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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
-------- of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994 or
________ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ________ to ________
Commission File Number 0-11626
LOTUS DEVELOPMENT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2757702
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 Cambridge Parkway, Cambridge, Massachusetts 02142
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(Address of principal executive offices)
(Zip Code)
(617) 577-8500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
(Titles of classes)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES__X__ NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in the definitive
proxy or information statements incorporated by reference in Part III of
the Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant
as of February 25, 1995 was $1,997,401,273.
The number of shares outstanding of the registrant's common stock as of
February 25, 1995 was 48,196,026.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders are incorporated by
reference in Parts I, II and IV.
Portions of the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual
Meeting of Shareholders to be held May 2, 1995 are incorporated by
reference into Part III.
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LOTUS DEVELOPMENT CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ............................................... 1
Item 2. Properties ............................................. 15
Item 3. Legal Proceedings ...................................... 16
Item 4. Submission of Matters to a Vote of Security Holders .... 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters ................................... 17
Item 6. Selected Financial Data ............................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 17
Item 8. Financial Statements and Supplementary Data ........... 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant .... 18
Item 11. Executive Compensation ................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management ............................................ 19
Item 13. Certain Relationships and Related Transactions ........ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................... 20
Signatures ....................................................... 25
______________________________________________________________________________
<PAGE> 1
PART I
Item 1. Business
GENERAL
Lotus Development Corporation (the "Company" or "Lotus") was
incorporated in Delaware in April 1982. The Company and its
subsidiaries are engaged in the development, manufacture,
licensing, marketing and support of software products and services
that meet the evolving technology and business application
requirements of individuals, work groups and entire organizations.
The Company's products and services consist of desktop
applications products and communications products and services.
Desktop applications products include SmartSuite (an integrated
applications suite), 1-2-3 (spreadsheets), Ami Pro (word
processing), Freelance Graphics (presentation graphics), Lotus
Approach (end-user database), and Lotus Organizer (personal
information management). Communications products and services
include Lotus Notes (workgroup computing), cc:Mail (electronic
mail), Soft*Switch (electronic mail switching), support and
consulting services. Additionally, the Company is currently
developing public network and inter-enterprise products that will
further extend the reach and accessibility of Lotus Notes.
Lotus' software products and its support and consulting
services reflect the Company's understanding of the ways in which
individuals and businesses work together to become more
productive. Lotus' applications allow information to be accessed
and communicated within and beyond organizational boundaries. The
Company markets its products in more than 80 countries worldwide
and provides numerous support and consulting services.
Lotus' initial product, Lotus 1-2-3, was shipped in January
1983. 1-2-3 is a software product that combines spreadsheet,
database and graphing capabilities into a single program for use
with most personal computers. According to industry reports, soon
after its introduction, 1-2-3 for DOS became the personal computer
software industry's best selling business applications software
product. Since its release in 1983, 1-2-3 has been continually
updated to incorporate new technological advances, increased
functionality, ease-of-use features, and compatibility with major
operating system and hardware platforms. By the end of 1994, the
Company had shipped approximately 18.4 million units of 1-2-3.
The Company has added to its established spreadsheet products
in an effort to build a strong presence in each of the predominant
desktop applications categories. Lotus has acquired and
subsequently enhanced the technology that forms the basis of its
Freelance Graphics, Ami Pro, Lotus Approach and Lotus Organizer
products. In 1992, the Company introduced SmartSuite, an
integrated suite of the Company's desktop applications.
The Company introduced Lotus Notes in 1990 and acquired
cc:Mail, Inc. in 1991 to position itself to capitalize on the
trend toward networked computing, information sharing and
organizational computing. Notes has been widely acclaimed for its
ability to enable workgroups to access, track, share, route and
organize information across diverse computing platforms and
geographical boundaries. Notes is the pre-eminent client-server
product for developing and deploying groupware applications,
including those found in customer service, sales and account
management and product development. Notes and cc:Mail have
established the Company as a leader in PC-based communications
software. The Company has also integrated Notes with its desktop
products to enable them to take advantage of workgroup computing
environments. As of December 31, 1994, there were approximately
1.35 million Notes users and approximately 6.5 million cc:Mail
users.
