controller at BT Syntegra.
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
filed.
Based solely on review of the copies of such forms furnished to the
Company, or written representation that no Forms 3, 4 or 5 were required, the
Company believes that during the last fiscal year, all applicable Section 16(a)
filing requirements have been complied with by its officers, directors and
greater than ten-percent beneficial owners.
13
<PAGE>
Item 10. Executive Compensation
A. MANAGEMENT REMUNERATION
The following table sets forth the compensation paid or accrued for the
five highest paid officers of the Company and its subsidiaries. The Company had
only one officer for the year ended March 31, 1998 who, received in excess of
$100,000.
<TABLE>
<CAPTION>
Name and Principal Other Annual
Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Anthony P. Johns, President 1998 $175,000 -- $29,720 (2)
& Chief Executive Officer 1997 $140,000 (1) -- $29,700 (2)
1996 $175,000 $12,820 $22,210 (3)
</TABLE>
(1) Mr. Johns agreed to a 40% salary reduction for the period from October 1,
1996 to March 31, 1997 as part of the Company implementing a six-month plan
to assist in maintaining a neutral cash position. The plan was required due
to the loss of a major customer in the quarter ended September 30, 1996.
(2) Includes an $11,100 annual automobile allowance and $15,600 of living
expense payments.
(3) Includes an $11,100 annual automobile allowance, approximately $3,600 for
the non-exclusive use by Mr. Johns of an apartment for which the Company
made lease payments of approximately $10,800 and $3,900 of living expense
payments in lieu of the lease payments which terminated in December 1995.
On April 1, 1998, the Company entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as President
and Chief Executive Officer of the Company for a three-year term at an annual
base salary of $175,000. Should the Company regain its listing on NASDAQ, Mr.
Johns' salary will be increased to $200,000 for the remaining term of the
Employment Agreement. In addition to such annual base salary, Mr. Johns is
entitled to receive as additional compensation in the form of an annual bonus,
an amount equal to five percent (5%) of the Company's pretax profit. The Company
has also agreed to (i) provide Mr. Johns with a monthly automobile allowance,
(ii) an accommodation allowance in recognition of his need to maintain a
residence both here and in the UK; and (iii) pay the premiums on life insurance
and health insurance policies for the benefit of Mr. Johns. Mr. Johns will also
be reimbursed by the Company for all expenses reasonably incurred by him in the
performance of his duties.
The members of the Board of Directors, who are not employees of the
Company, are paid fees of $1,000 per quarter and $500 per Board of Director
meeting attended, plus reasonable travel expenses. Effective as of the Board of
Directors meeting held on May 31, 1995, the Chairman of the Board, if not an
employee of the Company, will receive an additional $2,000 per annum as
compensation for his duties as Chairman. Mr. Driscoll is not permitted to
receive director's compensation under the terms of the Acquisition Agreement
between Siemens plc and the Company. Mr. Armitage receives an additional $1,000
per board meeting attended due to the two additional days needed for travel to
and from the UK pursuant to an agreement upon his election to the Board in
November 1995. During the fiscal year ended March 31, 1998, Messrs. Hunnewell
and Armitage earned fees for their services on the Board of Directors in the
amount of $6,000 and $10,000 respectively, plus expenses. During the fiscal year
ended March 31, 1997, Mr. Armitage received 30,000 stock options pursuant to the
Company's stock option and restricted stock plan upon his appointment to the
Stock Option Committee.
14
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock held by officers, directors, or
affiliates, individually or as a group, and each person or entity known to the
Company to own beneficially more than 5% of the Company's Common Stock at August
13, 1998:
<TABLE>
<CAPTION>
Percent
Shares of Common Stock of Voting
Name and Business Address Beneficially Owned (l) Securities
<S> <C> <C>
Anthony P. Johns 2,045,603 (2) (3) 28.5%
CTI Data Solutions (USA), Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 344,412 (4) 4.3%
Ambit Research
100 New Kings Road
London SW64LX
Francis O. Hunnewell 214,314 (5) 2.6%
Hunnewell & Co.
10 Tremont Street, Suite 500
Boston, MA 02108
Fred H. Rohn 483,073 (6) (7) 5.6%
Village Road
P.O. Box 714
New Vernon, NJ 07976
Bill Driscoll 0 0.0%
Technology House
Maylands Avenue
Hemel Hempstead
Hertfordshire HP2 7DF
All executive officers and directors 3,209,876 (2) (6) (8) 42.4%
as a group (6 persons, including
those named above, and
Mary Ann Davis, Corporate
Secretary, owning stock)
</TABLE>
15
<PAGE>
NOTES:
(1) All shares are beneficially owned and the sole investment and voting power
is held by the person named, except as set forth below. Each share of
common stock has one vote.
(2) Includes 119,147 shares of the Company's common stock owned by John Perri
for which Mr. Johns holds voting proxy power.
(3) Includes options exercisable into 50,000 shares of the Company's common
stock.
(4) Includes options exercisable into 45,000 shares of the Company's common
stock.
(5) Includes options exercisable into 30,000 shares of the Company's common
stock.
(6) Includes 383,073 shares of the Company's common stock owned by North
American Venture Capital Fund. Mr. Rohn is a General Partner and small Ltd.
Partner of the Fund.
(7) Includes options exercisable into 90,000 shares of the Company's common
stock.
(8) Excludes options exercisable into 310,000 shares of the Company's common
stock.
Item 12. Certain Relationships and Related Transactions
Not Applicable
Item13. Exhibits and Reports on Form 8-K
a) (1) and (2) The consolidated financial statements filed as part of
this annual report on Form 10-KSB are included in Part II, Item 7.
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Report of Independent Auditors F - 1
Consolidated Balance Sheets at March 31, 1998 and 1997 F - 2
Consolidated Statements of Operations for the
years ended March 31, 1998 and 1997 F - 4
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
March 31, 1998 and 1997 F - 5
Consolidated Statements of Cash Flows for the
years ended March 31, 1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 8
</TABLE>
16
<PAGE>
(b) Reports on Form 8-K.
The Company filed a Form 8-K with the Securities and Exchange
Commission on February 17, 1998, in connection with the acquisition of Databit
Ltd.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of December 16, 1996, by and
among CTI Group (Holdings) Inc., CGI Acquisition Corp., Soft-Com Inc. and John
Perri incorporated by reference from Exhibit #2.1 to Form 8-K filed with the
Securities and Exchange Commission on January 16, 1997.
2.2 Asset Purchase Agreement dated as of February 2, 1998 by and among
CTI Group (Holdings) Inc. CTI Data Solutions (International) Ltd. and Siemens
plc incorporated by reference from Exhibit #2.1 to the Form 8-K filed with the
Securities and Exchange Commission on February 17, 1998.
3.l The Company's Certificate of Incorporation and the By-laws
incorporated by reference from the Proxy Statement filed with the Securities and
Exchange Commission for Special Meeting of Stockholders held on February 19,
1988.
3.2 Amendment to the Company's Certificate of Incorporation for the
increase in the authorized capital of the Company to 10,000,000 shares, $.01 par
value incorporated by reference from the Form 10-Q, for the period ended
December 31, 1990, filed with the Securities and Exchange Commission on February
15, 1991.
10.1 Lease dated September 2, 1992, between Daniel S. Berman and Robert
J. Berman, co-partners, and the Company incorporated by reference from Exhibit
#10.5 to the Form 10-KSB filed with the Securities and Exchange Commission on
June 29, 1993.
10.2 Commercial Security Agreement dated June 1, 1995, between PNC
Bank, National Association and the Company incorporated by reference from
Exhibit #10.9 to the Form 10-KSB filed with the Securities and Exchange
Commission on June 29, 1995.
10.3 The Company's Stock Option and Restricted Stock Plan incorporated
by reference from Exhibit #1 to the 1995 Proxy filed with the Securities and
Exchange Commission on October 6, 1995.
10.4 Promissory Note dated September 29, 1995, between PNC Bank, NA and
the Company incorporated by reference from Exhibit #10.10 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.5 Promissory Note dated December 28, 1995, between PNC Bank, NA and
the Company incorporated by reference from Exhibit #10.11 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.6 Commercial Security Agreement dated June 1, 1996, between PNC
Bank, NA and the Company incorporated by reference from Exhibit #10.12 to the
Form 10-KSB filed with the Securities and Exchange Commission on July 1, 1996.
10.7 Promissory Note dated June 1, 1996, between PNC Bank, NA and the
Company incorporated by reference from Exhibit #10.13 to the Form 10-KSB filed
with the Securities and Exchange Commission on July 1, 1996.
17
<PAGE>
10.8 Form of Registration Rights Agreement dated as of January 2, 1997,
by and between CTI Group (Holdings) Inc. and each of the holders of the capital
stock of Soft-Com Inc. incorporated by reference from Exhibit #10.1 to Form 8-K
filed with the Securities and Exchange Commission on January 16, 1997.
10.9 Copy of Installment Note dated May 16, 1995, between First
Fidelity and Soft-Com Inc. incorporated by reference from Exhibit #10.13 to Form
10-KSB filed with the Securities and Exchange Commission on August 19, 1997.
10.10 Form of $2,000,000 Secured Promissory Note, executed by CTI Data
Solutions (International) Ltd. in favor of Siemens plc, dated February 2, 1998,
incorporated by reference from Exhibit #10.1 to the Form 8-K filed with the
Securities and Exchange Commission on February 17, 1998.
10.11 Form of Guaranty executed by CTI Group (Holdings) Inc. in favor
of Siemens plc dated February 2, 1998, incorporated by reference from Exhibit
#10.2 to the Form 8-K filed with the Securities and Exchange Commission on
February 17, 1998.
10.12 Form of Debenture executed by CTI Data Solutions (International)
Ltd. in favor of Siemens plc, dated February 2, 1998, incorporated by reference
from Exhibit #10.3 to the Form 8-K filed with the Securities and Exchange
Commission on February 17, 1998.
10.13 Form of Security Agreement between CTI Group (Holdings) Inc. and
Siemens plc, dated February 2, 1998, incorporated by reference from Exhibit
#10.4 to the Form 8-K filed with the Securities and Exchange Commission on
February 17, 1998.
10.14 Form of Collateral Pledge Agreement executed by CTI Group
(Holdings) Inc. in favor of Siemens plc dated February 2, 1998 incorporated by
reference from Exhibit #10.5 to the Form 8-K filed with the Securities and
Exchange Commission on February 17, 1998.
10.15 Copy of Employment Agreement, dated December 8, 1997 between
Anthony P. Johns and the Company.
10.16 Copy of Agreement, dated September 29, 1998 by and among CTI
Group (Holdings) Inc., CTI Data Solutions (International) Ltd., and Siemens plc
amending the Asset Purchase Agreement referred to in Exhibit 2.2 above.
10.17 Copy of Lease Agreement, dated, July 1, 1998, by and between
Daniel S. Berman and Robert J. Berman, co-partners and CTI Group (Holdings) Inc.
for approximately 1,000 square feet of office space in the building known as 901
S. Trooper Road, Norristown, Pennsylvania.
10.18 Copy of Lease Agreement, dated July 10, 1998, by and between
WHVPW Real Estate Ltd. Partnership and CTI Group (Holdings) Inc. for offices at
2550 Eisenhower Avenue, Norristown, Pennsylvania
21.1 List of Subsidiaries of CTI Group (Holdings) Inc. as of
March 31, 1998.
27.1 Financial Data Schedule.
18
<PAGE>
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.
CTI Group (Holdings) Inc.
/s/ Anthony P. Johns
-----------------------------
Date: December 16th 1998 Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
<PAGE>
CTI GROUP (HOLDINGS) INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report was signed on behalf of the Registrant by the undersigned, and in
the capacities and on the dates indicated.
12/16/98 /s/ Anthony P. Johns
- ---------------- ----------------------------
Date Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
(Principal Executive Officer)
12/16/98 /s/ Francis O. Hunnewell,
- ----------------- ----------------------------
Date Francis O. Hunnewell,
Member, Board of Directors
12/16/98 /s/ Rupert D. Armitage
- ----------------- ----------------------------
Date Rupert D. Armitage
Member, Board of Directors
12/16/98 /s/ William Driscoll
- ----------------- ----------------------------
Date William Driscoll
Member, Board of Directors
12/16/98 /s/ Fred Rohn
- ----------------- ----------------------------
Date Fred Rohn
Member, Board of Directors
<PAGE>
Exhibit 10.15
<PAGE>
[LETTERHEAD]
December 8, 1997
Mr. Anthony P. Johns
207 Pebble Beach Place
Blue Bell, PA 19422
Dear Mr. Johns:
CTI Group (Holdings) Inc. (the "Company") agrees to retain you as its
President and Chief Executive Officer on the following terms:
1. Term. The term of your employment under this agreement shall begin on
the first of April, 1998 and end on the 31st of March 2001 ("the Employment
Period").
2. Duties. During the Employment Period, you shall devote substantially
all of your working time and effort to the Company's affairs. You shall not
be employed by or devote substantial time to any other business. You may,
however, attend to personal and charitable activities that do not conflict
with the affairs of the Company or your duties as President and Chief
Executive Officer. Your specific duties shall be those from time to time
prescribed by the Company's Board of Directors.
3. Standards. During the Employment Period, you shall manage the affairs
of the Company and its subsidiaries in good faith, in the long-term best
interests of the Company and in accordance with law, the Company's
organizational documents and the highest managerial standards. You shall be
subject to the direction of the Company's Board of Directors whom you shall
keep informed of the Company's affairs.
4. Director. During the Employment Period, the Company shall nominate
you to be a director of the Company. The Company shall use its best efforts
to cause you to be elected and continue to remain a director of the Company
during the Employment Period, unless you resign.
5. Base Salary. During the Employment Period, the Company shall pay you
a base salary at a rate of $175,000 per annum (less taxes and other amounts
required to be withheld). The base salary shall be paid to you in equal
installments on the 15th day and the last day of each month. Should CTIG
regain its listing on NASDAQ, at this point, your salary will be increased to
$200,000.
6. Profit Sharing. While you shall remain in the employ of the Company,
you shall be entitled, subject to the provisions hereafter set forth, to
receive, with respect to each full fiscal year of the Company during which
your employment hereunder shall be continued, as additional compensation for
your services, an amount equal to five percent (5%) of the pretax profit of
the Company (as defined in accordance with generally accepted accounting
principals consistently applied) for such fiscal year. This amount will be
paid to you within thirty (30) days after the Company has received the report
of its auditors with respect to its fiscal year-end financial statements.
<PAGE>
This Section shall be inoperative at any time during which its operation
would jeopardize the qualification of any tax qualified employee benefit plan
then maintained by the Company.
7. Benefit Plans. During the Employment Period, you may participate in
any health insurance plan, pension plan and similar benefit plans the Company
may maintain, at the Company's expense, for the benefit of its employees. The
Company shall provide you with an automobile allowance of $925 per month.
8. Expenses. The Company shall pay or reimburse all your reasonable and
properly documented travel, business, and other expenses in the performance
of services for the Company during the Employment Period.
9. Vacation. You shall be entitled to take one week of vacation during
each fiscal quarter during the Employment Period, which vacation, if not
taken in any such quarter, shall be cumulated with vacation accrued in a
later quarter.
10. Accommodation Allowance: (a) During your employment by the Company,
it shall provide you an accommodation allowance of $1,300 per month in
recognition of your need to maintain a residence both here and in the UK in
order to fulfill your duties hereunder.
(b) The Company shall, on your behalf and at the Company's
expense, undertake proceedings necessary or appropriate to entitle you to
legally reside in the United States during the Employment Period. You shall
cooperate with the Company in providing any information, making appropriate
applications, and taking such other action as the Company may reasonably
request or as may otherwise be necessary in connection with such proceedings.
11. Termination. (a) The Company may terminate your employment and your
position as a director of the Company
(1) if you shall die;
(2) if you shall become physically or mentally unable to perform
fully your duties under this agreement;
(3) if you shall be unable to legally reside in the United States;
(4) if you shall fail to perform your duties hereunder in accordance
with the standards set forth above;
(5) if you shall be formally charged with a felony, commit a
fraudulent or dishonest act, commit a gross abuse of authority or discretion,
breach your fiduciary duty or breach any other duty imposed by law on an
officer; or
(6) for gross and continued insubordination;
(7) for cause that would permit the removal of a director of a
Delaware corporation for cause.
(b) Upon any termination of your employment pursuant to Section
11(a), the Company shall not be obligated to make any payment and shall have
no further obligation under this agreement, except for the payment of base
salary accrued under Section 5 through the date of such termination.
<PAGE>
(c) Anthony P. Johns shall have the right to terminate his
employment at any time for no reason upon giving 90 days prior written notice
to the Company and upon giving such notice, Anthony P. Johns shall be
entitled to the payment of base salary accrued under Section 5 and incentive
plans payment accrued under Section 6 through the date of such termination.
(d) Under all circumstances, the Company shall reimburse you for
expenses incurred by you as set forth in paragraphs 8 and 10.
12. Competition. (a) For three years from the date of this Agreement,
regardless of whether or not your employment is terminated, you shall not
directly or indirectly engage in, invest in or support any competing business
in the United States.
(b) Engaging in, investing in or supporting any business
includes being an officer, director, owner, employee, shareholder or partner
or a beneficial owner of more than 5% of the outstanding stock of a publicly
traded company and includes assisting others in engaging in such business and
inducing employees of the Company or its subsidiaries to engage in such
business.
(c) Competing business includes any business substantially
similar to that of the Company or any of its subsidiaries at any time during
the term of this agreement or at the time you enter into the competing
business, in any geographical area in which the Company or any of its
subsidiaries does or is considering doing business at any such time.
13. Confidentiality. (a) All equipment, notebooks, documents, memoranda
reports files, correspondence and other written or graphic records affecting
or relating to the Company or any of its affiliates or their business,
customers, property or processes that you may prepare, use, observe, possess
or control shall be and remain the Company's sole property. You shall not
retain any copy, note or abstract of any such materials or of any
confidential information after the end of your employment by the Company.
(b) You shall not at any time during or after your employment by
the Company disclose, use, copy or make notes of any confidential information
except that (1) during the term of your employment you may make disclosures
in publicly filed or released documents in accordance with securities laws,
(2) you may disclose information when compelled by law or judicial process,
(3) you may use, copy and make notes of information in the ordinary exercise
of your duties to the Company and (4) you may disclose information to
employees, officers, directors and agents of the Company that you believe
trustworthy.
(c) Confidential information includes all ideas, materials and
information you may learn, conceive, create, observe, prepare or develop in
the course of or in connection with your employment by the Company concerning
any matters affecting or relating to the Company, its affiliates or their
business, customers, property, or processes. It also includes any other
confidential or proprietary information you may have about the Company, its
affiliates or their business, customers, property or processes. It does not
include information in the public domain before you use or disclose it.
<PAGE>
(d) You shall promptly and fully disclose to the Company all
tangible work product, contacts or possible transactions with customers and
ideas, trade secrets or know-how made, developed or conceived by you during
the Employment Period (whether or not conceived or developed during your
working hours) with respect to which the equipment, supplies, facilities or
information of the Company was used, which shall in any way relate to the
business conducted or contemplated to be conducted by the Company or its
affiliates. All such work product, ideas, trade secrets and know-how shall be
and remain the sole and exclusive property of the Company. At the request of
the Company, you shall assist the Company in any reasonable way (but at the
Company's expense) to vest in the Company title to all such product, ideas,
trade secrets and know-how and to obtain any patents, trademarks or copyrights
thereon.
14. No Conflict. You hereby represent the Company that you are not a
party to, you are not bound by, nor have you greed to become a party to any
employment, consulting agency or other agreement or understanding (other than
this agreement) or any other agreement that could in any way conflict with
this agreement or your ability to perform your duties hereunder in accordance
with the standards set forth herein.
15. Miscellaneous. (a) This agreement constitutes the entire
understanding of the parties relating to the subject matter hereof. Neither
party shall be bound by any change, release or termination of this agreement
unless it is in writing and signed by such party.
(b) If any provision of this agreement shall be adjudicated to
be invalid or unenforceable, such provision shall be amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only for the operation of such provision in the particular
jurisdiction in which such adjudication is made.
(c) If you breach or threaten to breach any provision of this
agreement, the Company shall be entitled to any injunction restraining you
from such breach. The Company shall not be prohibited from pursuing any other
remedy available at law or equity for such breach or threatened breach of
this agreement.
(d) The Company shall withhold such amounts from any
compensation or other benefits referred to in this agreement as payable to
you on account of payroll and other taxes as may be required by applicable
law or regulations of any governmental authority.
(e) Pennsylvania law governs this agreement.
(f) You may not assign any interest you have in this agreement.
The Company may assign this agreement to any successor to its business.
<PAGE>
Please confirm your agreement to the foregoing by signing below. This
Employment Agreement becomes effective only in the event of the closing of
the acquisition of Databit and it is signed by all parties hereto who,
intending to be legally bound, hereby, do agree to all of the above terms and
conditions.
CTI Group (Holdings) Inc.
Approved on behalf of
the Board of Directors
By: /s/ Francis O. Hunnewell and By: /s/ Rupert Armitage
------------------------- ---------------------
Francis O. Hunnewell Rupert Armitage
Director Director
/s/ Anthony P. Johns
- ---------------------
Anthony P. Johns
Attest:
/s/ Mary Ann Davis
-----------------------------
<PAGE>
Exhibit 10.16
<PAGE>
This Agreement is made on the 29th day of September 1998
BETWEEN
(1) SIEMENS plc whose register office is at Siemens House, Oldbury, Bracknell,
Berkshire, RG12 8FZ (the "Seller");
(2) CTI DATA SOLUTIONS INTERNATIONAL LIMITED whose registered office is
situated at 854 Brighton Road, Purley, Surrey, CR8 2LZ (the "Buyer"); and
(3) CTI GROUP (HOLDINGS) INC whose registered office is situated at 901 South
Trooper Road, PO Box 80360, Valley Forge, Pennsylvania 19484, United
States of America ("CTIG").
WHEREAS
A. On 2nd February 1998 the Seller and the Buyer entered into a purchase and
sale agreement (the "Sale Agreement") under which the Seller agreed to
sell to the Buyer a telecommunications call management software and
services business (the "Business").
B. The purchase price for the Business as set out in the Sale Agreement was
$2,000,000 (the "Principal Sum") the payment of which was secured under a
promissory note (the "Note") delivered by the Buyer to the Seller on 2nd
February 1998 (the "Closing Date"). The Principal Sum becomes due and payable
on 2nd February 2001 (the "Maturity Date"). Interest is payable on the
Principal Sum at the rate of 10% per annum from the Closing Date to the
Maturity Date and the Buyer has an obligation under the terms of the Note to
pay the interest quarterly in arrears.
C. Pursuant to a post closing adjustment to the purchase price the Principal
Sum was amended and increased to $2,278,000.
D. Contemporaneously with the execution and delivery of the Note CTIG
executed and delivered to the Seller a security agreement (the "Security
Agreement") and a pledge agreement (the "Pledge Agreement") and the Buyer
executed and delivered to the Seller a debenture (the "Debenture") which
documents provided a security interest in the assets of CTIG and the Buyer
respectively as a security for the payment of the Principal Sum and the
interest payable under the terms of the Note.
E. The parties hereto now wish to amend the amount payable as the Principal
Sum and the amount payable as interest thereon.
Therefore it is agreed as follows:
1. The Principal Sum as set out in the Sale Agreement, the Note, the Security
Agreement, the Pledge Agreement and the Debenture shall be amended in that
all references to the Principal Sum as being $2,278,000 (formerly
$2,000,000) shall be deleted and there shall be substituted the sum of
$1,500,000.
2. The interest due and payable on the Principal Sum (calculated on the basis
the Principal Sum is $2,278,000) amounting to $56,950 shall be paid no
later than 30th September 1998.
<PAGE>
3. Save for the interest to be paid as referred to in clause 2 above it is
agreed that no further interest shall be payable on the Principal Sum and
the Seller hereby agrees to forever waive and release the Buyer from any
obligation to pay any further interest and all references to such
obligation in the Note, the Security Agreement, the Pledge Agreement and
the Debenture shall have no meaning or effect.
4. In consideration for the Seller's agreement to change the amount due as
the Principal Sum and to waive the interest payable as set out in clause 3
above, the Buyer hereby forever waives and releases the Seller from any
liability in respect to breach of the warranties set out in Article IV of
the Sale Agreement (including but not limited to any liability under
warranties numbered 4.5, 4.11, 4.16 and 4.27) to the extent such
warranties relate to any representation, promise or undertaking in respect
to:
4.1 the future sales revenue or performance of the Business or any
deterioration in the same for any period after the Closing Date
including, but not limited to, any deterioration in relation to sales
to Siemens GEC Communication Systems Limited; and
4.2 the state of or the costs in relation to the development of the C6 Win
software package.
5. Save as expressly set out herein all other terms and conditions of the
Sale Agreement, the Security Agreement, the Pledge Agreement, the Note and
the Debenture shall not be amended and shall remain in full force and
effect.
6. The parties shall execute any further documents and agreements as may be
necessary to give effect to the terms set out herein.
7. This Agreement to the extent it relates to the Sale Agreement, the Note
and the Debenture shall be subject to English law and to the extent it
relates to the Security Agreement or the Pledge Agreement shall be subject
to the law of the Commonwealth of Pennsylvania.
AS WITNESS the hands of the duly authorised representatives of the parties
the day and year first above written.
Signed for and on behalf of
Siemens plc by its duly authorised signatory
Signature /s/[Illegible]
-----------------------------------
Printed Name William [Illegible]
--------------------------------
Title Managing Director
---------------------------------------
Signed for and on behalf of
CTI Date Solutions International Limited
by its duly authorised signatory
Signature /s/ A.P. Johns
------------------------------------
Printed Name A.P. Johns
---------------------------------
Title Chairman & Managing Director
----------------------------------------
2
<PAGE>
Exhibit 10.17
<PAGE>
Lease Agreement
This Lease dated as of August 1, 1998 by and between The Wentworth Group,
Inc. (Landlord) and CTI Group Holdings, Inc. (Tenant)
WITNESSETH:
ARTICLE I SPECIFICATIONS
Section 1.01 "Lease Premises".
Landlord leases to Tenant and Tenant rents from Landlord the premises
(hereafter called the "Leased Premises") being (a) the interior only of the
space shown highlighted on the plan attached hereto as Exhibit "A" in the
building (the "Building") known as 901 Trooper Road, Lower Providence
Township, Norristown, Pennsylvania, stipulated to contain 1,000 rentable
square feet. The Building, the 1.5898 acres of land described on Exhibit "B"
on which the Building is located (the "Land"), and all improvements located
on the Land are hereafter sometimes called the "Project." As an appurtenance
to the Leased Premises, Landlord grants to Tenant the revocable nonexclusive
license to use, in common with others entitled thereto, (as more specifically
provided in Section 3.01) all portions of the Project designated by Landlord
from time to time as Common Facilities.
Section 1.02 "Term"
The term of this Lease shall be two (2) years commencing August 1, 1998,
(the "Commencement Date") and ending at midnight on July 31, 2000. Each period
of one year commencing August 1, 1998 or any anniversary therefore during the
term shall constitute a "Lease Year."
Section 1.03 "Minimum Rent"
(A) The minimum rent ("Minimum Rent") payable under this Lease for each
Lease Year shall be $24,000 Dollars, payable in monthly installments of
$2,000 Dollars as provided in Section 2.01 at the office of Landlord.
<PAGE>
Section 1.04 "Additional Rent" - "Costs of Operations"
As additional rent ("Additional Rent") Tenant shall pay to Landlord
Tenant's share of all Costs of Operation of the Project as provided in
Section 2.02. Additional Rent shall be payable on the first day of each month
during the Term of this Lease, regardless of holidays, beginning August 1,
1998.
Section 1.05 "Proportionate Share"
For all purposes of this Lease, Tenant's proportionate share shall be
1,000 square feet divided by 15,000 square feet equaling 6.67%.
Section 1.06 "Security"
Tenant has delivered to Landlord the sum of $2,000 Dollars to be held by
Landlord in accordance with terms of Article XIII.
Section 1.07 Use
The Leased Premises shall be used solely as a computing center and
related uses. The Leased Premises shall not be used for any other purpose.
Section 1.08 Notices
All notices for demand required or permitted to be given or served under
this Lease shall be deemed to have been given or served only if in writing
forwarded by registered or certified mail, postage prepaid, and addressed as
follows:
To Landlord at: 901 South Trooper Road Norristown,
Pennsylvania 19482
With a copy to: Louis Coffey, Esq.
Wolf, Block, Schorr & Solis-Cohen
12th Floor Packard Building
15th & Chestnut Streets
Philadelphia, PA 19102-2678
To Tenant at: 2550 Eisenhower Ave
Bldg "B" Norristown, PA 19403
Such addresses may be changed by either Party by notice delivered as
above provided to the other Party. If Landlord or any mortgagee shall so
request of Tenant, Tenant shall send such mortgagee a copy of any notice
thereafter sent to Landlord. PA 19406.
3
<PAGE>
ARTICLE II - RENT - COMMENCEMENT OF TERM
Section 2.01 Minimum Rent
The Minimum Rent for each Lease Year of the term of this lease in the
amount set forth in Section 1.03 shall be payable by Tenant as therein set
forth without prior demand and without setoff or deduction, in advance,
without regard to holidays, at the address designated in Section 1.03 or at
such other place as may be designated by Landlord from time to time. If the
term of this Lease shall commence on a day other than the first day of a
month, Tenant shall pay, upon the commencement date, a portion of the Minimum
Rent prorated on a thirty (30) day basis.
Section 2.02 Costs of Operation
Pursuant to Section 1.04 of this Lease, Tenant shall pay to Landlord
Tenant's share of Costs of Operation of the Project. For the purposes of this
Lease, the Costs of Operation of the Project shall include, without
limitation, all expenses, costs and charges incurred in the operation and
maintenance of the Project and all other costs, expenses or charges which
Landlord shall pay or become obligated to pay because of or in connection
with the ownership and operation of Entire premises, including, but not by
way of limitation, the following:
(a) wages and salaries of all employees engaged in operation and
maintenance of the Project including all taxes thereon, insurance
and benefits relating thereto.
(b) all supplies and materials used in the operation and maintenance of
the Project.
(C) all utilities used in the operation of the Project excluding only
utilities separately billed to individual tenants;
(d) the cost of all maintenance and service agreements;
(e) the cost of all insurance applicable to the Project, including
without limitation, all risk coverage, rent insurance, workmen's
compensation, etc. and upon occurrence of damages, deductibles
under such insurance policies;
(f) all taxes, real estate and otherwise, levies, fees, or charges,
general and special, ordinary
4
<PAGE>
and extraordinary, unforeseen as well as foreseen, of any kind which
are assessed, levied, charged, confirmed or imposed by any public
authority upon the Project or its operation or the rent provided for
in this Lease, excluding however, any taxes on net income; and
(g) cost of repairs replacements and general maintenance and building
services; and
(h) the cost of capital improvements or other modifications to the
Project, amortized over the useful lives of such improvements or
modifications; and
(i) uninsured casualty losses; security; sprinkler services; fire
detection and fire protection; licenses, permits and associates
fees; refuse and garbage processing and removal; rodent and pest
control; snow and ice removal; and all other items of cost and
expense paid or incurred in connection with the maintenance or
operation of the Project and properly chargeable against income
under generally accepted accounting principles.
(j) Gas and electricity.
(k) Management fee (whether payable to Landlord, a party affiliated
with, or related to, Landlord, or a third party manager), not to
exceed 5% of total annual gross rent.
(l) The cost of resealing and restriping the parking lot of the Project.
Operating expenses shall be "net" only and for that purpose shall be
deemed reduced by the amounts of any insurance reimbursements, other
reimbursement, recoupment, payment, fees, discount, credit, reduction,
allowance, or the like received or receivable by Landlord in connection with
such operating expenses. Notwithstanding anything contained in the foregoing
list, the following shall be excluded from Operating expenses:
Utilities
a. Landlord's costs of electricity and other services provided to
tenants for which Landlord is entitled to be reimbursed by tenants (whether
or not actually collected by Landlord) as a separate additional charge or
rental;
5
<PAGE>
Building Services
b. expenses in connection with services or other benefits of a type
which are not Building standard but which are provided to another tenant or
occupant;
c. costs incurred in installing, operating and maintaining any
recreational facility in the Building, such as an observatory, broadcasting
facility (other than the Building's music system and life support and
security system), luncheon club, athletic or recreational club;
Building Management
d. any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
e. costs of Landlord's general corporate overhead and general
administrative expenses, which would not be chargeable to operating expenses
of the Building in accordance with generally accepted accounting principles,
consistently applied;
f. leasing commissions, attorney's fees, auditing fees, costs and
disbursements and other expenses incurred in connection with negotiations or
disputes with tenants, other occupants, or prospective tenants or other
occupants of the Building;
g. auditing fees, other than those in connection with the maintenance
and operation of the Building or in connection with the preparation of
Landlord's statements for operating expenses;
h. wages and costs associated with home office, off-site employees of
Landlord other than professional services provided by such employees which
would otherwise be provided by outside professionals;
i. costs incurred in advertising and promotional activities for the
Building;
Taxes
j. income, excess profits or franchise taxes or other such taxes
imposed on, or measured by, the income of Landlord from the operation of the
Building;
Repairs and Replacements
k. the cost of repairing or restoring any portion of the Building
damaged by a hazard, to the extent such hazard is
6
<PAGE>
monthly installment of Minimum Rent, Additional Rent, or any other sum
payable by Tenant under or by reason of this Lease;
u. all items and services for which Tenant reimburses Landlord in full
pursuant to other provisions of this Lease.
Tenant's share of the Costs of Operation of the Project shall be paid
in equal monthly installments of 1/12 of the amount reasonably estimated by
Landlord to be due for each year within the term of this Lease, beginning
January 1, 1993. If Landlord reasonably determines that his estimate of Costs
of Operations is inaccurate, Landlord may so notify Tenant, and Tenant shall
thereafter pay the sum stipulated by Landlord. The estimate of such amount
which shall be payable by Tenant is $4.00 per annum, per square foot for the
first Lease Year (excluding electricity and janitorial services) is a
reasonable estimate of such amount. Not later than twenty (20) days prior to
the end of each Lease Year, Landlord shall render a bill to Tenant for
Tenant's share of the Costs of Operation of the Project, together with a
statement in reasonable detail of the Costs of Operation of the Project and
(i) Tenant will pay any additional amount shown to be due by said statement
on the first day of each Lease Year, or (ii) Landlord will credit any
overpayment by Tenant against payments thereafter to become due by Tenant on
account of Costs of Operation of the Project or other sums payable by Tenant
under this Lease. Landlord agrees that the annual statements regarding Costs
of Operation shall be certified by an officer of Landlord, and Landlord
further agrees to make available its books and records relating to operating
expenses for Tenant's audit, upon reasonable notice, at Landlord's office. If
such audit discloses any errors, appropriate adjustments shall be made.
Section 2.02A No Janitorial Service.
Tenant acknowledges that Landlord will provide janitorial services to
the Common Facilities, and the cost thereof will be included in Costs of
Operation. Tenant shall provide all janitorial services required for the
Leased Premises at Tenant's sole cost and expense.
Section 2.03 Additional Rent
(a) All sums, other than Minimum Rent, payable under this Lease by
Tenant whether or not specifically so denominated shall be deemed Additional
Rent collectible as such, and payable in the same manner as Minimum Rent.
(b) In accordance with Section 3.04 herein, Tenant shall pay all charges
and assessments for all electric service,
8
<PAGE>
water, sewer service, telephone service and internal security services
provided to the Leased Premises.
(c)Landlord shall not be liable to Tenant for the failure to provide any
utilities or services either required or permitted to be supplied by Landlord
under the terms of this Lease. However, Landlord agrees in the event of any
suspension or failure of service to proceed with all due diligence to
restore or cause the restoration of such service as soon as is reasonably
practical under the circumstances.
Section 2.04 Interest
Wherever in this Lease there is a provision that Tenant shall be liable
for the payment of any sum to Landlord, together with interest thereon, or
wherever Tenant shall fail to pay any sum when due, such sum shall bear
interest at a rate of twelve percent (12%) per annum.
ARTICLE III - COMMON FACILITIES AND SERVICES
Section 3.01 Common Facilities
The Common Facilities referred to in Section 1.01 of this Lease shall
include all facilities including, without limitation any bathrooms,
landscaped areas, lobbies, courts, elevators, atria, hallways and other
similar facilities in the Project designated by Landlord for common or joint
use of the occupants thereof, their employees, agents, tenants, customers and
other invitees. The Common Facilities shall at all times be subject to the
exclusive control and management of Landlord. Landlord may from time to time
promulgate and enforce reasonable rules and regulations, uniformly applied,
for the use of the Common Facilities, and build or place landscaping and
other improvements thereon. Landlord may at any time and from time to time
close all or any portion of such Common Facilities to such extent as may be
necessary in its opinion to prevent or avoid the possibility of a dedication
thereof to the public. Landlord, however, will not deprive Tenant of
reasonable access to the Leased Premises.
Section 3.02 License
The right of Tenant to use any of the Common Facilities is a revocable
license. Landlord makes no representation as to the identity, type, size or
number of other tenants.
9
<PAGE>
Section 3.03 Landlord's Services
Provided that Tenant is not in default under any of the provisions of
this Lease, beyond the expiration of any applicable grace period following
notice of default, Landlord shall:
(a) Furnish heat and air conditioning to the Common Facilities and the
Leased Premises from 8:00 a.m. during the normal heating season when required
for comfortable use and occupation on business days from Monday to Friday
inclusive until 6:00 p.m.
Section 3.04 Utilities
(a) Electric Charges. Tenant shall pay his proportionate share of all
electric charges, unless electric service to the Leased Premises is
separately metered, in which case Tenant shall pay all electric charges
associated with the Leased Premises.
(b) Gas Charges. Tenant shall pay his proportionate share of all gas
charges.
(c) Submetering of Landlord's Space. If Landlord separately meters the
electric usage for the electrical service to the Landlord's Space (defined in
Section 17.01 hereof), including the electricity used to operate the HVAC
system serving Landlord's Space, Landlord shall give Tenant a $50 per month
credit against Tenant's Minimum Rent, as Landlord's sole contribution to
charges for electrical service to the Building.
ARTICLE IV - SIGNS, FIXTURES AND ALTERATIONS
Section 4.01 Signs
Tenant shall not place or erect any signs, decorative devices, awnings,
canopies or other advertising matter visible from the exterior of the Leased
Premises and shall remove the existing sign face plate.
Section 4.02 Trade Fixtures
All trade fixtures installed by Tenant in the Leased Premises shall be
the property of Tenant and shall be removed at the expiration or sooner
termination of the term of this Lease or any renewal or extension thereof,
provided Tenant shall not at such time be in default under any covenant or
agreement contained in this Lease and - that Tenant shall promptly repair any
damage
10
<PAGE>
to the Leased Premises caused by such removals. If Tenant fails to remove
any such trade fixtures upon expiration or sooner termination of the term of
this Lease, such trade fixtures shall be deemed abandoned and shall become
the property of Landlord or, at the option of Landlord may be removed from
the Leased Premises and stored for the account of Tenant, at the cost and
expense of Tenant, which cost and expense shall constitute Additional Rent.
Any lighting fixtures, heating and air conditioning equipment, plumbing and
electrical systems and fixtures and floor covering shall not be deemed to be
trade fixtures whether installed by Tenant or by any other party and shall not
be removed from the Leased Premises but shall upon installation become the
property of Landlord without any compensation to Tenant.
Section 4.03 Alterations
Tenant shall not make any changes, alterations or improvement to the
Leased Premises or any part thereof without first obtaining the written consent
of Landlord which will not be unreasonably withheld or delayed. In applying
for such consent, Tenant shall submit to landlord reasonable plans and
specifications for the proposed work and an estimate of the anticipated cost
thereof. If Landlord determines it advisable to grant such consent, Landlord
may also impose such conditions as to permits, insurance, bonds and waivers
and releases of mechanic's liens as Landlord in its sole discretion deems
advisable or necessary. Any alterations, additions or improvements made by
Tenant with the consent of Landlord shall become the property of Landlord and
shall remain upon the Leased Premises at the expiration or sooner termination
of this Lease unless Landlord shall as a condition to the approval of same
require that it have the option at the termination of this Lease to cause
Tenant to restore the Leased Premises to its condition prior to the making of
such alterations and improvements.