<PAGE> 2
In an effort to continue to expand its communications
business, Lotus completed several key acquisitions in 1994. In
recognition of the importance of Notes to the Company's
communications business, the Company acquired Iris Associates,
Inc., the original developers of Notes, in May 1994. The July
1994 acquisition of Soft*Switch, Inc. ("Soft*Switch") reflects the
Company's efforts to add to and improve its communications
products by incorporating Soft*Switch's technology, which consists
primarily of electronic mail message switches that link disparate
messaging systems. The Company believes that as the Notes
installed base grows and more corporate Notes users develop
complex and mission critical workgroup applications, the need for
Notes application tools and developers will grow. The Company's
September 1994 acquisition of Edge Research, Inc. ("Edge"), a
supplier of application development tools for Notes, reflects the
Company's commitment to enhancing the programmability of Notes.
The Company has developed and adopted cross-product standards
for most Lotus products that enhance user value in areas such as
user interface design, database access methods, international
character sets, networking, mail-enabling and customization. When
appropriate, the Company has worked with other major software and
hardware companies to develop these standards. Furthermore, as
networked computing environments continue to become more
prevalent, the Company has focused on providing customers with
communications products capable of being used across a broad range
of hardware systems and operating environments. This provides
customers with the ability to share information easily among
users, to move users more readily between computing platforms and
to exercise greater flexibility in selecting computing
environments. The Company believes this approach is of
significant value to customers because it preserves their existing
investment while allowing them to take advantage of new
technologies. The Company also believes this approach is
necessary to maintain its competitive position. See
"Competition".
PRODUCTS AND SERVICES
Desktop Products
SmartSuite
The Company packages its desktop applications in various
product combinations or suites under the registered trademark
"SmartSuite". Each of the applications in SmartSuite is closely
integrated and shares common user interface elements, including a
consistent menu structure, common Lotus "SmartIcons" buttons, a
live status bar and one click access to menu items, including
context-sensitive Help. SmartSuite was the first group-enabled
suite to include mail-enabling and features that facilitate
collaborative work.
In August 1994, the Company shipped SmartSuite for Windows
Release 3.0, which consists of Lotus' highly-rated desktop
applications, including Lotus 1-2-3 for Windows Release 5.0, Lotus
Ami Pro for Windows Release 3.1, Freelance Graphics for Windows
Release 2.1, Lotus Approach for Windows Release 3.0 and Lotus
Organizer Release 1.1. Each application in the Suite has been
updated in 1994 to increase its integration with Notes, cc:Mail
and other electronic mail systems. The Company shipped
SmartSuite for Windows Release 3.1 in February 1995 to include
Organizer Release 2.0, the enhanced version of Organizer that was
commercially released in December 1994.
In May 1994, the Company shipped SmartSuite Release 1.1 for
OS/2, which includes 1-2-3 Release 2.1 for OS/2, Freelance
Graphics Release 2.1 for OS/2, Ami Pro 3.0a for OS/2 and cc:Mail
for OS/2 Workplace Shell 1.0. This suite leverages OS/2 's
versatile drag-and-drop functionality, faster navigation,
multitasking and 32-bit memory management to increase user
productivity and application usability. In March 1995, the
Company shipped SmartSuite Release 2.0 for OS/2, which includes
enhanced versions of Ami Pro and cc:Mail for OS/2 Workplace shell.
<PAGE> 3
Products Under Development - The Company is currently developing
enhanced versions of SmartSuite for the Windows, for the "Windows
95", a new operating system that Microsoft Corporation
("Microsoft") has announced it will release in 1995, and for the
OS/2 operating system platforms.
Spreadsheet Products
The Company's spreadsheet products are designed to deliver
performance, usability, innovation, integration with other Lotus
applications and workgroup enabling features. 1-2-3 is currently
available across all of the most popular hardware and operating
platforms, including Windows, OS/2, DOS, UNIX and Macintosh. As
of December 31, 1994, versions of 1-2-3 were available in
approximately 27 different languages.
In July 1994, the Company shipped 1-2-3 for Windows Release
5.0, which provides users with enhanced usability, increased
productivity and advanced workgroup capabilities. Lotus has
designed this product with intuitive access to all of its
functions and features to make it easier to create, present and
maintain spreadsheets, while maintaining full compatibility with
previous releases of 1-2-3. The enhanced usability features ease
the completion of everyday spreadsheet tasks. The enhanced
database capabilities allow users to create forms, reports,
crosstabs and mailing labels directly from 1-2-3 data through
integration with Lotus Approach. 1-2-3 for Windows Release 5.0
incorporates an array of powerful data analysis and programming
tools to maximize users' productivity and permits users to
collaborate while working within the product. The product has a
consistent look and feel with Lotus' other Windows applications
through the use of shared components such as "SmartIcons" buttons,
Smart Status bar and a common user interface. The product also
includes a new Lotus Maps feature, an integrated mapping tool to
show and analyze geographical spreadsheet data. There are also
several new formula functions to perform calendar, financial and
mathematical calculations. Release 5.0 also retains the unique
Version Manager function introduced in Release 4.0, which allows
individuals and workgroups to better manage what-if analysis,
track modifications to spreadsheets and effectively share
spreadsheet data.