Section 4.04 Mechanics' Liens
Before performing or permitting the performance of any work within the
Leased Premises as permitted under any provision of this Lease or otherwise
by Landlord, Tenant shall, at its own cost and expense, take such steps as
Landlord might reasonably require in order that no lien for labor or
materials will attach to the Leased Premises or the Project as a result of
such work. Tenant shall not permit any mechanics' or other lien or claim for
lien or notice in respect thereto to be filed against the Leased Premises or
any fixtures, equipment or furnishings contained therein. If any such lien,
notice or claim, be made or filed, Tenant shall within ten (10) days after
notice of the filing thereof cause said lien, notice or claim for lien to be
effectively removed or discharged of record; provided, however,
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that Tenant shall have the right to contest the amount or validity, in whole
or in part, of any such lieu, notice or claim by appropriate proceedings but
in such event Tenant shall promptly bond such lien, notice or claims with a
surety company satisfactory to Landlord and shall prosecute such proceedings
with all due diligence and dispatch. If Tenant fails so to discharge or bond
such lien, Landlord may at its election remove or discharge such lien, notice
or claim by paying the full amount thereof, or otherwise, and without any
investigation or contest of the validity thereof, and Tenant shall pay to
Landlord upon demand, as Additional Rent, the amount paid by the Landlord
including Landlord's costs, expenses, interest and reasonable counsel fees.
Prior to the commencement of any work on the Leased Premises, Tenant shall
cause lien waivers executed by all contractors performing work to be (i)
delivered to Landlord, and (ii) filed with the Prothonotary of Montgomery
County, Pennsylvania.
ARTICLE V
OCCUPANCY, MAINTENANCE, REPAIR AND SURRENDER OF THE LEASED PREMISES
Section 5.01 Occupancy Agreements
Tenant covenants that Tenant:
(a) will not use the plumbing facilities for any other purposes than
that for which they are constructed and will not permit any foreign substance
of any kind to be thrown therein. The expense of repairing any breakage,
stoppage, seepage or damage whether occurring on or off the Leased Premises,
resulting from a violation of this provision by Tenant or Tenant's employees,
agents or invitees shall be borne by Tenant.
(b) will comply with all laws and ordinances and all rules and
regulations of governmental authorities and all recommendations of the
Association of Fire Underwriters with respect to the use or occupancy of the
Leased Premises by Tenant (the foregoing shall not require Tenant to install a
fire sprinkler or fire detection system in the Lease Premises);
(c) agrees that Landlord may amend, modify, delete or add new and
additional reasonable rules and regulations of uniform application for the
use and care of the Leased Premises, the Project and the Common Facilities
are defined in this Lease;
(d) will comply with all such further rules and regulations upon notice
to Tenant from Landlord.
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(e) if Tenant shall use or require additional electrical service in
addition to that provided at the commencement of the terms of this Lease,
Tenant shall provide the same at its own cost and expense, but only in
accordance with specifications approved by Landlord in writing.
(f) will not use or operate any machinery, that, in Landlord's opinion,
is harmful to the Leased Premises or the Project or disturbing to lessees
occupying other parts of the Project;
(g) will not place any weights in any portion of the Project beyond the
safe carrying capacity of the structure;
(h) will not manufacture any commodity or prepare or dispense any food
or beverages in the Leased Premises, except for Tenant's own use;
(i) will not permit any odor, noise, sound, or vibration which may, in
Landlord's reasonable judgment, in any way tend to impair the use of any part
of the Project or interfere with the business or occupancy of any other
lessee, or make or permit any disturbance of any kind in the Project; or
interfere in any way with any other lessees or those having business in the
Project;
(j) will not obstruct any sidewalks, halls, passageways, elevators or
stairways in the Project or any part thereof, or use the same for any purpose
other than ingress and egress to and from the Leased Premises;
(k) will not bring in to or remove from the Project any heavy or bulky
object except with the aid of experienced movers or riggers approved in
writing by Landlord and in accordance with the rules and regulations set
forth by Landlord;
(l) will not keep any animal in or about the Leased Premises;
(m) will not use any part of the Leased Premises as sleeping rooms or
apartments; and
(n) will give Landlord prompt written notice of any accident, fire or
damage occurring in or to the Leased Premises;
(0) will use reasonable efforts to inform its employees or invitees to
park their cars only in the parking spaces reasonably and nondiscriminatorily
designated by Landlord, and will use reasonable efforts to prohibit its
employees and invitees from (i) parking any vehicle overnight (except in
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connection with work), and (ii) parking recreational vehicles, trucks (except
for pick-up trucks), boats, and trailers at any time;
(p) to keep the Leased Premises clean and orderly;
(q) will insure Tenant's personal property located in the Leased
Premises; and
(r) will not (i) vacate the Leased Premises, or (ii) remove so much of
Tenant's personalty such that the remaining personalty does not give Landlord
reasonable assurance that Tenant will continue to occupy a material part of
the Leased Premises throughout the balance of the Term of this Lease, unless
Tenant has first provided to Landlord security reasonably satisfactory to
Landlord, to assure Landlord that Tenant will perform Tenant's obligations
under this Lease. Landlord agrees that cash, cash equivalants, marketable
securities or a letter of credit equal to nine (9) months Minimum Rent shall
be deemed to be satisfactory security for Tenant's performance of the terms of
this Lease.
Section 5.02 REPAIRS; MAINTENANCE
(a) Tenant agrees to accept the Leased Premises in the physical order
and condition existing on the Commencement Date. Tenant shall, throughout the
Term, and any renewal thereof, at Tenant's sole expense, make all repairs,
replacements, renewals and additions as may be required to keep and maintain
the interior of the Leased Premises and all improvements therein in good
order and condition. Tenant shall return the Leased Premises to Landlord in
such good order and condition at the expiration or termination of the Term,
or any renewal thereof, ordinary wear and tear and damage from casualties and
acts and omissions of Landlord excepted. Any repairs and replacements, and any
labor performed or materials furnished in, on or about the Leased Premises,
shall be performed and furnished in strict compliance with all applicable laws,
regulations, ordinances and requirements of all governmental bodies having
jurisdiction over the Leased Premises.
(b) Landlord agrees to repair, replace or otherwise maintain in good
order and condition the roof and structural portions of the Project as well as
the parking areas and heating and air conditioning systems.
Section 5.03 Surrender of the Leased Premises
At the expiration of or sooner termination of the tenancy hereby
created, Tenant shall peaceably surrender the
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Leased Premises in the same condition of cleanliness, repair and sightliness
as the Leased Premises were in on the Commencement Date, reasonable wear and
tear and damage by unavoidable casualty excepted to the extent that the same
is covered by Landlord's property loss or damage insurance policy. At such
time, Tenant shall surrender all keys for the Leased Premises to Landlord at
the place then fixed for the payment of rent and shall inform Landlord of all
combinations or locks, safes and vaults, if any, in the Leased Premises.
Tenant shall in accordance with Section 4.02 remove all its trade fixtures
before surrendering the Leased Premises and shall repair any damage to the
Leased Premises caused thereby. Tenant's obligations to observe or perform
this covenant shall survive the expiration or other termination of the term
of this Lease.
Section 5.04 Waste of Nuisance
Tenant shall not commit or suffer to be committed any waste upon the
Leased Premises. Tenant shall not commit or suffer to be committed any
nuisance or other act which may disturb the quiet enjoyment of any other
tenant or occupant of the Project.
Section 5.05 Environmental Matters
(a) The term "Environmental Law" shall mean any federal, state or local,
statute, act, law, ordinance, rule, regulation or order pertaining to the
environment whether now or hereafter enacted and whether or not listed in
this definition such as but not limited to the following:
(i) The comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Section 9601 as amended by the Superfund
Amendments and Reauthorization Act of 1986 (Pub. L. 98-489, 100 State 1613,
1986) ("SARA").
(ii) The Resource conservation and Recovery Act, 42 U.S.C. Section
6801 et. seq. ("RCRA");
(iii) Toxic Substances Control Act, 15 U.S.C. Section 2601 ("TSCA");
(iv) The Clean Water Act, 33 U.S.C. Section 407 et. seq.; ("CWA");
(v) The Clean Air Act, 42 U.S.C. Section 7901 et. sea.;
(vi) The Pennsylvania Solid Waste Management Act 35 P.S. Section
6018.103;
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(vii) The Pennsylvania Hazardous Sites Clean Up Act (Act 108 of
1988)
(viii) Any similar statute, law, ordinance, rule, regulation or
order adopted in the jurisdiction in which the Premises is located at any
time whether before or after the execution of this Lease.
(b) "Hazardous Substance" shall mean any hazardous or toxic substance as
defined in any Environmental Law or in any rule, regulation or order issued
pursuant to any Environmental Law.
(c) "Enforcement Agency" shall mean the Environmental Protection Agency
("EPA") and any state, county, municipal or other agency having authority to
enforce any Environmental Law.
(d) "Landlord certifies to Tenant that at the date of execution of this
lease the Leased Premises does not contain asbestos or any Hazardous
Substance (as currently defined in any Environmental Law in effect on the
date of this Lease).
(e) Landlord shall be responsible for all costs, expenses, damages and
penalties resulting from the existence of any Hazardous Substance (as
currently defined in any Environmental Law in effect on the date of this
Lease) in the Leased Premises at the date of the execution of this Lease and
Landlord shall indemnify Tenant and hold it harmless from any claims arising
from the existence, removal, containment or abatement of any such Hazardous
Substance from the Leased Premises.
(f) All alterations made in the Leased Premises by Landlord, Tenant or
any other tenant of the Leased premises shall be in accordance with and shall
comply with all Environmental Laws and the requirements of any Enforcement
Agencies.
(g) If any statutes, laws, ordinances, rules or regulations are
promulgated at any time after the date of execution of this Lease for the
removal, abatement or containment of a Hazardous Substance in the Leased
premises or any portion of the Leased Premises and, in the reasonable
judgment of Landlord, it is hazardous for the Tenant to remain in the Leased
Premises during such removal, abatement or containment of the Hazardous
Substance, Tenant shall vacate the Leased Premises or that portion of the
Leased Premises that is hazardous and, provided that such condition did not
result from Tenant's acts, omissions, or operations, Tenant's rent shall be
abated proportionately for the period of time in which Tenant's use of such
portion of the Leased Premises has been interrupted.
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(h) Tenant shall not intentionally or unintentionally
use, store, handle, spill or discharge any Hazardous Substance at
or in the vicinity of the Leased Premises. Tenant shall not use
the Leased Premises in any manner which will cause the Leased Premises
to have a standard industrial classification ("SIC") which is covered
by any Environmental Law or which will cause the premises to be deemed
an "Industrial Establishment" as defined under any Environmental Law.
Tenant's failure to abide by the terms of this paragraph (h) shall be
restrainable by injunction.
(i) At anytime during the term of this Lease, Tenant shall supply
to Landlord affidavits of an officer of Tenant setting forth Tenant's SIC
number and describing in detail the operations and processes undertaken by
Tenant at the Leased Premises. Such affidavits shall include a certification
that no Hazardous Substance is generated, used, stored, handled or disposed
of at the Leased Premises or shall state the nature of any such substance and
the methods used in handling the same in reasonable detail. Such affidavits
shall be delivered to Landlord within ten (10) days after request therefor.
(j) Within ten (10) days after request therefor, Tenant shall provide
all information requested from time to time by Landlord, or by any
Enforcement Agency for the preparation of notices submissions or affidavits
(including, without limitation, Non-applicability Affidavit, de Minimis
Quantity Exemption Application, Limited Conveyance Application or
Administrative Consent Order). Within ten (10) days after request therefor,
Tenant shall execute and deliver any document reasonably required in order to
comply with any Environmental Law.
(k) Tenant shall promptly deliver to Landlord copies of all notices made
by Tenant to, or received by Tenant from, any Enforcement Agency or from the
United States Occupational Safety and Health Administration concerning
environmental matters or Hazardous Substances at the Leased Premises.
(l) At any time throughout the term of this Lease and any extension
thereof, Landlord may cause an inspection to be made of the Leased Premises
and its surrounding area for the purpose of determining whether any Hazardous
Substance is present thereon.
(m) Tenant shall indemnify, defend and hold Landlord harmless of and
from any and all claims arising by reason of any violation by Tenant of the
provisions of this Section 5.05 and this indemnity shall survive expiration
or other termination of this Lease.
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Section 5.06 Americans with Disabilities Act
Tenant is responsible for any improvements, capital or otherwise, which
might be required for Tenant to comply with the Americans With Disabilities
Act. Tenant agrees to hold Landlord harmless from any liability which might
arise from Tenant's noncompliance with the Americans with Disabilities Act.
ARTICLE VI - INDEMNITY, INSURANCE AND WAIVER OF CLAIMS
Tenant shall indemnify and defend Landlord and save it harmless from and
against all claims, suits, actions, damages, judgments, liabilities, fines,
penalties and expense for loss of life, personal injury or damage to property
(a) arising from or out of any occurrences within the Leased Premises
(without regard to the cause or claimed cause thereof unless such loss of
life, personal injury or damage to property be due or claimed to be due to
the negligence of Landlord, or its officers, agents or employees occurring
prior to or following the execution of this Lease) or (b) by reason of the
occupancy or use of the Leased Premises or any part of the Project by Tenant
or (c) occasioned wholly or in part by any act or omission of Tenant or
breach of this Lease by Tenant or by its agents, contractors, customers,
employees, servants, lessees or concessionaires. If Landlord shall be made a
party to any litigation commenced by or against Tenant or by any third party
and connected in any way with this Lease or Tenant's use or occupancy of the
Leased Premises, Tenant shall indemnify and hold Landlord harmless and shall
pay all costs, expenses and reasonable attorneys fees incurred or paid by
Landlord in connection with such litigation.
Section 6.02 Insurance
Throughout the term of this Lease and any extensions thereof, and so long
as Tenant or any party claiming under Tenant remains in possession of the
Leased Premises Tenant shall obtain, maintain and pay for comprehensive
general liability (including products liability) insurance covering the
Leased Premises, the business operated by Tenant in the Leased Premises and the
contractual liability of Tenant under this Lease in form and with insurers
and in amounts reasonably satisfactory to Landlord, and with a minimum limit
of One Million Dollars ($1,000,000) for injury or death and One Hundred
Thousand Dollars ($100,000) for property damage, and for such other coverages
as might be required by Landlord. Landlord agrees that the limits of
liability insurance required of Tenant under this Lease shall not exceed the
limits required by comparable landlords of comparable tenants in the Valley
Forge area.
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All insurance policies required to be maintained by Tenant under this
Lease shall be in insurance companies licensed to do business in the
Commonwealth of Pennsylvania, satisfactory to Landlord, and shall name
Landlord and its managing agents as additional parties insured. Certificates
of such insurance (showing payment of current premiums thereon) shall be
delivered to Landlord a minimum of ten (10) days prior to the commencement of
the term of this Lease with renewals thereof delivered to Landlord a minimum
of ten (10) days prior to the expiration of any of such policies. If
requested to do so Tenant shall also provide Landlord with copies of the
pertinent portions of all such policies and also permit Landlord to examine
the original policies. Each policy shall contain an agreement by the insurer
that such policy shall not be canceled or materially modified without ten
(10) days prior notice to Landlord by certified mail. If Tenant fails to
deliver any of the certificates as required in this Lease Landlord may
either, terminate this Lease or procure such insurance at the cost of Tenant
and pay the premiums thereon. Such premiums shall be deemed Additional Rent
and shall be payable by Tenant to Landlord together with interest
immediately upon demand.
Section 6.03 Landlord's Insurance
Landlord will carry such all risk insurance covering the Leased Premises
as Landlord deems necessary or as may be required by any mortgagee of the
Project. If there shall be any increase in premiums that may be charged
during the term of this Lease on any insurance carried by Landlord on the
Project caused by Tenant or from any act or omission of Tenant, Tenant shall
pay as Additional Rent hereunder the amount of such increased premiums. A
schedule issued by the organization establishing the insurance rate on the
Project, showing the components of such rate, shall be conclusive evidence of
the amount of such premiums.
Section 6.04 Waiver of Claim
Tenant waives all claims against Landlord, its agents and servants and
agrees to indemnify and hold it and them harmless for loss of life, damage to
person or property sustained by Tenant or any other occupant of the Leased
Premises or of any other part of the Project or by its or their agents
servants and employees resulting directly or indirectly out of the condition
of the Leased Premises or the Project or resulting from any accident or
occurrence in or about the Leased Premises or the Project (without regard to
the cause or claimed cause thereof unless such loss of life, damage to person
or property be due to the negligence including gross negligence of Landlord,
or its officers, agents or employees occurring prior to or following the
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execution of this Lease) or resulting directly or indirectly from any act or
neglect of any tenant or occupant of the Project or of any other person. All
property belonging to Tenant or any occupant of the Leased Premises or the
Project shall be thereon at the risk of Tenant or such other person only and
Landlord shall not be liable for damage thereto or loss, theft or
misappropriation thereof unless due to the negligence of Landlord, or its
officers, agents or employees occurring prior to or following the execution
of this Lease. Tenant shall be responsible for all goods or property of any
third party left upon the Leased Premises.
Section 6.05 Waiver of Subrogation
All insurance policies carried by either Landlord or Tenant covering the
Leased premises, including but not limited to contents, fire, liability and
casualty insurance, shall expressly waive any right on the part of the
insurer against the other party. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same shall be
obtainable without extra cost, or, if extra cost shall be charged therefor,
so long as the other party pays such extra cost. If extra cost shall be
chargeable therefor, each party shall advise the other of the amount of the
extra cost, and the other party, at its election, may pay the same, but shall
not be obligated to do so.
Each of the parties hereto hereby releases the other, from any an all
liability for any loss or damage which may be inflicted upon the property of
such party, even if such loss or damage shall be brought about by the fault
or negligence (including gross negligence) of the other party or their
respective agents or employees. The foregoing release shall be effective (i)
only with respect to loss or damage occurring during such time as the
appropriate policy of insurance shall contain the waiver hereinabove
described, and (ii) only to the extent that the releasing party recovers (or
should have recovered) for such loss pursuant to insurance policies it is
required to carry pursuant to the terms of this Lease. Notwithstanding the
foregoing sentence, the release set forth in the first sentence of this
paragraph shall be enforceable against any party which fails to carry the
insurance required by this Lease.
ARTICLE VII - DAMAGE OR DESTRUCTION
If any part of the Leased Premises or of the Project shall be damaged or
destroyed by fire or other casualty, Tenant shall give prompt notice thereof
to Landlord.
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If more than thirty percent (30%) of the area of the Leased Premises
shall be rendered untenantable by such fire or other casualty then:
(a) If Landlord does not commence to repair the Leased Premises within
sixty (60) days after the occurrence of such fire or other casualty, Tenant,
at its option, as its sole remedy may terminate this Lease by notice to
Landlord not later than one hundred twenty (120) days after such occurrence,
and;
(b) Landlord may terminate this Lease by notice to Tenant.
Landlord may also terminate this Lease if a substantial part of the
Project shall be damaged or destroyed by fire or other casualty. Upon any
termination as herein permitted, this Lease shall expire as of the date of
such fire or other casualty. If this Lease is not terminated after any fire
or other casualty the Minimum Rent payable under Section 2.01 shall abate in
the proportion that the damaged area of the Leased Premises bears to the
total rentable area thereof until such time as Landlord shall substantially
complete repairs thereto. In the event of any such damage Landlord may enter
upon the Leased Premises and make repairs in accordance with the terms of
this Lease.
Tenant may terminate this Lease if repairs cannot be completed within
180 days after occurrence of the casualty, or if Landlord fails to use
diligent efforts to complete such repairs within 180 days after occurrence of
the casualty.
ARTICLE VIII - EMINENT DOMAIN
Section 8.01 Total Condemnation
If the whole of the Leased Premises shall be condemned by eminent domain
or shall be conveyed by Landlord in lieu of any such condemnation for any
public or quasi-public use or purpose, the term of this Lease shall expire as
of the date on which possession of the Leased Premises is required to be
surrendered to the condemning authority, and all rent shall be paid up to
such date.
Section 8.02 Partial Condemnation
If more than five percent (5%) of the floor area of the Leased Premises
shall be condemned by eminent domain or shall be conveyed by Landlord in lieu
of any such condemnation for any public or quasi-public use or purpose and
the remainder of the Leased Premises shall thereafter be unsuitable for the
business
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of Tenant, the term of this Lease shall cease and terminate as of the date on
which possession of the Leased Premises is required to be surrendered to the
condemning authority as though such condemnation or conveyance were a total
condemnation under Section 8.01. If the remainder of the Leased Premises
after such condemnation or conveyance is suitable for the business of Tenant,
Landlord shall promptly restore the Leased Premises to the extent of net
condemnation proceeds available for such purpose after payment of all costs
and payment of any amounts that may be due to any first mortgagee for the
value of the diminished fee, to a condition as nearly comparable as possible
to its condition immediately preceding such condemnation or conveyance, and
rent shall abate in the ratio that the area of the Leased Premises condemned
or conveyed bears to the total area of the Leased Premises before such
condemnation or conveyance.
Section 8.03 Condemnation of the Project
If any part of the Project shall be condemned by eminent domain or shall
be conveyed by Landlord in lieu of such condemnation for any public or
quasi-public use or purpose and the remainder of the Project after such
conveyance or condemnation shall be unsuitable, in the opinion of Landlord,
for continued operation as an integral unit, Landlord may elect to treat
such condemnation or conveyance as a condemnation or conveyance of the whole
of the Leased Premises under the terms of Section 8.01. If Landlord does not
elect the foregoing option, this Lease shall continue without any right on
the part of Tenant to claim any reduction in rent or other payments due
hereunder by reason of the reduction in size of the Project.
Section 8.04 Awards
If the Leased Premises or the rights of Tenant under this Lease shall be
affected in any way by any condemnation or conveyance in lieu thereof, Tenant
waives all claims of any nature whatsoever against Landlord and assigns to
Landlord all claims of any nature against the condemning authority arising by
reason of such condemnation or conveyance in lieu thereof, including without
limitation all claims for loss of Tenant's leasehold estate. Notwithstanding
the foregoing, Tenant may file such claims with the condemning authority as may
be permitted by applicable law for removal expenses, business dislocation
damages, and moving expenses but only so long as such claims do not reduce
any award otherwise payable to Landlord.
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ARTICLE IX - ASSIGNMENT AND SUBLETTING
Section 9.01 Assignment and Subletting
(a) Tenant shall not assign this Lease nor sublet all or any part of the
Leased Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed. For the purposes of this
section, any mortgage, conveyance, transfer or encumbrance of this Lease and
any transfer by operation of law, and any transfer of any right to possession
or use of the Leased Premises shall be deemed an assignment or subletting.
Landlord's consent to an assignment of this Lease or a subletting of the
Leased Premises or any part thereof shall be deemed to be unreasonably
withheld if the proposed assignee or subtenant is of such financial standing
and responsibility at the time of such assignment or subletting as to give
reasonable assurance of the payment of all Minimum Rent, Additional Rent and
other amounts reserved in this Lease and compliance with all the terms,
covenants, provisions and conditions of this Lease. Notwithstanding the
foregoing, so long as Landlord or any entity affiliated with, or related to,
Landlord, occupies the Landlord's Space (as defined in Section 17.01 hereof),
Landlord may withhold its consent to an assignment or subletting if the use
or identity of the proposed assignee or subtenant is unsatisfactory to
Landlord in Landlord's sole discretion. Tenant shall pay to Landlord sixty
percent (60%) of any profit realized by Tenant from an assignment or
subletting.
(b) Consent by Landlord to any assignment or subletting shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment or subletting.
(c) If the Leased Premises be occupied by anyone other than Tenant,
whether as assignee, subtenant, concessionaire or otherwise, Landlord may
collect rent from such occupant, and apply the net amount collected to the
rent reserved under this Lease and acceptance of such rent shall not be
deemed a consent to any such occupancy or any such other party.
(d) An attempted assignment without the consent of Landlord may, at the
option of the Landlord, be treated as an offer to terminate this Lease.
(e) Any consent by Landlord to any assignment of this Lease may be
conditioned upon the assignee assuming the full and faithful performance of
all the terms and conditions of this Lease and upon the continued liability
of Tenant under all the terms hereof. Any consent by Landlord to any
subletting shall be conditioned upon the express agreement by the subtenant
to be
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bound by the terms, covenants and conditions and restriction of this Lease
applicable to Tenant.
(f) This Lease shall be deemed to be assigned if Tenant merges with any
other entity. Landlord shall not unreasonably withhold its consent to such an
assignment if the entity which results from the merger will be of such
financial standing and responsibility as to give reasonable assurance of the
payment of all Minimum Rent, Additional Rent and other amounts reserved in
this Lease and compliance with all the terms, covenants, provisions and
conditions of this Lease. Landlord shall be deemed to be unreasonable in
withholding consent if the book value, excluding good will, of the resulting
entity exceeds the book value, excluding good will, of the Tenant before the
merger. This Lease shall be deemed to be assigned if Tenant liquidates or
dissolves. This Lease shall not be deemed to be assigned if the control of
Tenant changes.
(g) Tenant may assign this Lease to any affiliate or subsidiary entity
of Communications Group, Inc. without Landlord's consent upon satisfaction of
the following conditions: (a) no event of default shall have occurred and be
continuing under this Lease; and (b) such assignment shall include the entire
Premises. The terms "affiliate" and "subsidiary entity" as used in this
Section shall refer only to entities wholly owned or controlled by
Communications Group, Inc. Tenant shall not be relieved or discharged from
its obligations and liabilities under this Lease as the result of an
assignment pursuant to this paragraph.
Section 9.02 "Landlord"
The word "Landlord" when used in this Lease shall mean the owner from
time to time of the Lessor's interest in this Lease. If the interest or
estate of Landlord in the Leased Premises shall terminate by operation of law
or by a sale of the premises or by execution or foreclosure sale or for any
other reason, or if any third party becomes entitled to collect and receive
rent under this Lease, Landlord shall be released and relieved from all
liability thereafter under this Lease. Landlord's liability under this Lease
shall be limited to the Landlord's interest in the Project without direct or
personal liability on the part of any partners, joint venturers or others.
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ARTICLE X - SUBORDINATION AND QUIET ENJOYMENT
Section 10.01 Subordination
This Lease and all of the terms, covenants and conditions hereof is and
shall be subject and subordinate to any mortgage or mortgages or prior leases
affecting the Leased Premises or the Project or any part of either of them.
However, if any mortgagee or prior lessor so requests, Tenant shall execute,
acknowledge and deliver an agreement in form satisfactory to such mortgagee
or prior lessor subordinating such mortgage to this Lease, or agreeing to
attorn to such mortgagee or prior lessor, or both.
Section 10.02. Offset Statement
Within ten (10) days after request by Landlord or upon any sale,
assignment or mortgage of the Leased Premises, Tenant shall execute and
deliver to Landlord or to any proposed mortgagee or purchaser a certificate
in recordable form stating (if such be the case) that this Lease is in full
force and that there are no defenses or offsets thereto, or stating those
claimed by Tenant.
Section 10.03 Quiet Enjoyment
Subject to the express provisions of this Article and upon payment of
the rents and performance of all the other covenants, terms and conditions of
this Lease, Tenant shall peaceably and quietly hold and enjoy the Leased
Premises for the term herein specified, without hindrance by Landlord or
anyone claiming by or through Landlord, subject nevertheless to the terms and
conditions hereof.
Section 10.04 Estoppel Certificate
Tenant and Landlord shall, at any time and from time to time upon not
less than ten (10) days' prior request by the other party, execute,
acknowledge and deliver to Landlord or Tenant, as the case may be, a
statement in writing certifying that (i) this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications) and, if so,
the dates to which the rent and any other charges have been paid in advance,
and (ii) that no default hereunder on the part of Landlord or Tenant, as the
case may be, exists (except that if any such default does exist, the
certifying party shall specify such default), it being intended that any such
statement delivered pursuant to this Section may be relied upon by any person
for whom such statement may reasonably be requested
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including, but not limited to, any prospective purchaser or mortgagee of the
Project.
Section 10.05 Non-Disturbance
If Landlord desires to refinance the Project, Landlord shall use
commercially reasonable efforts to procure from Landlord's lender a
nondisturbance agreement which provides in substance, that:
a. Tenant shall not be joined as a party defendant (i) in any action or
proceeding which may be instituted or taken by the lessor of such superior
lease for the purpose of terminating such superior lease by reasons of any
default thereunder, or (ii) in any foreclosure action or proceeding which may
be instituted or taken by the holder of such superior mortgage;
b. Tenant shall not be evicted from the Premises, nor shall any of
Tenant's rights under the Lease be affected in any way, by reason of any
default under such superior lease or such superior mortgage; and
c. Tenant's leasehold estate under the Lease shall not be terminated or
disturbed, by reason of any default under such superior lease or such
superior mortgage.
d. Landlord agrees to use commercially reasonable efforts to procure and
deliver to Tenant, with reasonable promptness after the date of the Lease,
written agreements of the holders of the all mortgages encumbering the
Building, containing nondisturbance provisions substantially similar to (a)
through (c) of this section.
ARTICLE XI - RIGHTS OF LANDLORD
Section 11.01 Right of Entry
Landlord or Landlord's agents or such persons as Landlord may authorize
may enter the Leased Premises at all reasonable times, after reasonable
notice, for purposes of examination, exposition to Landlord's existing lender
and to prospective purchasers, lenders or tenants of the Leased Premises or
the Project, and making of repairs, alterations, improvements and additions
to the Leased Premises or the Project all as Landlord may deem necessary or
desirable. Landlord may take into the Leased Premises all material that may be
required to make such repairs, alterations, improvements or additions. No
such entry upon the Leased Premises shall be deemed an eviction of Tenant in
whole or in part and the rent reserved in this Lease
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shall not abate in whole or in part while any such repairs, alterations,
improvements or additions are being made by Landlord. Landlord shall not be
liable to Tenant for any damage, decrease or loss of business occurring
either during or after the making of any such repairs, alterations,
improvements or additions. If Tenant or a designee of Tenant shall not be
present to open and permit entry into the Lease Premises at any time when
such entry shall be necessary or permissible, Landlord or its agents may
enter the Leased Premises by a master key or may forcibly enter thereon,
without rendering Landlord or such agent liable therefor and without
affecting the obligations and covenants of Tenant. The reservation of rights
in this Section shall not be construed as imposing upon Landlord any
obligation, responsibility or liability whatsoever for the care, maintenance
or repair of the Project or of the Leased Premises except as specifically
provided in this Lease.
Section 11.02 Utilities and Conduits
Landlord may from time to time place conduits or other facilities for
utilities servicing other portions of the Project over, across or through
such portions of the Leased Premises not unreasonably interfering with the
appearance thereof or conduct of business therein by Tenant, as Landlord
deems necessary or advisable.
ARTICLE XII - DEFAULT AND REMEDIES
Section 12.01 Events of Default
The following shall be considered "Events of Default:"
(a) The failure of Tenant to pay, within five (5) days of the date when
due, any installment of rent or Additional Rent or any other sum payable by
Tenant under this Lease.
(b) The failure to perform, violation or breach by Tenant of any of the
material terms, covenants or conditions of this Lease, which failure,
violation or breach shall continue unremedied by Tenant for a period of
thirty (30) days after written notice thereof shall have been given to Tenant
by Landlord, or for such additional period as may be necessary to remedy such
failure, violation or breach with due diligence.
(c) The insolvency of Tenant as evidenced by an assignment by Tenant for
the benefit of creditors, a petition in bankruptcy or for reorganization or
an arrangement under any bankruptcy or insolvency law being filed
voluntarily by Tenant, the adjudication of Tenant as a bankrupt, the issuance
by any
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court of an order for relief as the filing against Tenant of a petition for
appointment of a receiver of all or any part of Tenant's assets or property
either in bankruptcy or other insolvency proceedings, unless such proceedings
shall be stayed or dismissed within sixty (60) days of the filing thereof, or
the levy against any portion of the assets or property of Tenant by the
Sheriff or other designated authority of any governmental subdivision having
jurisdiction thereover. If an order for relief shall be granted, Tenant, or
any party claiming on behalf of Tenant, shall be deemed to have given
adequate assurances only if Landlord is reasonably assured that a party or
substantial financial strength will continue occupancy of the Premiss,
continue to pay rent and in general be in a position to operate a business on
the Leased Premises for a term of more than one year.
Section 12.02 Effect of an Event Default
Upon the occurrence of any event of default, as a result thereof and
without entry or other action by Landlord:
(a) The balance of all renta and other charges to become due throughout
the term hereof shall, at the option of Landlord, be accelerated and shall be
immediately due and payable, and Landlord any in its own name, but as agent
for Tenant, assign, sublet or relet the Leased Premises for any period equal
to or greater or less than the remainder of the term hereof for any sum which
Landlord mat deem reasonable to any lessee Landlord may select, and for any
use or purpose which Landlord may designate. If Landlord so sublets or
assigns this Lease, Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's agent to collect rents due from such assignee or
sublessee and apply the same to the rent due hereunder without in any way
affecting Tenant's obligation to pay any unpaid balance of rent and other
charges due hereunder. In the event of such assignment or subletting,
Landlord shall apply the rents received therefrom to the obligation of Tenant
hereunder until Landlord shall have recovered in full all amounts due and
owing from Tenant to Landlord together with a service charge of ten percent
(10%) to Landlord. Landlord shall be under no obligation whatsoever, either
to assign, sublet or relet the Leased Premises, at any time or upon any
specific terms and conditions.
(b) At the option of Land this agreement and the term created hereby
shall cease and determine and become absolutely void without any
right on the part of Tenant to save the forfeiture by payment of any sum due
or by other performance of any term, covenant or condition broken or
defaulted, whereupon Landlord shall be entitled to recover damages for such
event of default in an amount equal to the present value of (a) the rent
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reserved for the balance of the term hereof, less (b) the fair rental value
of the Leased Premises for the balance thereof.
Section 12.03 Remedies of Landlord
Upon the occurrence of any event of default, Landlord or anyone acting
on Landlord's behalf, at Landlord's option, may exercise any one or more the
following remedies:
(a) Without notice or demand enter the Leased Premises, breaking open
locked doors, if necessary, to effect entrance, without liability to action or
prosecution for damages for such entry or for the manner thereof, for the
purpose of distraining (to the extent permitted by law) or levying and for
any other purposes, and take possession of an sell all goods and chattels of
Tenant at auction on three (3) days' notice served in person on Tenant or
left on the Leased Premises, and retain the proceeds thereof on account of
Tenant's obligations hereunder; and Tenant hereby forever remises, releases
and discharges Landlord, and its agents, from all claims, actions, suits,
damages, and penalties, for or by reason or on account of any entry,
distraint, levy, appraisement or sale; or
(b) Enter the Leased Premises and without demand proceed by distress (if
permitted by law) and sale of the goods of Tenant there found (or by such
other means as may then be permitted to enforce Landlord's lien) to levy the
rent or other charges herein payable as rent, and all costs and officers'
commission, including watchmen's wages and sums chargeable to Landlord, and
further including a sum equal to five percent (5%) of the amount of the levy
as commission to the constable or other person making the levy, shall be paid
by Tenant and in such case all costs, officers' commissions and other charges
shall immediately attach and become part of the claim of Landlord for rent,
and any tender of rent without said costs, commissions and charges made after
the issue of a warrant of distress shall not be sufficient to satisfy the
claim of Landlord. Tenant hereby expressly waives in favor of Landlord the
benefit of all laws now made or which may hereafter be made regarding any
limitation as to the goods upon which, or the time within which, distress (or
any such other procedure) is to be made after removal of goods, and further
relieves Landlord of its obligations of proving or identifying such goods, it
being the purpose and intent of this provision that all goods of Tenant in,
on or about the Leased Premises shall be liable to distress for rent and
subject to Landlord's lien. Tenant authorizes the sale of any goods
distrained for rent at any time after five (5) days from said distraint
without any appraisement or condemnation thereof.
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(c) Lease the Leased Premises or any part of parts thereof to such
person or persons for such rents and for such terms as may, in Landlord's
discretion, seem best without affecting Tenant's liability for any loss of
rent for the balance of the term.
(d) In the event of breach or threatened breach by Tenant of any
provision of this Lease, Landlord shall have the right of injunction as if
other remedies were not provided for herein.
(e) Any Minimum Rent and Additional Rent overdue for a period of more
than 5 days shall bear interest at the rate of twelve percent (12%) per annum
until paid to compensate Landlord for the extra expense of dealing with and
monitoring late payments. In addition, Tenant shall pay Landlord a late fee
of ten percent (10%) of the gross amount of any payment which is more than
five (5) days late.
(f) Tenant expressly waives any right of defense which it may have based
on any purported merger of any cause of action, and neither the commencement
of any action or proceeding nor the settlement thereof or entering of
judgment therein shall bar Landlord from bringing subsequent actions or
proceedings from time to time.
(g) Tenant hereby empowers any Prothonotary or attorney of any court of
Record to appear for Tenant in any and all actions which may be brought for
Minimum Rent and Additional Rent, including the charges, payments, costs and
expenses herein reserved, or herein agreed to be paid by Tenant and/or to
sign for Tenant an agreement for entering in any competent Court an amicable
action or actions for the recovery of such rent or other charges or expenses,
and in said suits or in said amicable action or actions for the recovery-of
such rent or other charges or expenses, in said suits or in said amicable
action or actions to confess judgment against Tenant for all or any part of
the rent specified in this Lease and then due and unpaid, and other charges,
payments, costs and expenses reserved as rent or agreed to be paid by Tenant
and then due and unpaid, and for interest and costs together with a
reasonable attorney's commission. Such authority shall not be exhausted by
one exercise thereof, but judgment may be confessed as aforesaid from time to
time as often as any of said rent and/or other charges reserved as rent or
agreed to be paid by Tenant shall fail due or be in arrears.
(h) Upon the expiration of then current term of this Lease or the
earlier termination or surrender hereof as provided in this Lease, it shall
be lawful for any attorney to appear as attorney for Tenant as well as for
all persons claiming by,
-30-
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through or under Tenant and to sign an agreement for entering in any
competent Court an amicable action in ejectment against Tenant and all
persons claiming by, through or under Tenant and therein confess judgment for
the recovery of Landlord of possession of the herein Premises, for which this
Lease shall be its sufficient warrant, whereupon, if Landlord so desires, a
writ of possession or other appropriate writ under the Rules of Civil
Procedure then in effect may issue forthwith, without any prior writ or
proceedings; provided, however, if or any reason after such action shall have
been commenced, the same shall be determined and the possession of the
Premises hereby demised remain in or be restored to Tenant, Landlord shall
have the right for the same default and upon any subsequent default or
defaults, or upon the termination of this Lease under any of the terms of
this Lease to bring one of more further amicable action or actions as
hereinbefore set forth to recover possession of the said Premises and confess
judgment for the recovery of possession of the Premises as hereinabove
provided.
(i) In any amicable action for ejectment and/or for rent in arrears,
Landlord shall first cause to be filed in such action an affidavit made by it
or someone acting for it, setting forth the facts necessary to authorize the
entry of judgment, and, if a true copy of this Lease (and of the truth of the
copy such affidavit shall be sufficient evidence) be filed in such action,
it shall not be necessary to file the original as a warrant of attorney, any
rule of Court, custom or practice to the contrary notwithstanding. Tenant
hereby releases to Landlord and to any and all attorneys who may appear for
Tenant all errors in said proceedings and all liability thereof. If
proceedings shall be commenced by Landlord to recover possession under the
Acts of Assembly and Rules of Civil Procedures, either at the end of the term
or earlier termination of this Lease, or for non-payment of rent or any other
reason, Tenant specifically waives the right to the 3 months' notice and to
the 15 or 30 days' notice required by the Landlord and Tenant Act of 1951,
and agrees that 5 days' notice shall be sufficient in either or any such case.
(i) Landlord shall use reasonable efforts to mitigate damages, and,
with respect to any computation of liquidated damages, Tenant shall be
entitled to a credit for the fair rental value of the Leased Premises.
Section 12.04 Cost of Enforcement
Tenant shall pay to Landlord, as Additional rent upon demand, all of
Landlord's cost, charges and expenses including without limitation the
reasonable fees of counsel, agents and others retained by Landlord for the
enforcement of Tenant's obligations under this Lease and also any such costs,
charges,
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expenses or fees incurred by Landlord in any litigation in which Landlord,
without Landlord's fault becomes involved or concerned by reason of this
Lease or the relationship of Landlord and Tenant under this Lease.
Section 12.05 Waiver of Notice, Right of Redemption and Trial by Jury
(a) With the exception of the notices specifically proved for in Section
12.01 of this Lease, tenant waives all rights to legal notice whether
provided by statute or common law and agrees that five (5) days notice of any
proceedings to recover possession at any time shall be sufficient.
(b) Tenant waives all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed
for any reason as provided in this Lease.
(c) The parties hereby waive trial by jury in any action, proceeding, or
counterclaim brought by either of them against the other on any matters
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Leased Premises, and/or
any claim of injury or damage.