In July 1994, Lotus introduced 1-2-3 for DOS Release 4.0, a
major upgrade to its leading DOS spreadsheet, which delivers
powerful new functionality and graphical ease of use. The product
retained all the powerful features of prior releases and now
includes a Version Manager and an integrated mail enabling feature
that allows users to mail spreadsheet files electronically without
leaving 1-2-3. Other key upgrade features include QuickStart
tutorial, a Spell Checker, a Cell Notepad, which allows users to
attach a comment to any spreadsheet cell, and a Column Fit-Widest
command for instantly adjusting column widths. The Company's DOS
spreadsheets combine an interactive WYSIWYG ("what you see is what
you get") display and the ability to turn analyses into
presentation quality output with powerful analytic capabilities.
Lotus introduced 1-2-3 for OS/2 Release 2.1 in May 1994.
This version of the spreadsheet allows users to exploit OS/2's
Workplace Shell graphical environment and 32-bit technology,
providing users with significant usability and productivity gains
through features such as drag-and-drop editing, faster navigation,
quicker screen refresh and multi-threading. 1-2-3 for OS/2
delivers three-dimensional capabilities, Solver and BackSolver
advanced goal-seeking tools, and external data access capabilities
through DataLens.
Products Under Development - The Company is currently developing
enhanced versions of 1-2-3 for the Windows, Windows 95 and OS/2
operating system platforms.
<PAGE> 4
Presentation Graphics Products
The Company's presentation graphics product, Freelance
Graphics, is designed to facilitate the creation, display and
sharing of graphical information, including data generated or
manipulated by Lotus 1-2-3. Freelance Graphics provides a
comprehensive set of graphics capabilities including bullet
charts, flexible drawing and editing tools, powerful charting, and
the ability to quickly and easily create presentations. Lotus
currently markets Windows, OS/2 and DOS versions of Freelance
Graphics.
In July 1994, the Company began shipping Freelance Graphics
for Windows Release 2.1. This release provides strong support for
workgroup applications and allows tight integration with Notes.
It also includes enhanced task-oriented SmartMaster presentation
styles for such frequent tasks as weekly meetings, proposals and
project updates. It includes a range of international and
industry-specific SmartMaster designs and the ability to develop
custom SmartMaster page layouts and prompts. The product now
includes more than 101 different presentation styles, giving users
a comprehensive selection of styles for their presentation needs.
In April 1994, the Company also began shipping Freelance
Graphics for OS/2 Release 2.1. This version brings the features
of Freelance Graphics for Windows to the OS/2 operating platform.
In addition to SmartMasters and other presentation management
features, Freelance Graphics for OS/2 provides complete charting
capabilities, extensive drawing and editing tools and seamless
integration with 1-2-3.
The Company also sells Freelance Graphics for DOS Release
4.0. Key features include a graphical WYSIWYG working
environment, a customized outliner, enhanced presentation
management tools, charting capabilities and master presentation
backgrounds.
The Company also sells SmartPics for Windows, an extensive
clip-art library with browser for Windows applications. With more
than 2,000 pieces of quality artwork, SmartPics is designed to
provide users with a fast and easy means of adding memorable
visuals to Windows documents and presentation materials.
The Company offers versions of Freelance Graphics in 16
different languages.
Products Under Development - The Company is currently developing
enhanced versions of Freelance Graphics for the Windows, Windows
95 and OS/2 operating system platforms.
Word Processing Products
The Company's principal product offering in the word
processing market, Ami Pro, provides desktop publishing
functionality and graphics capabilities for personal computers and
local area networks.
Ami Pro for Windows Release 3.1, which was shipped in August
1994, combines now-common features, such as a thesaurus, a spell
checker and interactive drawing and charting capability, with
advanced functionality and ease-of-use. Ami Pro pioneered the use
of "SmartIcons" buttons for single-click access to menu commands
and includes fast format, drag-and-drop text editing, automated
envelope printing, document and style sheet viewers, and a clean
screen option. Ami Pro enables users to share data and
functionality across all desktop applications included in the
Company's suite. Release 3.1 works together with Notes to provide
document tracking and database management for workgroups. The
Document Sharing Application offers a quick and powerful tool that
leverages Notes replication, security and notification services as
well as its support for mobile access. Also new to Ami Pro for
Windows 3.1 is a mail memo front end to cc:Mail and Notes, which
enables users to create, send and reply to mail memos using Ami
Pro as the mail memo editor.