Section 12.06 Cumulative Remedies
All of the remedies hereinabove given to Landlord and all rights and
remedies given to it by law and equity shall be cumulative and concurrent. No
determination hereof or the taking or recovering of the Leased Premises shall
deprive Landlord of any of its remedies or actions against Tenant for rent or
any and all other sums due at the time or which, under the terms hereof,
would in the future have become due if there had been no determination, nor
shall the bringing of any action for rent or for breach or default under any
term, condition or covenant, or the resort to any other remedy herein
provided for the recovery of rent, be construed as a waiver of the right to
obtain possession of the demised premises.
Section 12.07 Landlord's Right to Enforce Strictly
Any law, usage or custom to the contrary notwithstanding, Landlord shall
have the right at all times to enforce all terms, conditions and covenants
hereof in strict accordance herewith, notwithstanding any conduct or custom
on the part of Landlord in refraining from so doing at any time or times.
Further, the failure of Landlord at any time or times to enforce its rights
hereunder strictly in accordance with the same shall not be construed as
having created a custom in any way or
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manner contrary to any specific term, condition or covenant hereof, or as
having in any way or manner modified the same.
ARTICLE XIII -- SECURITY DEPOSIT
Section 13.01 Purpose of Deposit
The security deposit posted by Tenant under the terms of Section 1.06 of
this Lease shall be held by Landlord as security for the faithful performance
by Tenant of all of the terms, covenants, and conditions of this Lease
throughout the term and any extensions thereof. If at any time during the
term of this Lease any of the rent reserved in this Lease shall be overdue
and unpaid or any other sum payable by Tenant to Landlord under this Lease
shall be overdue and unpaid, Landlord may, in its sole discretion and in
addition to any other remedies provided at law or in equity or by this Lease
appropriate and apply any portion of such deposit to the payment of any such
overdue rent or other sum. Within sixty (60) days after expiration of the
term of this Lease, as such term might be extended from time to time,
Landlord shall refund the security deposit, if any, less any reduction
therein because of default on the part of Tenant.
Section 13.02 Use of Deposit
If Tenant shall fail to keep and perform any of the terms, covenants and
conditions of this Lease binding upon Tenant, Landlord may at its sole
discretion in addition to any other right or remedy provided in this Lease or
at law or in equity, appropriate and apply so much of such deposit as may be
necessary to compensate Landlord for all loss or damage sustained or
suffered by Landlord by reason of such breach by Tenant. Should any part of
such deposit be appropriated and applied by Landlord for any reason, Tenant
shall promptly upon receipt of such notice thereof, pay to Landlord such
amounts as may be necessary to restore such deposit to the amount set forth
in Section 1.06. Tenant's failure to maintain such deposit at the amount set
forth in Section 1.06 shall constitute a material breach of this Lease.
Section 13.03 Transfer of Deposit
Upon any transfer of the Landlord's interest in this Lease to a
successor, Landlord may deliver the amount of such deposit to such successor
whereupon Landlord shall be relieved of any obligation to return such deposit
to Tenant and Tenant shall thereafter look to such successor for
the performance of all the terms of this Article.
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ARTICLE XIV - MISCELLANEOUS PROVISIONS
Section 14.01 Brokers
Landlord and Tenant represent to each other that neither has dealt with
any broker, agent, finder or other intermediary, and each party agrees to
indemnify, defend and hold the other harmless from and against any and all
liabilities, suits or claims arising by reason of any such party claiming to
have dealt with either Landlord or Tenant in connection with this Lease.
Section 14.02 Tenant
The word "Tenant" used in this Lease shall mean every person or party
named as Tenant in this Lease. Any notice given as provided in Section 1.08
shall bind all such parties and it shall have the same force as if given to
all of them. The use of the neuter singular pronoun to refer to Landlord and
Tenant shall be deemed a proper reference to either of them whether they be
an individual, a partnership or any form of joint venture.
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Section 14.03 Accord and Satisfaction
No acceptance by Landlord of an amount less than the monthly rent and
other payments stipulated to be due under this Lease shall be deemed to be
other than a payment on account of the earliest such rent or other payments
then due or in arrears nor shall any endorsement or statement of any check or
letter accompanying any such payment be deemed an Accord and Satisfaction.
Landlord may accept any check for payment by Tenant without prejudice to
Landlord's right to recover the remainder of any rent or other payment then
in arrears and Landlord may pursue any other remedy provided in this Lease.
No acceptance by Landlord of any payment of rent or other sum by Tenant shall
be deemed a waiver of any of the obligations of Tenant under this Lease.
Section 14.04 Holding Over
Any Holding Over after the expiration of the term of this Lease, with
the consent of Landlord, shall at Landlord's option be construed to be a
tenancy either from month to month at the rent and other payments herein
specified and shall otherwise be subject to the conditions, covenants and
agreements of this Lease. If Tenant shall Hold Over without the consent of
Landlord after the termination of this Lease for any reason whatsoever,
Tenant shall pay as liquidated damages and not as a penalty an amount equal
to twice the prorated Minimum Rent for the period during which such Holding
Over continues, but the acceptance of such amount by Landlord shall be
without prejudice to any other rights or remedies of Landlord at law or in
equity or under this Lease.
Section 14.05 Recording
Tenant shall not Record this Lease without the written consent of
Landlord. If requested by Landlord a memorandum or short-form Lease setting
from only such items as are required to be set forth under the Laws of the
Commonwealth of Pennsylvania in effect at such time shall be executed by
Tenant.
Section 14.06 Delays
If either party to this Lease shall be delayed or prevented from the
performance of any obligation hereunder (other than the obligation of Tenant
to pay Minimum Rent or Additional Rent when due) by reason of labor disputes,
inability to procure materials, failure of utility services, restrictive
governmental laws or regulations, riots, insurrection, war or other similar
causes beyond the control of such party, the performance of such act shall be
excused for the period of the delay. The provisions
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of this Section 14.08 shall not excuse Tenant from the prompt payment of any
sums payable under any of the provisions of this Lease.
Section 14.07 Entire Agreement
This Lease and the Exhibits and any Rider attached hereto sets forth the
Entire Agreement between the Parties and there are no other agreements
expressed or implied, oral or written, except as herein set forth. This
Agreement may not be amended, altered or changed except in writing executed
by both the parties hereto.
Section 14.08 Captions
The Captions, Section numbers, Article numbers and Index appearing in
this Lease are inserted only for the convenience of the Parties and shall not
in any way affect the meaning or intent of any portion of this Lease.
Section 14.09 Partial Invalidity and Construction
The Sections of this Lease are intended to be severable. If any Section
or provision of this Lease shall be held to be unenforceable by any court of
competent jurisdiction, this Lease shall be construed as though such Section
had not been included in it. If any Section or provision of this Lease shall
be subject to two constructions, one of which would render such Section or
provision invalid, then such Section shall be given that construction which
would render it valid.
Section 14.10 Successors
The provisions of this Lease shall be binding upon the respective
Parties hereto and their respective heirs, administrators, successors and
assigns provided that this provision shall not be deemed the consent by
Landlord to any subletting or assignment by Tenant except as herein
specifically provided.
Section 14.11 No Joint Venture
Any intention to create a joint venture or partnership is hereby
expressly disclaimed.
Section 14.12 Landlord's Waiver
Notwithstanding anything contained within this Lease to the contrary,
Tenant shall have the right to finance and to secure under the Uniform
Commercial Code, inventory fixtures,
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furnishings, furniture, equipment, machinery, signs, and other personal
property located at the Leased Premises. Tenant's right to finance as herein
provided shall be paramount and superior to any lien of Landlord and Landlord
hereby waives any statutory or contractual landlord's lien it may have in
Tenant's personalty. Landlord agrees to execute waiver agreements in favor of
any purchase money seller, lessor or lender which has financed or may finance
in the future such items.
Section 14.13 Landload's Expenses
Any and all expenses and costs incurred by Landlord under the Lease that
are payable either directly or indirectly by Tenant shall be limited to
reasonable expenses and costs necessary to Landlord's performance of its
obligations under the Lease.
<PAGE>
furnishings, furniture, equipment, machinery, signs, and other personal
property located at the Leased Premises. Tenant's right to finance as herein
provided shall be paramount and superior to any lien of Landlord and Landlord
hereby waives any statutory or contractual landlord's lien it may have in
Tenant's personalty. Landlord agrees to execute waiver agreements in favor of
any purchase money seller, lessor or lender which has financed or may finance
in the future such items.
Section 14.13 Landload's Expenses
Any and all expenses and costs incurred by Landlord under the Lease that
are payable either directly or indirectly by Tenant shall be limited to
reasonable expenses and costs necessary to Landlord's performance of its
obligations under the Lease.
<PAGE>
In WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
WITNESS LANDLORD:
/s/ Illegible
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
ATTEST: TENANT
/s/ Mary Ann Daves /s/ Mark H. Daugherty
- ------------------------------- ------------------------------------
Corporate Secretary CFO
- ------------------------------- ------------------------------------
<PAGE>
EXHIBIT A
[graphic]
<PAGE>
EXHIBIT B
DESCRIPTION OF THE LAND ON WHICH THE BUILDING IS LOCATED
Address: 901 Trooper Road, Norristown, Pennsylvania
Tax Parcel No.: 15142007
Township #43, Block 63 G, Lot 16
Size: 69,250 square feet
Legal Description: [attach]
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Exhibit 10.18
<PAGE>
- -------------------------------------------------------------------------------
LEASE AGREEMENT
BETWEEN
WHVPW REAL ESTATE LIMITED PARTNERSHIP, AS LANDLORD,
AND
CTI GROUP (HOLDINGS) INC., AS TENANT
a Delaware corporation
DATED, July 10, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. LEASE GRANT..................................................... 1
2. TERM............................................................ 1
3. RENT............................................................ 1
(a) Basic Rent............................................... 1
(b) Payment.................................................. 1
(c) Operating Costs.......................................... 2
4. DELINQUENT PAYMENT; HANDLING CHARGES............................ 4
SECURITY DEPOSIT..................................................... 4
- ----------------
SECURITY DEPOSIT..................................................... 4
6. LANDLORD'S OBLIGATIONS.......................................... 4
(a) Services................................................. 5
(b) Excess Utility Use....................................... 5
(c) Restoration of Services; Abatement....................... 5
(d) Landlord's Right to Perform Tenant's Obligations......... 5
(e) Landlord's Work.......................................... 5
7. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE................. 5
(a) Improvements; Alterations................................ 5
(b) Repairs; Maintenance..................................... 5
(c) Performance of Work...................................... 6
(d) Mechanic's Liens......................................... 6
8. USE............................................................. 7
<PAGE>
<TABLE>
<S> <C>
9. ASSIGNMENT AND SUBLETTING....................................... 7
(a) Transfers; Consent....................................... 7
(b) Cancellation............................................. 8
(c) Additional............................................... 8
10. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY...................... 8
(a) Insurance................................................ 8
(b) Waiver of Negligence; No Subrogation..................... 9
(c) Indemnity................................................ 9
11. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE....... 10
(a) Subordination............................................ 10
(b) Attornment............................................... 10
(c) Notice to Landlord's Mortgagee........................... 10
(d) Landlord's Mortgagee's Protection Provisions............. 10
12. RULES AND REGULATIONS........................................... 11
13. CONDEMNATION.................................................... 11
(a) Total Taking............................................. 11
(b) Partial Taking - Tenant's Rights......................... 11
(c) Partial Taking - Landlord's Rights....................... 11
(d) Award.................................................... 12
14. FIRE OR OTHER CASUALTY.......................................... 12
(a) Repair Estimate.......................................... 12
(b) Landlord's and Tenant's Rights........................... 12
(c) Landlord's Rights........................................ 12
(d) Repair Obligation........................................ 13
15. PERSONAL PROPERTY TAXES......................................... 13
16. EVENTS OF DEFAULT............................................... 13
17. REMEDIES........................................................ 14
18. PAYMENT BY TENANT; NON-WAIVER................................... 15
(a) Payment by Tenant........................................ 15
(b) No Waiver................................................ 15
19. LANDLORD'S LIEN................................................. 15
20. SURRENDER OF PREMISES........................................... 15
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S>
21. HOLDING OVER............................................ 15
22. CERTAIN RIGHTS RESERVED BY LANDLORD..................... 16
23. SUBSTITUTION SPACE...................................... 16
24. MISCELLANEOUS........................................... 16
(a) Landlord Transfer................................... 16
(b) Landlord's Liability................................ 16
(c) Force Majeure....................................... 17
(d) Brokerage........................................... 17
(e) Estoppel Certificates............................... 17
(f) Notices............................................. 17
(g) Separability........................................ 17
(h) Amendments; and Binding Effect...................... 17
(i) Quiet Enjoyment..................................... 18
(j) No Merger........................................... 18
(k) No Offer............................................ 18
(l) Entire Agreement.................................... 18
(m) Waiver of Jury Trial................................ 18
(n) Governing Law....................................... 18
(o) Joint and Several Liability......................... 18
(p) Financial Reports................................... 18
(q) Landlord's Fees..................................... 19
(r) Telecommunications.................................. 19
(s) General Definitions................................. 19
(t) Confidentiality..................................... 19
(u) Hazardous Materials................................. 19
(v) List of Exhibits.................................... 20
25. Other Provisions........................................ 20
</TABLE>
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<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Additional Rent..................................................... 1
Affiliate........................................................... 18
Basic Rent.......................................................... 1
Building............................................................ 1
Building's Structure................................................ 4
Casualty............................................................ 10
Collateral.......................................................... 14
Damage Notice....................................................... 10
Event of Default.................................................... 11
Hazardous Materials................................................. 18
including........................................................... 18
Interest Rate....................................................... 3
Landlord............................................................ 1
Landlord's Mortgagee................................................ 9
Law................................................................. 18
Laws................................................................ 18
Lease............................................................... 1
Loss................................................................ 8
Operating Costs..................................................... 2
Operating Costs and Tax Statement................................... 3
Permitted Use....................................................... 6
Premises............................................................ 1
Proportionate Share................................................. 3
Rent................................................................ 1
Taking.............................................................. 10
Taxes............................................................... 3
Tenant.............................................................. 1,12
Tenant Party........................................................ 18
Transfer............................................................ 6
UCC................................................................. 14
</TABLE>
iv
<PAGE>
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as of July 10, 1998,
between WHVPW Real Estate Limited Partnership, a Delaware limited partnership
("Landlord"), and CTI Group (Holdings), Inc., a Delaware Corporation
("Tenant").
1. Lease Grant. Subject to the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, Building B (the "Premises") as
depicted in the plan attached as Exhibit A in the office building (the
"Building") located at 2550 Eisenhower Avenue, Norristown, PA 19403, known as
Pinebrook II. The land on which the Building is located is described on
Exhibit B. The term "Building" includes the related land, driveways, parking
facilities, and similar improvements.
2. Term
(a) The term of this Lease shall be five (5) years and six (6)
months, commencing as of the Commencement Date (as hereinafter defined) and
expiring at 5:00 p.m., on the date that is the last day of the sixth month of
the sixth year following the Commencement Date;
(b) the "Commencement Date" as used herein shall mean July 25, 1998.
Notwithstanding anything to the contrary contained herein, Landlord hereby
agrees to allow Tenant possession of the premises 5 days prior to the
Commencement Date (the "Occupancy Date") on the terms and conditions
contained in this Lease, provided, however, that Tenant's obligation to pay
Fixed Rent and Additional Rent shall not commence until the Commencement Date.
3. Rent.
(a) Basic Rent. "Basic Rent" (herein so called) shall be the
following amounts for the following periods of time:
Time Period Monthly Basic Rent
Months 1-12 $ 3,599.75
Months 13-24 $ 4,340.88
Months 25-36 $ 5,082.00
Months 37-48 $ 5,293.75
Months 49-66 $ 5,505.50
(b) Payment. Tenant shall timely pay to Landlord Basic Rent and all
additional sums to be paid by Tenant to Landlord under this Lease
(collectively, the "Rent"), without deduction or set off, at
Landlord's address provided for in this Lease or as otherwise
specified by Landlord. Basic Rent, adjusted as herein provided,
shall be payable monthly in advance, and shall be accompanied by
all applicable state and local sales or use taxes. The first
monthly installment of Basic Rent shall be payable
contemporaneously with the execution of this Lease; thereafter,
Basic
<PAGE>
Rent shall be payable on the first day of each month beginning
on the first day of the second full calendar month of the Term.
The monthly Basic Rent for any partial month at the beginning of
the Term shall equal the product of 1/365 of the annual Basic
Rent in effect during the partial month and the number of days in
the partial month from and after the Commencement Date, and shall
be due on the Commencement Date.
(c) Operating Costs
(1) Tenant shall pay an amount (per each rentable square foot in
the Premises) ("Additional Rent") equal to the Tenant's
Proportionate Share (defined hereunder) of the Operating
Costs (defined below). Landlord may make a good faith
estimate of the Additional Rent to be due by Tenant for any
calendar year of part thereof during the Term, and Tenant
shall pay to Landlord, on the Commencement Date and on the
first day of each calendar month thereafter, and amount
equal to the estimated Additional Rent for such calendar
year or part thereof dividend by the number of months
therein. From time to time, Landlord may estimate and
re-estimate the Additional Rent to be due by Tenant and
deliver a copy of the estimate or re-estimate to Tenant.
Thereafter, the monthly installments of Additional Rent
payable by Tenant shall be appropriately adjusted in
accordance with the estimations so that, by the end of the
calendar year in question, Tenant shall have paid all of the
Additional Rent as estimated by Landlord. Any amounts paid
based on such an estimate shall be subject to adjustment as
herein provided when actual Operating Costs are available
for each calendar year.
(2) The term "Operating Costs" shall mean all expenses and
disbursements (subject to the limitations set forth below)
that Landlord incurs in connection with the ownership,
operation, and maintenance of the Building, determined in
accordance with sound accounting principles consistently
applied, including, but not limited to, the following costs:
(A) wages and salaries (including management fees) of all
employees engaged in the operation, maintenance, and
security of the Building, including taxes, insurance and
benefits relating thereto; (B) all supplies and materials
used in the operation, maintenance, repair, replacement, and
security of the Building; (C) costs for improvements made
to the Building which, although capital in nature, are
expected to reduce the normal operating costs of the
Building, as well as capital improvements made in order to
comply with any law hereafter promulgated by any
governmental authority, as amortized over the useful
economic life of such improvements as determined by Landlord
in its reasonable discretion; (D) cost of all utilities,
except the cost of utilities reimbursable to Landlord by the
Building's tenants other than pursuant to a provision
similar to this Section 3.(c); (E) insurance expenses; (F)
repairs, replacements, and general maintenance of the
Building; and (G) service or maintenance contracts with
independent
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<PAGE>
contractors for the operation, maintenance, repair,
replacement, or security of the Building (including without
limitation, alarm service, window cleaning, elevator
maintenance, and snow removal, if any).
Operating Costs shall not include costs for (i) capital improvements
made to the Building, other than capital improvements described in Section
3.(c)(2)(C) and except for items which are generally considered maintenance
and repair items, such as painting of common areas and the like; (ii) repair,
replacements and general maintenance paid by proceeds of insurance or by
Tenant or other third parties; (iii) interest, amortization or other payments
on loans to Landlord; (iv) depreciation; (v) leasing commissions; (vi) legal
expenses for services, other than those that benefit the Building tenants
generally (e.g., tax disputes); (vii) renovating or otherwise improving space
for occupants of the Building or vacant space in the Building; (viii) Taxes
(defined below), and (ix) federal income taxes imposed on or measured by the
income of Landlord from the operation of the Building.
(3) Tenant shall also pay an amount equal to its Proportionate
Share of Taxes (defined below) for each year and partial year
falling within the Term. Tenant shall pay its Proportionate
Share of Taxes in the same manner as provided above for
Additional Rent with regard to Operating Costs. "Taxes" shall
mean taxes, assessments, and governmental charges whether
federal, state, county or municipal, and whether they be by
taxing districts or authorities presently taxing or by
others, subsequently created or otherwise, and any other
taxes and assessments attributable to the Building (or its
operation), excluding, however, penalties and interest
thereon and federal and state taxes on income (if the present
method of taxation changes so that in lieu of the whole or
any part of any Taxes, there is levied on Landlord a capital
tax directly on the rents received therefrom or a franchise
tax, assessment, or charge based, in whole or in part, upon
such rents for the Building, then all such taxes,
assessments, or charges, or the part thereof so based, shall
be deemed to be included within the term "Taxes" for purposes
hereof). Taxes shall include the costs of consultants
retained in an effort to lower taxes and all costs incurred
in disputing any taxes or in seeking to lower the tax
valuation of the Building.
(4) By April 1 of each calendar year, or as soon thereafter as
practicable, Landlord shall furnish to Tenant a statement of
Operating Costs for the previous year, adjusted as provided
in Section 3.(c)(4), and of the Taxes for the previous year
(the "Operating Costs and Tax Statement"). If the Operating
Costs and Tax Statement reveals that Tenant paid more for
Operating Costs than the actual Additional Rent for the year
for which such statement was prepared or more than its actual
Share of Taxes for such year, then Landlord shall promptly
credit or reimburse Tenant for such excess; likewise, if
Tenant paid less than Tenant's actual Additional Rent, or
Share of Taxes, then Tenant shall promptly pay Landlord such
deficiency.
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<PAGE>
(5) As used herein, Tenant's "Proportionate Share" shall be
8.95%, which is the percentage obtained by dividing the
rentable square feet of area in the Premises, which is
stipulated to be 5,082 rentable square feet, by the total
number of square feet of area in the Building, which is
stipulated to be 56,765 rentable square feet.
4. Delinquent Payment; Handling Charges. All past due payments required
of Tenant hereunder shall bear interest from the date due until paid at the
lesser of 12% per annum (the "Interest Rate") or the maximum lawful rate of
interest; additionally, Landlord may charge Tenant a fee equal to 5% of the
delinquent payment to reimburse Landlord for its cost and inconvenience
incurred as a consequence of Tenant's delinquency. In no event, however,
shall the charges permitted under this Section 4 or elsewhere in this Lease,
to the extent they are considered to be interest under law, exceed the
maximum lawful rate of interest.
5. Security Deposit. Contemporaneously with the execution of this Lease,
Tenant shall pay to Landlord $5,050.00 (the "Security Deposit"), which shall
be held by Landlord to secure Tenant's performance of its obligations under
this Lease. The Security Deposit is not an advance payment of Rent or a
measure or limit of Landlord's damages upon an Event of Default (defined in
Section 16). Landlord may, from time to time and without prejudice to any
other remedy, use all or a part of the Security Deposit to perform any
obligation Tenant fails to perform hereunder. Following any such application
of the Security Deposit, Tenant shall pay to landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount.
Provided that Tenant has performed all of its obligations hereunder, Landlord
shall, within 30 days after the Term ends, return to Tenant the portion of
the Security Deposit which was not applied to satisfy Tenant's obligations.
The Security Deposit may be commingled with other funds, and no interest
shall be paid thereon. If Landlord transfers its interest in the Premises and
the transferee assumes Landlord's obligations under this Lease, then Landlord
may assign the Security Deposit to the transferee and Landlord thereafter
shall have no further liability for the return of the Security Deposit.
6. Landlord's Maintenance Obligations
(a) Landlord's Obligations. This Lease is intended to be a net lease;
accordingly, Landlord's maintenance obligations are limited to the
replacement of the Building's roof and maintenance of the foundation and
structural members of exterior walls (the "Building's Structure"); Landlord
shall not be responsible for (1) any such work until Tenant notifies Landlord
of the need therefor in writing or (2) alterations to the Building's
Structure required by applicable law because of Tenant's use of the Premises
(which alterations shall be Tenant's responsibility). The Building's
Structure does not include skylights, windows, glass or plate glass, doors,
special fronts, or office entries, all of which shall be maintained by
Tenant. Landlord's liability for any defects, repairs, replacement or
maintenance for which Landlord is specifically responsible for under this
Lease shall be limited to the cost of performing the work.
(b) Landlord's Right to Perform Tenant's Obligations. Landlord may, at
its option, perform Tenant's maintenance, repair, and replacement obligations
and any other items that are Tenant's obligation pursuant to Section 7 if
Tenant fails to do so within five (5) days of
4
<PAGE>
the date Tenant receives notice of the necessity to perform such maintenance,
repair, or replacement. Tenant shall reimburse Landlord for the cost incurred
in so doing within ten (10) days after being invoiced therefor.
7. Improvements; Alterations; Repairs; Maintenance
(a) Improvements; Alterations. Improvements to the Premises shall be
installed at Tenant's expense only in accordance with plans and
specifications which have been previously submitted to and
approved in writing by Landlord. No alterations or physical additions
in or to the Premises may be made without Landlord's prior written
consent, which shall not be unreasonably withheld or delayed;
however, Landlord may withhold its consent to any alteration or
addition that would affect the Building's structure or its HVAC,
plumbing, electrical, or mechanical systems. Tenant shall not paint
or install lighting or decorations, signs, window or door lettering,
or advertising media of any type on or about the Premises without
the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed; however, Landlord may withhold
its consent to any such painting or installation which would affect
the appearance of the exterior of the Building or of any common
areas of the Building. All alterations, additions, or improvements
made in or upon the Premises shall, at Landlord's option, either be
removed by Tenant prior to the end of the Term (and Tenant shall
repair all damage caused thereby), or shall remain on the Premises
at the end of the Term without compensation to Tenant. All
alterations, additions, and improvements shall be constructed,
maintained, and used by Tenant, at its risk and expense, in
accordance with all Laws; Landlord's approval of the plans and
specifications therefor shall not be a representation by Landlord
that such alterations, additions, or improvements comply with any
Law.
(b) Repairs; Maintenance. Tenant shall maintain all parts of the
Premises in a good condition and promptly make all necessary repairs
and replacements to the Premises, excepting only that work which
Landlord is expressly responsible for pursuant to Section 6.(a).
Tenant shall maintain the HVAC plumbing, electrical, and mechanical
systems in the Premises in good repair and condition in accordance
with applicable law and the equipment manufacturer's suggested
service programs.
(c) Performance of Work. All work described in this Section 7 shall be
performed only by Landlord or by contractors and subcontractors
approved in writing by Landlord. Tenant shall cause all contractors
and subcontractors to procure and maintain insurance coverage naming
Landlord as an additional insured against such risks, in such
amounts, and with such companies as Landlord may reasonably require.
All such work shall be performed in accordance with all Laws and
in a good and workmanlike manner so as not to damage the Premises,
the Building, or the components thereof.
(d) Mechanic's Liens. Tenant shall not permit any mechanic's liens to
be filed against the Premises or the Building for any work
performed, materials furnished,
5
<PAGE>
or obligation incurred by or at the request of Tenant. Is such a
lien is filed, then Tenant shall, within thirty days after
Landlord has delivered notice of the filing thereof to Tenant,
either pay the amount of the lien or diligently contest such lien
and deliver to Landlord a bond or other security reasonably
satisfactory to Landlord. If Tenant fails to timely take either
such action, then Landlord may pay the lien claim, and any
amounts so paid, including expenses and interest, shall be paid
by Tenant to Landlord within ten days after Landlord has invoiced
Tenant therefor. All materialmen, contractors, artisans,
mechanics, laborers, and any other persons now or hereafter
contracting with Tenant or any contractor or subcontractor of
Tenant for the furnishing of any labor services, materials,
supplies, or equipment with respect to any portion of the
Premises, at any time from the date hereof until the end of the
Term of this Lease, are hereby charged with notice that they look
exclusively to Tenant to obtain payment for same. Nothing
contained herein shall be deemed as consent by Landlord to any
liens being placed upon the Building due to any work performed by
or for Tenant.
(e) Utilities. Tenant shall obtain and pay for all gas, electricity,
heat, telephone, sprinkler charges and other utilities and
services used at the Premises (other than water and sewer service
which is included in Operating Costs), together with all taxes,
penalties, surcharges, and maintenance charges pertaining
thereto. Landlord may, at Tenant's expense, separately meter and
bill Tenant directly for its use of utility services. Landlord
shall not be liable for any interruption or failure of utility
service to the Premises unless caused by Landlord's affirmative
acts or gross negligence. Any amounts payable by Tenant under
this Section shall be due within ten (10) days after Landlord has
invoiced Tenant therefor.
(f) Landlord, at Tenant's sole cost and expense, shall maintain the
HVAC, or, at Landlord's discretion, shall enter into a
preventative maintenance/service contract, on behalf of Tenant,
with a contractor for servicing all air conditioning, heating,
ventilating and other equipment located within or serving the
Premises. Any amounts payable by Tenant under this Section shall
be due within ten (10) days after Landlord has invoiced Tenant
therefor.
8. Use. Tenant shall continuously occupy and use the Premises only
for general office use (the "Permitted Use") and shall comply with all Laws
relating to the use, condition, access to, and occupancy of the Premises.The
Premises shall not be used for any use which is disreputable, creates
extraordinary fire hazards, or results in an increased rate of insurance on
the Building or its contents, or for the storage of any hazardous materials
or substances. If, because of a Tenant Party's acts, the rate of insurance on
the Building or its contents increases, then such acts shall be an Event of
Default, Tenant shall pay to Landlord the amount of such increase on demand,
and acceptance of such payment shall not waive any of Landlord's other
rights. Tenant shall conduct its business and control each other Tenant Party
so as not to create any nuisance or unreasonably interfere with other tenants
or Landlord in its management of the Building.
6
<PAGE>
9. Assignment and Subletting.
(a) Transfers; Consent. Tenant shall not, without the prior written
consent of Landlord, (1) assign, transfer, or encumber this Lease
or any estate or interest herein, whether directly or by
operation of law, (2) permit any other entity to become Tenant
hereunder by merger, consolidation, or other reorganization, (3)
if Tenant is an entity other than a corporation whose stock is
publicly traded, permit the transfer of an ownership interest in
Tenant so as to result in a change in the current control of
Tenant, (4) sublet any portion of the Premises, (5) grant any
license, concession, or other right of occupancy of any portion
of the Premises, or (6) permit the use of the Premises by any
parties other than Tenant (any of the events listed in Section
9.(a)(1) through 9.(a)(6) being a "Transfer"). If Tenant requests
Landlord's consent to a transfer, then Tenant shall provide
Landlord with a written description of all terms and conditions
of the proposed Transfer, copies of the proposed documentation,
and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its
business and business history; its proposed use of the Premises;
banking, financial, and other credit information; and general
references sufficient to enable Landlord to determine the
proposed transferee's creditworthiness and character. Landlord
shall not unreasonably withhold its consent to any assignment or
subletting of the Premises, provided that the proposed transferee
(A) is creditworthy, (B) has a good reputation in the business
community, (C) does not engage in business similar to those of
other tenants in the Building, and (D) is not another occupant of
the Building or person or entity with whom Landlord is
negotiating to lease space in the Building; otherwise, Landlord
may withhold its consent in its sole discretion. Concurrently
with Tenant's notice of any request for consent to a Transfer,
Tenant shall pay to Landlord a fee of $750 to defray Landlord's
expenses in reviewing such request, and Tenant shall also
reimburse Landlord immediately upon request for its reasonable
attorneys' fees incurred in connection with considering any
request for consent to a Transfer. If Landlord consents to a
proposed Transfer, then the proposed transferee shall deliver to
Landlord a written agreement whereby it expressly assumes
Tenant's obligations hereunder; however, any transferee of less
than all of the space in the Premises shall be liable only for
obligations under this Lease that are properly allocable to the
space subject to the Transfer for the period of the Transfer. No
Transfer shall release Tenant from its obligations under this
Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer
shall not waive Landlord's rights as to any subsequent Transfers.
Notwithstanding the foregoing, Tenant may assign its interest in
this Lease to an Affiliate (as hereinafter defined) of Tenant
without Landlord's prior written consent, provided that Tenant
promptly notifies Landlord thereof after such assignment or
subletting. If an Event of Default occurs while the Premises or
any part thereof are subject to a Transfer, then Landlord, in
addition to its other remedies, any collect directly from such
transferee all rents becoming due to Tenant and apply such rents
against Rent. Tenant authorizes its transferees to make
payments of rent directly to Landlord upon receipt of notice from
Landlord to do so. Tenant shall pay for the cost of any
7
<PAGE>
demising walls or other improvements necessitated by a proposed
subletting or assignment.
(b) Cancellation. Landlord may, within 30 days after submission of
Tenant's written request for Landlord's consent to an assignment
or subletting, cancel this Lease as to the portion of the
Premises proposed to be sublet or assigned as of the date the
proposed Transfer is to be effective. If Landlord cancels this
Lease as to any portion of the Premises, Tenant shall have 5 days
after notice from Landlord thereof within which to withdraw its
request for consent to an assignment or subletting in writing to
Landlord. In the event that Tenant does not so withdraw its
request, then this Lease shall cease for such portion of the
Premises and Tenant shall pay to Landlord all Rent accrued
through the cancellation date relating to the portion of the
Premises covered by the proposed Transfer. Thereafter, Landlord
may lease such portion of the Premises to the prospective
transferee (or to any other person) without liability to Tenant.
(c) Additional Compensation. Tenant shall pay to Landlord,
immediately upon receipt thereof, the excess of (1) all
compensation received by Tenant for a Transfer less the costs
reasonably incurred by Tenant with unaffiliated third parties in
connection with such Transfer (i.e., brokerage commissions,
tenant finish work, and the like) over (2) the Rent allocable to
the portion of the Premises covered thereby.
10. Insurance; Waivers; Subrogation; Indemnity.
(a) Insurance. Tenant shall maintain throughout the Term the
following insurance policies: (1) commercial general liability
insurance in amounts of $3,000,000 per occurrence with $5,000,000
in the aggregate or such other amounts as Landlord may from time
to time reasonably require, insuring Tenant, Landlord, Landlord's
agents and their respective Affiliates against all liability for
injury to or death of a person or persons or damage to property
arising from the use and occupancy of the Premises, (2) insurance
covering the full value of Tenant's property and improvements,
and other property (including property of others) in the
Premises, (3) contractual liability insurance sufficient to cover
Tenant's indemnity obligations hereunder, (4) worker's
compensation insurance, containing a waiver of subrogation
endorsement acceptable to Landlord, and (5) business interruption
insurance. Tenant's insurance shall provide primary coverage to
Landlord when any policy issued to Landlord provides duplicate or
similar coverage, and in such circumstance Landlord's policy will
be excess over Tenant's policy. Tenant shall furnish to Landlord
certificates of such insurance and such other evidence
satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder, and Tenant shall obtain a written
obligation on the part of each insurance company to notify Landlord
at least 30 days before cancellation or a material change of any
such insurance policies. All such insurance policies shall be in
form, and issued by companies, reasonably satisfactory to
Landlord. Landlord
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<PAGE>
represents that Landlord shall maintain hazard insurance for the
full replacement value of the Building throughout the Term of
this Lease.
(b) Waiver of Negligence; No Subrogation. Landlord and Tenant each
waives any claim it might have against the other for any injury
to or death of any person or persons or damage to or theft,
destruction, loss, or loss of use of any property (a "Loss"), to
the extent the same is insured against under any insurance
policy that covers the Building, the Premises, Landlord's or
Tenant's fixtures, personal property, leasehold improvements,
or business, or, in the case of Tenant's waiver, is required to
be insured against under the terms hereof, regardless of whether
the negligence of the other party caused such Loss; however,
Landlord's waiver shall not include any deductible amounts on
insurance policies carried by Landlord. Each party shall cause
its insurance carrier to endorse all applicable policies waiving
the carrier's rights of recovery under subrogation or
otherwise against the other party.
(c) Indemnity. Subject to Section 10.(b), Tenant shall defend,
indemnify, and hold harmless Landlord and its representatives
and agents from and against all claims, demands, liabilities,
cause of action, suits, judgments, damages, and expenses
(including attorney's fees) arising from (1) any Loss arising
from any occurrence on the Premises (other than any Loss arising
out of a breach of Tenant's obligations under Section 24.(u),
which shall be subject to the indemnity in such section) or (2)
Tenant's failure to perform its obligations under this Lease even
though caused or alleged to be caused by the negligence or fault
of Landlord or its agents (other than a Loss arising from the
gross negligence of Landlord or its agents). Subject to
Section 10.(b), Landlord shall defend, indemnify, and hold
harmless Tenant and its agents from and against all claims,
demands, liabilities, causes of action, suits judgments, and
expenses (including attorneys' fees) for any Loss arising from
any occurrence in the Building's common areas (other than a Loss
arising from the negligence of a Tenant Party). The indemnities
set forth in this Section 10.(c) shall survive termination or
expiration of this Lease. If any proceeding is filed for which
indemnity is required hereunder, the indemnifying party agrees,
upon request therefor, to defend the indemnified party in such
proceeding at its sole cost utilizing counsel satisfactory to the
indemnified party.
11. Subordination; Attornment; Notice to Landlord's Mortgagee.
(a) Subordination. This Lease shall be subordinate to any deed of
trust, mortgage, or other security instrument, or any ground
lease, master lease, or primary lease, that now or hereafter
covers all or any part of the Premises (the mortgagee under any
such mortgage or the lessor under any such lease is referred to
herein as a "Landlord's Mortgagee"). Any Landlord's Mortgagee
may elect, at any time, unilaterally, to make this Lease
superior to its mortgage, ground lease, or other interest in the
Premises by so notifying Tenant in writing.
9
<PAGE>
(b) Attornment. Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase,
foreclosure, deed in lieu of foreclosure, power of sale,
termination of lease, or otherwise, upon party's request, and
shall execute such agreements confirming such attornment as such
party may reasonably request, provided the same do not
materially change, alter or amend the terms and provisions of
this Lease.
(c) Notice to Landlord's Mortgagee. Tenant shall not seek to enforce
any remedy it may have for any default on the part of Landlord
without first giving written notice by certified mail, return
receipt requested, specifying the default in reasonable detail,
to any Landlord's Mortgagee whose address has been given to
Tenant in writing, and affording such Landlord's Mortgagee a
reasonable opportunity to perform Landlord's obligations
hereunder.
(d) Landlord's Mortgagee's Protection Provisions. If the Landlord's
Mortgagee shall succeed to the interest of Landlord under this
Lease, Landlord's Mortgagee shall not be: (1) liable for any act
or omission of any prior lessor (including Landlord); (2) bound
by any rent or additional rent or advance rent which Tenant
might have paid form more than the current month to any prior
lessor (including Landlord), and all such rent shall remain due
and owing, notwithstanding such advance payment; (3) bound by
any security or advance rental deposit made by Tenant which is
not delivered or paid over to Landlord's Mortgagee and with
respect to which Tenant shall look solely to Landlord for refund
or reimbursement; (4) bound by any termination, amendment or
modification of this Lease made without Landlord's Mortgagee's
consent and written approval, except for those terminations,
amendments and modifications permitted to be made by Landlord
without Landlord's Mortgagee's consent pursuant to the terms of
the loan documents between Landlord and Landlord's Mortgagee;
(5) subject to the defenses which Tenant might have against any
prior lessor (including Landlord); and (6) subject to the
offsets which Tenant might have against any prior lessor
(including Landlord) except for those offset rights which (A)
are expressly provided in this Lease, (B) relate to periods of
time following the acquisition of the Building by Landlord's
Mortgagee, and (C) Tenant has provided written notice to
Landlord's Mortgagee and provided Landlord's Mortgagee a
reasonable opportunity to cure the event giving rise to such
offset event. Landlord's Mortgagee shall have no liability or
responsibility under or pursuant to the terms of this Lease or
otherwise after it ceases to own an interest in the Building.
Nothing in this Lease shall be construed to require Landlord's
Mortgagee to see to the application of the proceeds of any loan,
and Tenant's agreements set forth herein shall not be impaired
on account of any modification of the documents evidencing and
securing any loan.
12. Rules and Regulations. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as Exhibit D. Landlord
may, from time to time, change such rules and regulations for the safety,
care, or cleanliness of the Building and related facilities, provided that
such changes will not unreasonably interfere with Tenant's use of the
Premises.
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Landlord shall use reasonable efforts to give Tenant notice of any change in
such rules and regulations; however, no failure on the part of Landlord to
give Tenant notice of any such change in the rules and regulations shall
affect Tenant's obligations under this Section 12. Tenant shall be
responsible for the compliance with such rules and regulations by each Tenant
Party.
13. Condemnation.
(a) Total Taking. If the entire Building or Premises are taken by right
of eminent domain or conveyed in lieu thereof (a "Taking"), this
Lease shall terminate as of the date of the transfer of possession.
(b) Partial Taking - Tenant's Rights. If any part of the Building
becomes subject to a Taking and such Taking will prevent Tenant
from conducting its business in the Premises in a manner reasonably
comparable to that conducted immediately before such Taking for a
period of more than 180 days, then Tenant may terminate this
Lease as of the date of such Taking by giving written notice to
Landlord within 30 days after the Taking, and Rent shall be
apportioned as of the date of such Taking. If Tenant does not
terminate this Lease, then Rent shall be abated on a reasonable
basis as to that portion of the Premises rendered untenantable by
the Taking.