<PAGE> 5
In July 1994, Lotus shipped Ami Pro 3.0a for OS/2, which
takes advantage of OS/2's multi-threading power and delivers
seamless integration with the OS/2 Workplace Shell. Ami Pro 3.0a
for OS/2 supports IBM's OS/2 programming language and features
integration between system and application macros.
The Company offers 24 different language versions of its word
processing products.
Products Under Development - The Company is currently developing
enhanced versions of Ami Pro for the Windows, Windows 95 and OS/2
operating system platforms.
Database Management Products
In June 1993, Lotus acquired Approach Software Corporation, a
developer of end-user relational database applications for the
Windows environment. Lotus Approach for Windows makes it easy to
create standalone applications and manage and report on
information. The product, based on client/server technology,
consists of three components: a graphical user interface, a
relational layer and a series of data-access engines called
PowerKeys. PowerKeys enable users to connect directly to Oracle
SQL, Microsoft and Sybase SQL Server, DB2, FoxPro, Paradox, dBase
and ODBC compliant databases. This feature provides users with
quick access to data anywhere on a network without any conversion
or intermediary file and with the ability to mix data from
multiple file formats into single form or report.
In July 1994, Lotus shipped Approach Release 3.0 for Windows,
which offers more than 200 new features, including new strides in
database usability. This product was designed for general purpose
business users who do not view themselves as database programming
experts. Approach enables users to complete common business tasks
such as printing mailing labels, creating and distributing reports
and charts, completing forms and performing analysis using
crosstabs. Approach combines genuine ease of use with relational
power and superior data access. The product also provides tight
integration and shares a common look and feel with Lotus' other
Windows products.
The Company offers 16 different language versions of Approach.
Products Under Development - The Company is currently developing
enhanced versions of Approach for the Windows and Windows 95
operating system platforms.
Personal Information Management Products
Lotus Organizer is a Windows-based personal information
management product that employs Lotus' core product features, such
as "SmartIcons" buttons and mail-enabling. Organizer's personal
calendaring technology is designed to allow workers in different
groups, departments or locations to automate and expedite the
process of collaborative scheduling and communications, thereby
improving organizational productivity. Organizer facilitates
integrated calendaring, daily planning and organization, time
management, referencing and updating of contact lists, and random
note taking.
In December 1994, Lotus shipped Organizer 2.0 for Windows,
which includes major enhancements to its personal and workgroup
functionality. There are more than 100 new customer-driven
features and robust group scheduling support for Notes and
cc:Mail, such as the ability to retrieve individual names from an
organization's cc:Mail directory or Notes Name and Address Book
when scheduling a meeting. The advanced Organizer 2.0 scheduling
engine also permits repeating group meetings to be scheduled, not
only on a regular daily, weekly or monthly schedule, but also
according to a user-defined, customized repeating schedule (e.g.,
the third Thursday of every month).
<PAGE> 6
The Company offers 21 different language versions of
Organizer.
Products Under Development - The Company is currently developing
enhanced versions of Organizer for the Windows, Windows 95 and
Macintosh operating system platforms.
Communications Products and Services
In addition to Notes and cc:Mail, Lotus' communications
products now include Lotus Messaging Switch ("LMS") (formerly
Soft*Switch EMX) and Soft*Switch Central. This set of
communications products takes advantage of network computing to
boost organizational effectiveness and improve communications
across multiple network operating systems, hardware platforms and
personal computer operating systems. These products also provide
the underlying messaging and shared document database layers for
the deployment of enterprise-wide shared information applications.
In addition, the Company offers various types of support and
services, primarily related to its communications products.
Lotus Notes
Notes, the Company's workgroup computing product, increases
productivity by enabling users to create, store, route and access
shared information across networked personal computers. The
product addresses the needs of workgroups, such as those in
corporate, educational and governmental environments, to share
information simultaneously at different locations and across
different technologies. The key to simultaneous
information-sharing is a procedure called replication, by which
Notes copies information from computer to computer throughout a
network. Notes is used for three basic categories of
applications: disseminating information, such as news or reference
materials; routing information, such as mail messages or forms;
and enabling interactive applications, such as discussions,
project control or tracking systems. Customer installations range
from multinational companies, which use several thousand copies of
Notes, to very small workgroups focused on solving a particular
business problem.