(c) Partial Taking - Landlord' Rights. If any material portion, but
less than all, of the Building becomes subject to a Taking, or if
Landlord is required to pay any of the proceeds received for a
Taking to a Landlord's Mortgagee, then Landlord may terminate
this Lease by delivering written notice thereof to Tenant within
30 days after such Taking, and Rent shall be apportioned as of
the date of such Taking. If Landlord does not so terminate
this Lease, then this Lease will continue, but if any portion of
the Premises has been taken, Rent shall abate as provided in the
last sentence of Section 13.(b).
(d) Award. If any Taking occurs then Landlord shall receive the
entire award or other compensation for the land on which the
Building is situated, the Building, and other improvements taken,
and Tenant may separately pursue a claim (to the extent it will
not reduce Landlord's award) against the condemnor for the value
of Tenant's personal property which Tenant is entitled to remove
under this Lease, moving costs, loss of business, and other
claims it may have.
14. Fire or Other Casualty.
(a) Repair Estimate. If the Premises or the Building are damaged by
fire or other casualty (a "Casualty"), Landlord shall, within 90
days after such Casualty, deliver to Tenant a good faith estimate
(the "Damage Notice") of the time needed to repair the damage
caused by such Casualty.
(b) Landlord's and Tenant's Rights. If a material portion of the
Premises or the Building is damaged by Casualty such that Tenant
is prevented from conducting its business in the Premises in a
manner reasonably comparable to that conducted immediately before
such Casualty and Landlord estimates that the damage caused
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thereby cannot be repaired within 210 days after the Casualty,
then Tenant may terminate this Lease by delivering written notice
to Landlord of its election to terminate within 30 days after the
Damage Notice has been delivered to Tenant. If Tenant does not so
timely terminate this Lease, then (subject to Section 14(c))
Landlord shall repair the Building or the Premises, as the case
may be, as provided below, and Rent for the portion of the
Premises rendered untenantable by the damage shall be abated on a
reasonable basis from the date of damage until the completion of
the repair.
(c) Landlord's Rights. If a Casualty damages a material portion of
the Building, and Landlord makes a good faith determination that
restoring the Premises would be uneconomical, or if Landlord is
required to pay any insurance proceeds arising out of the
Casualty to a Landlord's Mortgagee, then Landlord may terminate
this Lease by giving written notice of its election to terminate
within 30 days after the Damage Notice has been delivered to
Tenant, and Basic Rent and Additional Rent shall be abated as of
the date of the Casualty.
(d) Repair Obligation. If neither party elects to terminate this
Lease following a Casualty, then Landlord shall, within a
reasonable time after such Casualty, begin to repair the Building
and the Premises and shall proceed with reasonable diligence to
restore the Building and Premises to substantially the same
condition as they existed immediately before such Casualty;
however, Landlord shall not be required to repair or replace any
of the furniture, equipment, fixtures, alterations, and other
improvements which may have been placed by, or at the request of,
Tenant or other occupants in the Building or the Premises, and
Landlord's obligation to repair or restore the Building or
Premises shall be limited to the extent of the insurance proceeds
actually received by Landlord for the Casualty in question.
15. Personal Property Taxes. Tenant shall be liable for all taxes levied
or assessed against personal property, furniture, or fixtures placed by
Tenant in the Premises. If any taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and Landlord elects to pay
the same, or if the assessed value of Landlord's property is increased by
inclusion of such personal property, furniture or fixtures and Landlord
elects to pay the taxes based on such increase, then Tenant shall pay to
Landlord, upon demand, the part of such taxes for which Tenant is primarily
liable hereunder; however, Landlord shall not pay such amount if Tenant
notifies Landlord that it will contest the validity or amount of such taxes
before Landlord makes such payment, and thereafter diligently proceeds with
such contest in accordance with law and if the non-payment thereof does not
pose a threat of lien or other cloud on Landlord's title to the Building or
of loss or seizure of the Building or interest of Landlord therein or impose
any fee or penalty against Landlord.
16. Events of Default. Each of the following occurrences shall be an
"Event of Default":
(a) Tenant's failure to pay Rent within five days after Landlord has
delivered notice to Tenant that the same is due, however, an
Event of Default shall occur hereunder
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without any obligation of Landlord to give any notice if Landlord has
given Tenant written notice under this Section 16(a) on more than one
occasion during the twelve (12) months interval preceding such failure
by Tenant;
(b) Intentionally deleted;
(c) Tenant fails to provide any estoppel certificate within the time
period required under Section 24(e) and such failure shall continue
for 10 days after written notice thereof from Landlord to Tenant;
(d) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance
of such failure for a period of more than 30 days after Landlord has
delivered to Tenant written notice thereof, however, if such failure
is not cured within such 30-day period and Tenant commences to cure
such failure within such 30 day period, and thereafter diligently
pursues such cure to completion, then such failure shall not be an
Event of Default unless it is not fully cured within an additional
30 days after the expiration of the 30-day period, and
(e) The filing of a petition by or against Tenant (the term "Tenant" shall
include, for the purpose of this Section 16(e), any guarantor of
Tenant's obligations hereunder)(1) in any bankruptcy or other
insolvency proceeding; (2) seeking any relief under any state or
federal debtor relief law, (3) for the appointment of a liquidator
or receiver for all or substantially all of Tenant's property or
for Tenant's interest in this Lease; or (4) for the reorganization
or modification of Tenant's capital structure; however, if such
a petition is filed against Tenant, then such filing shall not be
an Event of Default unless Tenant fails to have the proceedings
initiated by such petition dismissed within 90 days after the
filing thereof.
17. Remedies. Upon any Event of Default, Landlord may, in addition to all
other rights and remedies afforded Landlord hereunder or by law or equity,
including the right to seek specific performance of Tenant's obligation's
under this Lease, take any of the following actions:
(a) Terminate this Lease by giving Tenant written notice thereof, in
which event Tenant shall pay to Landlord the sum of (1) all Rent
accrued hereunder through the date of termination, (2) all
amounts due under Section 18(a) and (3) an amount equal to (A)
the total Rent that Tenant would have been required to pay
for the remainder of the Term discounted to present value at a
per annum rate equal to the "Prime Rate" as published on the
date this Lease is terminated by The Wall Street Journal,
Northeast Edition, in its listing of "Money Rates" minus one
percent, minus (B) the then present fair rental value of the
Premises for each period, similarly discounted;
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to
Tenant shall pay to Landlord (1) all Rent and other amounts
accrued hereunder to the date of
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termination of possession, (2) all amounts due from time to
time under Section 18(a) and (3) all Rent and other net sums
required hereunder to be paid by Tenant during the remainder
of the Term, diminished by any net sums thereafter received by
Landlord through reletting the Premises during such period, after
deducting all out-of-pocket costs incurred by Landlord in
reletting the Premises. Landlord shall use reasonable efforts to
relet the Premises on such terms as Landlord in its sole
discretion may determine (including a term different from the
Term, rental concessions, and alterations to, and improvement
of, the Premises); however, Landlord shall not be obligated to
relet the Premises before leasing other portions of the Building.
Landlord shall not be liable for, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet
the Premises or to collect rent due for such reletting. Tenant
shall not be entitled to the excess of any consideration obtained
by reletting over the Rent due hereunder. Reentry by Landlord
in the Premises shall not affect Tenant's obligations hereunder
for the unexpired Term, rather, Landlord may, from time to time,
bring an action against Tenant to collect amounts due by Tenant,
without the necessity of Landlord's waiting until the
expiration of the Term. Unless Landlord delivers written notice
to Tenant expressly stating that it has elected to terminate
this Lease, all actions taken by Landlord to dispossess or
exclude Tenant from the Premises shall be deemed to be taken
under this Section 17(b). If Landlord elects to proceed under
this Section 17(b), it may at any time thereafter elect to
terminate this Lease under Section 17(a); or
(c) Additionally, without notice, Landlord may alter locks or other
security devices at the Premises to deprive Tenant of access
thereto, and Landlord shall not be required to provide a new
key or right of access to Tenant.
(d) Tenant agrees that this Lease sets forth all notices that Landlord
may be required to give in connection with the exercise of
remedies and waives any and all further notices of default,
termination, to quit or otherwise that may be required under any
present or future laws.
(e) Landlord shall have the right to confess judgment against Tenant
as provided more specifically in Exhibit E.
18. Payment by Tenant; Non-Waiver.
(a) Payment by tenant. Upon any Event of Default, Tenant shall pay to
Landlord all costs incurred by Landlord (including court costs
and reasonable attorney's fees and expenses) in (1) obtaining
possession of the Premises, (2) removing and storing Tenant's
or any other occupant's property, (3) repairing, restoring,
altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (4) if Tenant is
dispossessed of the Premises and this Lease is not terminated,
reletting all or any part of the Premises (including brokerage
commissions, cost of tenant finish work, and other costs
incidental to such reletting), (5) performing Tenant's obligations
which Tenant failed to perform, and
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(6) enforcing, or advising Landlord of, its rights, remedies, and
recourses arising out of the Event of Default. To the full
extent permitted by law, Landlord and Tenant agree the
federal and state courts of Commonwealth of Pennsylvania
shall have exclusive jurisdiction over any matter relating to
or arising from this Lease and the parties' rights and
obligations under this Lease.
(b) No Waiver. Landlord's acceptance of Rent following an Event of
Default shall not waive Landlord's rights regarding such Event of
Default. No waiver by Landlord of any violation or breach of any
of the terms contained herein shall waive Landlord's rights
regarding any future violation of such term. Landlord's
acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the
Rent that is due, regardless of any endorsement or other
statement on any instrument delivered in payment of Rent or
any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not
constitute an accord and satisfaction of the full amount of the
Rent that is due.
19. Intentionally deleted.
20. Surrender of Premises. No act by Landlord shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed
by Landlord. At the expiration or termination of this Lease, Tenant shall
deliver to Landlord the Premises with all improvements located therein in
good repair and condition, free of Hazardous Materials placed on the Premises
during the Term, broom-clean, reasonable wear and tear (and condemnation and
Casualty damage not caused by Tenant, as to which Sections 13 and 14 shall
control) expected, and shall deliver to Landlord all keys to the Premises.
Provided that Tenant has performed all of its obligations hereunder, Tenant
may remove all unattached trade fixtures, furniture, and personal property
placed in the Premises by Tenant, and shall remove such alterations,
additions, improvements, trade fixtures, personal property, equipment,
wiring, and furniture as Landlord may request. Tenant shall repair all damage
caused by such removal. All items not so removed shall be deemed to have been
abandoned by Tenant and may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord without notice to Tenant and without any
obligation to account for such items. The provisions of this Section 20 shall
survive the end of the Term.
21. Holding Over. If Tenant fails to vacate the Premises at the end of
the Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rent equal to
the greater of (a) 150% of the daily Basic Rent payable during the last month
of the Term, or (b) 125% of the prevailing rental rate in the Building for
similar space. The provisions of this Section 21 shall not be deemed to limit
or constitute a waiver of any other rights or remedies of Landlord provided
herein or at law. If Tenant fails to surrender the Premises upon the
termination or expiration of this Lease, in addition to any other liabilities
to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and
hold Landlord harmless from all loss, costs (including reasonable attorney's
fees) and liability resulting from such failure, including, without
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limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender, and any lost profits to
Landlord resulting therefrom.
22. Certain Rights Reserved by Landlord. Provided that the exercise of
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or
otherwise, in and about the Building, or any part thereof; to
enter upon the Premises (after giving Tenant reasonable notice
thereof, which may be oral notice, except in cases of real or
apparent emergency, in which case no notice shall be required)
and, during the continuance of any such work, to temporarily
close doors, entryways, public space, and corridors in the
Building; to interrupt or temporarily suspend Building services
and facilities; to change the name of the Building; and to change
the arrangements and location of entrances or passageways, doors,
and doorways, corridors, elevators, stairs, restrooms, or other
public parts of the Building.
(b) To take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants; evacuating the
Building for cause, suspected cause, or for drill purposes;
temporarily denying access to the Building; and closing the
Building after normal business hours and on Sundays and holidays,
subject, however, to Tenant's right to enter when the Building is
closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time; and
(c) To enter the Premises at reasonable hours to show the Premises to
prospective purchasers, lenders, or, during the last 12 months of
the Term, tenants.
23. Substitution Space. Landlord may, at Landlord's expense, relocate
Tenant within the Building or to another building of like quality within 3
miles of the Building to space which is comparable in size, utility and
condition to the Premises. If Landlord relocates Tenant, Landlord shall
reimburse Tenant for Tenant's reasonable out-of-pocket expenses for moving
Tenant's furniture, equipment, and supplies from the Premises to the
relocation space and for reprinting Tenant's stationery of the same quality
and quantity as Tenant's stationery supply on hand immediately before
Landlord's notice to Tenant of the exercise of this relocation right. Upon
such relocation, the relocation space shall be deemed to be the Premises and
the terms of the Lease shall remain in full force and shall apply to the
relocation space. Notwithstanding anything contained to the contrary herein,
Landlord may not relocate Tenant within the last 12 months of the Term.
24. Miscellaneous.
(a) Landlord Transfer. Landlord may transfer any portion of the
Building and any of its rights under this Lease. If Landlord
assigns its rights under this Lease, then Landlord shall thereby
be released from any further obligations hereunder, provided that
the assignee assumes Landlord's obligations hereunder in writing.
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(b) Landlord's Liability. The liability of Landlord (and its
partners, shareholders or members) to Tenant for any default by
Landlord under the terms of this Lease shall be limited to
Tenant's actual direct, but not consequential, damages therefor
and shall be recoverable only from the interest of Landlord (and
its partners, shareholders or members) in the Building, and
Landlord shall not be personally liable for any deficiency. This
Section shall not limit any remedies which Tenant may have for
Landlord's defaults which do not involve the personal liability
of Landlord.
(c) Force Majeure. Other than for Tenant's obligations under this
Lease that can be performed by the payment of money (e.g.,
payment of Rent and maintenance of insurance), whenever a period
of time is herein prescribed for action to be taken by either
party hereto, such party shall not be liable or responsible for,
and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws,
regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of such party.
(d) Brokerage. Neither Landlord nor Tenant has dealt with any broker
or agent in connection with the negotiation or execution of this
Lease, other than Trammell Crow NE, Inc. and CB Commercial Group,
whose commission shall be paid by Landlord. Tenant and Landlord
shall each indemnify the other against all costs, expenses,
attorneys' fees, and other liability for commissions or other
compensation claimed by any broker or agent claiming the same by,
through, or under the indemnifying party.
(e) Estoppel Certificates. From time to time, Tenant shall furnish to
any party designated by Landlord, within ten days after Landlord
has made a request therefor, a certificate signed by Tenant
confirming and containing such factual certifications and
representations as to this Lease as Landlord, or Landlord's
Mortgagee, may reasonably request.
(f) Notices. All notices and other communications given pursuant to
this Lease shall be in writing and shall be (1) mailed by first
class, United States Mail, postage prepaid, certified, with
return receipt requested, and addressed to the parties hereto at
the address specified next to their signature block, (2) hand
delivered to the intended address, or (3) sent by prepaid
facsimile transmission or telex followed by a confirmatory
letter. All notices shall be effective upon delivery to the
address of the addressee. The parties hereto may change their
addresses by giving notice thereof to the other in conformity
with this provision.
(g) Separability. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws,
then the remainder of this Lease shall not be affected thereby
and in lieu of such clause or provision, there shall be added as
a part of this Lease a clause or provision as similar in terms to
such illegal,
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invalid, or unenforceable clause or provision as may be possible
and be legal, valid, and enforceable.
(h) Amendments; and Binding Effect. This Lease may not be amended
except by instrument in writing signed by Landlord and Tenant. No
provision of this Lease shall be deemed to have been waived by a
party to this Lease unless such waiver is in writing signed by
such party, and no custom or practice which may evolve between
the parties in the administration of the terms hereof shall waive
or diminish the right of either party to insist upon the
performance by the other in strict accordance with the terms
hereof. The terms and conditions contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto,
and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided.
This Lease is for the sole benefit of Landlord and Tenant, and,
other than Landlord's Mortgagee, no third party shall be deemed a
third party beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed all of its
obligations hereunder, Tenant shall peaceably and quietly hold
and enjoy the Premises for the Term, without hindrance from
Landlord or any party claiming by, through, or under Landlord,
but not otherwise, subject to the terms and conditions of this
Lease.
(j) No Merger. There shall be no merger of the leasehold estate
hereby created with the fee estate in the Premises or any part
thereof if the same person acquires or holds, directly or
indirectly, this Lease or any interest in this Lease and the fee
estate in the leasehold Premises or any interest in such fee
estate.
(k) No Offer. The submission of this Lease to Tenant shall not be
construed as an offer, and Tenant shall not have any rights under
this Lease unless Landlord executes a copy of this Lease and
delivers it to Tenant.
(l) Entire Agreement. This Lease constitutes the entire agreement
between Landlord and Tenant regarding the subject matter hereof
and supersedes all oral statements and prior writings relating
thereto. Except for those set forth in this Lease, no
representations, warranties, or agreements have been made by
Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The
normal rule of construction that any ambiguities be resolved
against the drafting party shall not apply to the interpretation
of this Lease or any exhibits or amendments hereto.
(m) Waiver of Jury Trial. To the maximum extent permitted by law,
Landlord and Tenant each waive right to trial by jury in any
litigation arising out of or with respect to this Lease.
(n) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises are
located.
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(o) Joint and Several Liability. If Tenant is comprised of more than
one party, each such party shall be jointly and severally liable
for Tenant's obligations under this Lease.
(p) Financial Reports. Within 15 days after Landlord's request,
Tenant will furnish Tenant's most recent audited financial
statements (including any notes to them) to Landlord, or, if no
such audited statements have been prepared, such other financial
statements (and notes to them) as may have been prepared by an
independent certified public accountant or, failing those,
Tenant's internally prepared financial statements. Tenant will
discuss its financial statements with Landlord and will give
Landlord access to Tenant's books and records in order to enable
Landlord to verify the financial statements. Landlord will not
disclose any aspect of Tenant's financial statements that Tenant
designates to Landlord as confidential except (1) to Landlord's
Mortgagee or prospective purchasers of the Building, (2) in
litigation between Landlord and Tenant, and (3) if required by
court order.
(q) Landlord's Fees. Whenever Tenant requests Landlord to take any
action or give any consent required or permitted under this
Lease, Tenant will reimburse Landlord for Landlord's reasonable
costs incurred in reviewing the proposed action or consent,
including without limitation reasonable attorneys', engineers'
or architects' fees, within 10 days after Landlord's delivery
to Tenant of a statement of such costs. Tenant will be obligated
to make such reimbursement without regard to whether Landlord
consents to any such proposed action.
(r) Telecommunications. Tenant and its telecommunications companies,
including but not limited to local exchange telecommunications
companies and alternative access vendor services companies shall
have no right of access to and within the Building, for the
installation and operation of telecommunications systems
including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for
part or all of Tenant's telecommunications within the Building
and from the Building to any other location without Landlord's
prior written consent which shall not be unreasonably withheld.
(s) General Definitions. The following terms shall have the following
meanings: "Laws" means all federal, state, and local laws, rules
and regulations, all court orders, all governmental directives
and governmental orders, and all restrictive covenants affecting
the Property, and "Law" means any of the foregoing; "Affiliate"
means any person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with the
party in question, "Tenant Party" shall include Tenant, any
assignees claiming by, through, or under Tenant, any subtenants
claiming by, through, or under Tenant, and any agents,
contractors, employees, invitees of the foregoing parties, and
"including" means including, without limitation.
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(t) Confidentiality. Tenant acknowledges that the terms and
conditions of this Lease are to remain confidential for
Landlord's benefit, and may not, other than as set forth herein,
be disclosed by Tenant to anyone, by any manner or means,
directly or indirectly, without Landlord's prior written consent
which shall not be unreasonably withheld. Landlord hereby agrees
that Tenant shall have the right to disclose the terms and
conditions of this Lease in its filings with the Securities and
Exchange Commission (the "SEC") pursuant to SEC regulations. The
consent by Landlord to any disclosures shall not be deemed to be
a waiver on the part of Landlord of any prohibition against any
future disclosure.
(u) Hazardous Materials. The term "Hazardous Materials" means any
substance, material, or waste which is now or hereafter
classified or considered to be hazardous, toxic, or dangerous
under any Law relating to pollution or the protection or
regulation of human health, natural resources or the environment
(including without limitation any "hazardous chemical,"
"hazardous substance" or similar term as defined in the
Comprehensive Environmental Responsibility Compensation and
Liability Act, as amended (42 U.S.C. 9601, et seq.) any rules or
regulations promulgated thereunder, or in any other applicable
federal, state or local law, rule or regulation dealing with
environmental protection), or poses or threatens to pose a hazard
to the health or safety of persons on the Premises or in the
Building. The provisions contained in this Section shall be
applicable notwithstanding the fact that any substance shall not
be deemed to be a Hazardous Material at the time of its use by
Tenant but shall thereafter be deemed to be a Hazardous Material.
Tenant shall not use, generate, manufacture, refine, transport,
treat, store, or dispose of, or otherwise permit to be present
Hazardous Materials on or about the Premises or the Building
except in a manner and quantity necessary for the ordinary
performance of Tenant's business, and then in compliance with
all Laws. If Tenant breaches its obligations under this Section
24.(u), Landlord may immediately take any and all action
reasonably appropriate to remedy the same, including taking all
appropriate action to clean up or remediate any contamination
resulting from Tenant's use, generation, storage, manufacture,
refinement, transport, treatment or disposal of Hazardous
Materials. Tenant shall defend, indemnify, and hold harmless
Landlord, Landlord's representatives and agents, and Landlord's
Mortgagee from and against any and all claims, demands,
liabilities, causes of action, suits, judgments, damages and
expenses (including attorneys' fees and cost of clean up and
remediation) arising from Tenant's failure to comply with the
provisions of this Section 24.(u). This indemnity provision shall
survive termination or expiration of the Lease.
(v) List of Exhibits. All exhibits and attachments attached hereto
are incorporated herein by this reference.
Exhibit A - Outline of Premises
Exhibit B - Legal Description of Building
Exhibit C - Tenant Finish-Work: As Is
Exhibit D - Building Rules and Regulations
20
<PAGE>
Exhibit E - Confession of Judgment
Exhibit F - Renewal Option
Exhibit G - Parking
25. Other Provisions.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S
OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE
PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY
THE RENT, WITHOUT ABATEMENT, SETOFF OR DEDUCTION NOTWITHSTANDING ANY BREACH
BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR
IMPLIED.
[Remainder of page intentionally left blank]
21
<PAGE>
Dated as of the date first above written.
TENANT:
CTI GROUP (HOLDINGS) INC., a Delaware
corporation
By: /s/ Mark H. Daugherty
-----------------------------------
Name: Mark H. Daugherty
---------------------------------
Title: CFO
--------------------------------
Address:
c/o CTI Data Solutions
901 S. Trooper Road
Valley Forge, PA 19482
Attn: Mark Daugherty
Telecopy: ( )
LANDLORD:
WHPVW REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By WHVPW Gen-Par, Inc., a Delaware corporation,
General Partner
By: /s/ Stephen M. Abelman
-----------------------------------
Name: Stephen M. Abelman
---------------------------------
Title: Assistant Vice President
--------------------------------
Address:
c/o Archon Group, L.P.
1275 K. Street
N.W., Suite 900
Washington, D.C. 20005
Attention: Asset Manager
Telecopy: 202-216-5803
With a copy to:
Archon Group, L.P.
600 Las Colinas Boulevard
Suite 1900
Irving, Texas 75039
Attention: Asset Manager
Telecopy: (972)830-7600
<PAGE>
EXHIBIT A
[OUTLINE OF PREMISES]
<PAGE>
[Graphic]
<PAGE>
EXHIBIT B
[LEGAL DESCRIPTION OF BUILDING]
<PAGE>
EXHIBIT "B"
-----------
Legal Description
Pinebrook Business Center
2550 Eisenhower Avenue
Norristown, PA
BEGINNING point in the intersection of the center line of Jefferson
wvenue and the center line of Eisenhower Avenue a corner of lands now or late
of Pepper; thence extending along said land North forty two degrees East,
four hundred feet to a corner of lands now or late of Extracorporeal; thence
extending along said land South forty eight degrees East, seven hundred nine
and fifty one-hundredths feet to a point, a corner of lands now or late of
Valley Forge Corporate Center; thence extending along said land South forty
two degrees West, four hundred feet to a point in the center line of
Eisenhower Avenue; thence extending along said Eisenhower Avenue North forty
eight degrees West, seven hundred nine and fifty one-hundredths feet to the
first mentioned point and place of beginning.
Together with all rights and easements now or hereafter created which
are appurtenant to the Land;
Together with all right, title and interest of Lessor, including any
after acquired title or interest, in all other ways, easements, streets
(including the bed of any street), utility or other service easements in any
way appertaining to the Land;
Together will all buildings now or hereafter erected on the Land; and
Together with the right and easement, to the extent required by Lower
Providence Township, over any easements created or retained by Lessor, for
the installation, maintenance, replacement and operation of storm water
drainage facilities.
Reserving, however, to Lessor, its successors and assigns the right, to
be exercised upon written notification to Lessee and the satisfaction by
Lessor of the conditions contained in Section 24 hereof, to obtain, without
the consent of Lessee, a subdivision of approximately 39,000 square on the
east end of the Land as shown on the above-described Land Title Plan, exclude
such property from this Lease and release such property from any mortgage or
other lien thereon which exists by reason of this Lease.
Page 1 of 2
<PAGE>
Also reserving, however, to Lessor, its successors and assigns a utility
and service easement fifteen (15) feet wide inside and along the north and
west property lines and the future eastern property line (as such line may be
created through Lessor's right to resubdivide the Land pursuant to Section 24
hereof), and that portion of the Land located within the right-of-way lines
of Eisenhower Avenue, provided any such utilities are installed below ground
and Lessor, or its successors or assigns, restores any landscaping or
improvements to their condition prior to the commencement of Work.
Page 2 of 2
<PAGE>
EXHIBIT C
---------
TENANT FINISH-WORK: AS IS
Tenant hereby accepts the Premises in their "AS IS" condition, and
Landlord shall have no obligation to perform any work therein (including,
without limitation, demolition of any improvements existing therein or
construction of any tenant finish-work or other improvements therein), and
shall not be obligated or reimburse Tenant or provide an allowance for any
costs related to the demolition or construction of improvements therein.
Before Tenant may occupy the Premises to conduct its business therein, Tenant
shall, at its expense, obtain and deliver to Landlord a certificate of
occupancy from the appropriate governmental authority for the Premises.
Notwithstanding anything to the contrary contained herein, Landlord agrees
that it shall clean the carpeting in the Premises prior to the Occupancy Date.
<PAGE>
EXHIBIT D
---------
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith and the appurtenances
thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises
and for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building other than as
specifically approved by Landlord in writing. No nails, hooks or screws
(other than those which are necessary to hang paintings, prints, pictures, or
other similar items on the Premises' interior walls) shall be driven or
inserted in any part of the Building without the prior written consent
Landlord. Except as consented to in writing by Landlord or in accordance
with Tenant's building standard improvements, no draperies, curtains, blinds,
shades, screens or other devices shall be hung at or used in connection with
any window or exterior door or doors of the Premises. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything
against or near glass partitions or doors, or windows which might appear
unsightly from outside the Premises.
4. Landlord shall provide all door locks in Premises, at the cost of
Tenant, and Tenant shall not place any additional door locks in its Premises
without Landlord's prior written consent. Landlord shall furnish to Tenant a
reasonable number of keys to Tenant's Premises, at Tenant's cost, and Tenant
shall not make or have made a duplicate thereof. Tenant shall not alter any
lock or install a new additional lock or bolt on any door of its Premises
without Landlord's prior written consent. Tenant shall deliver to Landlord
upon termination of its tenancy, the keys to all locks for doors on the
Premises and in the event of loss of any keys furnished by Landlord, shall
pay Landlord therefor.
5. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions for
their installation.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant of any bulky material, merchandise or
materials shall be conducted under Landlord's supervision at such times and
in such a manner as Landlord may reasonably require. Tenant assumes all
risks of and shall be liable for all damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a
result of acts in connection with carrying out this service for Tenant.
<PAGE>
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be
placed in the Building so as to distribute weight in a manner acceptable to
Landlord which may include the use of such supporting devices as Landlord may
require. All damages to the Building caused by the installation or removal of
any property of Tenant, or done by Tenant's property while in the Building,
shall be repaired at the expense of Tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways.
No birds or animals shall be brought into or kept in, on or about Tenant's
Premises. No portion of Tenant's Premises shall at any time be used or
occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
Premises neat and clean. Tenant shall not employ any person for the purpose
of such cleaning other than the Building's cleaning and maintenance personnel.
10. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
11. Tenant shall not use or keep in the Premises any toxic or hazardous
materials, or any kerosene, gasoline or inflammable or combustible fluid or
material other than those limited quantities necessary for the operation or
maintenance of office equipment. Tenant shall not use or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of improper,
objectionable or unpleasant noise, odors, or vibrations or otherwise
interfere in any way with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall
be operated by Tenant on its leased area without Landlord's prior written
consent, nor shall Tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from Tenant's Premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry
or not. Tenant assumes any and all responsibility for protecting its Premises
from theft and robbery, which responsibility includes keeping doors locked
and other means of entry to the Premises closed.
14. No vending or dispensing machines of any kind may be maintained in
the Premises without the prior written permission of Landlord.
15. Tenant shall not conduct any activity on or about the Premises or
Building which will draw pickets, demonstrators, or the like. Landlord hereby
grants Tenant permission to place one water cooler and not more than three
vending machines in the Premises for use by Tenant's employees and guests
only.
16. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within
2
<PAGE>
designated parking spaces, if any, one vehicle to each space. Tenant shall
not leave vehicles in the Building parking areas overnight, or park any
vehicles in the Building parking areas other than automobiles, motorcycles,
motor driven, non-motor driven bicycles, or four wheel drive trucks. No
vehicle shall be parked as a "billboard" vehicle in the parking lot. Any
vehicle parked improperly may be towed away. Tenant, Tenant's agents,
employees, vendors and customers who do not operate or park their vehicles as
required shall subject the vehicle to being towed at the expense of the owner
or driver. Landlord may place a "boot" on the vehicle to immobilize it and
may levy a charge of $50.00 to remove the "boot". Tenant shall indemnify,
hold and save harmless Landlord of any liability arising from the towing or
booting of any vehicles belonging to a Tenant Party.
3
<PAGE>
EXHIBIT E
---------
CONFESSION OF JUDGMENT
LANDLORD SHALL HAVE THE FOLLOWING RIGHTS TO CONFESS JUDGMENT AGAINST
TENANT AND ALL PERSONS CLAIMING THROUGH TENANT, FOR POSSESSION OF THE PREMISES
AND/OR FOR MONIES OWED TO LANDLORD:
1. If Rent or any charges hereby reserved as Rent, or damages by reason
thereof, or any other sum due and payable in connection with this Lease,
including without limitation any late fees or interest accrued or accruing
thereon, and any reimbursement for attorney fees owed by Tenant shall remain
unpaid on any day when the same is due beyond any applicable grace period (if
any), whether prior to or after the termination or expiration of this Lease,
Tenant hereby empowers any Prothonotary, Clerk of Court or attorney of any
court of record to appear for Tenant in any and all actions which may be
brought for any amount so due and payable by Tenant to LandLord, or any
portions thereof, or for amounts agreed to be paid by Tenant, and to confess
judgment against Tenant in any competent court for the recovery of Rent or
other charges, payments, costs and expenses. In such suits or actions, Tenant
empowers such Prothonotary, Clerk of Court or attorney to confess judgment
against Tenant for all or any part of the Rent specified in this Lease and
then unpaid or any other amount due, including without limitation, at
Landlord's option, the Rent for the entire unexpired balance of the term of
this Lease, and for interest and costs, together with an attorney's
commission equal to the greater of $2,000.00 or 5% of the amount so
confessed. Such authority shall not be exhausted by one exercise thereof,
but judgement may be confessed as aforesaid from time to time as often as any
Rent or any other amount payable by Tenant shall fall due or be in arrears,
including without limitation for the same sums due and payable as previously
confessed if and to the extent that a previous confession of judgment shall
be stricken or otherwise invalidated without a final decision on the merits
of the claim. Such powers may be exercised as well after the expiration of
the original Term, during any extension or renewal, and/or after the
termination of this Lease.
2. When this Lease shall be terminated by reason of a default by Tenant
or any other reason whatsoever, either during the original Term of this Lease
or any renewal or extension thereof, and also when the term hereby created on
any extension thereof shall have expired, it shall be lawful for any attorney
as attorney for Tenant to confess judgment in ejectment in any competent
court against Tenant and all persons claiming under Tenant for the recovery
by Landlord of possession of the Premises, for which this Lease shall be
Landlord's sufficient warrant. Upon such confession of judgment for
possession, if Landlord so desires, a writ of execution or of possession may
issue forthwith, without any prior writ or proceedings whatsoever. If for any
reason after such action shall have been commenced, the same shall be
determined and the possession of the Premises shall remain in or be restored
to Tenant, then Landlord shall have the right upon any subsequent or
continuing default or defaults, or after expiration of the Lease, or upon the
termination of this Lease as set forth above, to confess judgment in
ejectment against Tenant as set forth above to recover possession of the
Premises.
<PAGE>
3. In any action in ejectment and/or for Rent in arrears or other amount
due and payable by Tenant to Landlord, Landlord shall cause to be filed in
such action an affidavit made by Landlord or someone acting for Landlord
setting forth the facts necessary to authorize the entry of judgment, of
which facts such affidavit shall be conclusive evidence. If a true copy of
this Lease shall be filed in such action (and of the truth of the copy such
affidavit shall be sufficient evidence), it shall not be necessary to file
the original Lease as a warrant of attorney, any rule of court, custom or
practice to the contrary not withstanding.
4. Tenant expressly agrees, to the extent not prohibited by law, that any
judgment, order or decree entered against it by or in any court or magistrate
by virtue of the powers of attorney contained in this Lease shall be final,
and that Tenant will not take an appeal, certiorari, writ of error, exception
or objection to the same, or file a motion or rule to strike off or open or
to stay execution of the same, and releases to Landlord and to any and all
attorneys who may appear for Tenant all errors in the said proceedings and
all liability therefor.
5. The right to enter judgment against Tenant and to enforce all of the
other provisions of this Lease herein provided for, at the option of any
assignee of this Lease, may be exercised by any assignee of Landlord's right,
title and interest in this Lease in Tenant's own name, notwithstanding the
fact that any or all assignments of said right, title and interest may not be
executed and/or witnessed in accordance with the Act of Assembly of May 23,
1715, 1 Sm. L. 94, and all supplements and amendments thereto that have been
or may hereafter be passed. Tenant hereby expressly waives the requirements
of said Act of Assembly and any and all laws regulating the manner and/or
form in which such assignments shall be executed and witnessed.
2
<PAGE>
TENANT UNDERSTANDS THAT IN GRANTING THESE RIGHTS TO CONFESS JUDGMENT,
TENANT WAIVES ITS RIGHTS TO NOTICE AND HEARING BEFORE ENTRY OF JUDGMENT AND
EXECUTION ON THAT JUDGMENT. TENANT HAS DISCUSSED THE MEANING AND AFFECT OF
THESE CONFESSION OF JUDGMENT PROVISIONS WITH ITS OWN INDEPENDENT COUNSEL, OR
HAS HAD REASONABLE OPPORTUNITY TO DO SO.
LANDLORD:
WHVPW REAL ESTATE LIMITED PARTNERSHIP
a Delaware limited partnership
By: WHVPW Gen-Par, Inc., a Delaware corporation,
General Partner
By: /s/ Stephen Abelman
-----------------------
Name: Stephen Abelman
---------------------
Title: Asst. Vice President
--------------------
TENANT:
CTI GROUP (HOLDINGS) INC.
By: /s/ Mary Ann Davis
-----------------------
Name: Mary Ann Davis
Title: Corporate Secretary
<PAGE>
EXHIBIT F
RENEWAL OPTION
Provided no Event of Default exists and Tenant is occupying the entire
Premises at the time of such election, Tenant may renew this Lease for one
additional period of five years, by delivering written notice of the exercise
thereof to Landlord not later than 9 months before the expiration of the
Term. On or before the commencement date of the extended Term in question,
Landlord and Tenant shall execute an amendment to this Lease extending the
Term on the same terms provided in this Lease, except as follows:
(a) The Basic Rent payable for each month during each such extended Term
shall be the prevailing rental rate, at the commencement of such
extended Term, for space of equivalent quality, size, utility and
location, with the length of the extended Term and the credit
standing of Tenant to be taken into account, provided, however, that
the Basic Rent payable during such extended term shall be at least
equivalent to the Basic Rent payable during the final month of the
term of this Lease;
(b) Tenant shall have no further renewal options unless expressly granted
by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances
(e.g., moving allowance, construction allowance, and the like) or
other tenant inducements.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant
assigns any of its interest in this Lease or sublets any portion of the
Premises or (3) Tenant fails to timely exercise its option under this
Exhibit, time being of the essence with respect to Tenant's exercise thereof.
Within ten (10) days after receipt of Tenant's notice to renew, Landlord
shall send written notice to Tenant of "prevailing rental rates" and shall
advise Tenant of the required increase or adjustment to the Basic Rent, if
any, and the other terms and conditions offered. If Tenant disagrees with
Landlord's determination of "prevailing rental rates," Tenant may, but only
within ten (10) days after receipt of Landlord's notice, require by written
notice to Landlord that the determination of "prevailing rental rates" be
made by brokers. In such event, within ten (10) days thereafter, each party
shall select a qualified commercial real estate broker with at least ten (10)
years experience in appraising property and buildings in the city or
sub-market in which the Premises are located. The two brokers shall give
their opinion of prevailing rental rates and other terms within twenty (20)
days after their retention. In no event, however, shall the Minimum Rent in
the renewal term be less than the then current Basic Rent rate per rentable
square foot in effect hereunder. In the event the opinions of the two brokers
differ and, after good faith efforts over the succeeding twenty (20) day
period, they cannot mutually agree, the brokers shall immediately and jointly
appoint a third broker with the qualifications specified above. This third
broker shall immediately (within five (5) days) choose either the
determination of Landlord's broker or
<PAGE>
Tenant's broker and such choice of this third broker shall be final and
binding on Landlord and Tenant unless, within five (5) days thereafter,
Tenant in writing notifies Landlord that Tenant withdraws its notice to
renew. Each party shall pay its own costs for its real estate broker. The
parties shall equally share the costs of any third broker. The parties shall
immediately confirm the renewal term, Basic Rent and terms and conditions so
determined, in writing.
2
<PAGE>
EXHIBIT G
PARKING
Tenant may use 23 undesignated parking spaces in the parking garage/area
associated with the Building (the "Parking Area") during the initial Term
subject to such terms, conditions and regulations as are from time to time
applicable to patrons of the Parking Area.
<PAGE>
Exhibit 21.1
CTI GROUP (HOLDINGS) INC.
List of Subsidiaries
as of March 31, 1998
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
CTI Delaware Holdings Inc. Delaware
CTI Data Solutions (USA) Inc. Delaware
CTI Soft-Com Inc. Delaware
Telephone Budgeting Systems Inc. New York
Plymouth Communications Inc. Delaware
Name Country
---- -------
CTI Data Solutions Ltd. United Kingdom
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 628,329 105,700
<SECURITIES> 0 0
<RECEIVABLES> 1,666,646 790,680
<ALLOWANCES> 281,399 65,000
<INVENTORY> 48,674 42,360
<CURRENT-ASSETS> 2,062,250 873,740
<PP&E> 4,824,324 3,644,990
<DEPRECIATION> 2,207,161 1,762,960
<TOTAL-ASSETS> 4,679,413 2,755,770
<CURRENT-LIABILITIES> 4,670,883 1,276,770
<BONDS> 0 0
0 0
0 0
<COMMON> 69,900 65,310
<OTHER-SE> (61,370) 1,413,690
<TOTAL-LIABILITY-AND-EQUITY> 4,679,413 2,755,770
<SALES> 3,598,720 3,223,290
<TOTAL-REVENUES> 3,598,720 3,223,290
<CGS> 2,028,950 1,384,070
<TOTAL-COSTS> 3,179,311 2,019,270
<OTHER-EXPENSES> 28,545 6,480
<LOSS-PROVISION> 146,900 13,700
<INTEREST-EXPENSE> (76,425) (5,440)
<INCOME-PRETAX> 0 0
<INCOME-TAX> (76,500) 4,800
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,727,821) (197,510)
<EPS-PRIMARY> (.27) (.04)
<EPS-DILUTED> 0 0
</TABLE>