In the second half of 1994, the Company shipped Notes Release
3.2 for the Windows, Windows NT, OS/2, Macintosh, UNIX HP-UX, UNIX
SCO, UNIX-AIX and Sun Solaris operating system platforms. These
versions incorporate various ease-of-use features, including
full-text search, Automatic Document Versioning, Lotus
"SmartIcons" buttons, and a graphical installation program. Notes
Release 3.2 also includes a built-in Customer Service Application,
designed to improve customer service operations by providing
efficient access to information and reduced time-to-action.
Twenty-five additional Notes template and example files are also
included.
Notes features Notes Field Exchange ("Notes/FX"), an
integrating technology developed by Lotus, that allows users to
exchange data between Notes and desktop applications and provides
the ability to bi-directionally share field level information.
This integration offers the ability for Notes and desktop tools to
function as if they were designed to be part of the same
application. The Notes/FX technology improves organizational
productivity through group collaboration and gives users the
ability to share information from applications with other users.
SmartSuite Release 3.0 includes updated Notes/FX 1.1 technology as
one of the suite's key enhancements.
<PAGE> 7
The Company has developed companion products with partner
companies to extend the capabilities of Notes. In October 1994,
Lotus shipped Lotus Notes: Document Imaging ("LN:DI") Release 2.5,
a product which allows users to scan textual and graphical
documents into Notes so that they may be searched and edited.
This release provides support for color and grayscale document
images and enables users to scan, view and print color images.
Lotus Phone Notes, shipped in March 1994, enables callers to
access Lotus Notes applications from touch-tone telephones.
In addition, the Company has developed workflow automation
and application development tools for its Notes and cc:Mail
products. Lotus Forms Version 1.0, which shipped in June 1994, is
electronic forms software that automates paper-based business
processes by designing, routing and tracking forms on Notes,
cc:Mail and Microsoft Mail. Lotus Notes ViP, which shipped in June
1994, allows developers to create client/server applications in a
visual programming environment.
These companion products and management and development
tools, among others, are currently available on the Windows
operating system platform. The Company is considering extending
development of the companion products and development tools to
additional operating system platforms.
The Company offers 15 different language versions of Notes.
Products under development - The Company is currently developing
enhanced versions of Notes for the Windows, Windows 95, Windows
NT, OS/2, Macintosh and UNIX operating system platforms.
Additional Notes companion products and development tools are also
currently under development.
NotesSuite
In November 1994, Lotus introduced NotesSuite, which combines
SmartSuite for Windows, a Notes client and the NotesSuite
Application Collection. The NotesSuite Application Collection is
a set of production-quality Notes applications that integrate
Notes and SmartSuite desktop applications to provide solutions for
document-sharing and business process management and to provide
access to information available through third-party news and
information services. NotesSuite transforms familiar desktop
tools used for individual tasks into workgroup collaboration tools
by allowing organizations to easily distribute, share and
consolidate information. All versions of NotesSuite work with the
server platforms already supported by Notes.
Products under development - The Company is currently developing
enhanced versions of NotesSuite for the Windows and Windows 95
operating system platforms.
cc:Mail
cc:Mail is a highly-rated, comprehensive LAN-based electronic
mail and messaging system. cc:Mail is available on more platforms
today than any other LAN-based mail system, including local and
remote DOS, Windows and Macintosh, and local OS/2 and UNIX, as well
as all major LANs. The product provides transparent connectivity to
all major public and private electronic mail systems and facsimile
machines worldwide. It also supports wireless computing and other
mobile platforms.
The Company believes that electronic mail will continue to
represent a substantial opportunity in the software industry over
the next several years and that cc:Mail and Lotus' other
distributed communications products put Lotus in a position to
capitalize on the anticipated growth of electronic mail in
networked computing environments. The Company also believes that
because electronic mail has the potential for greater desktop
penetration in organizations than any other application, cc:Mail
products provide Lotus with an added opportunity to introduce
customers to Notes as well as the Company's entire suite of
desktop products, which are well integrated with cc:Mail.
<PAGE> 8
The Company shipped Lotus cc:Mail View in December 1994.
cc:Mail View gives system administrators a detailed graphical
display of their cc:Mail e-mail network, alerts them should an
exception condition occur and provides charts showing message
system statistics. The product allows administrators to visualize
the status of messaging system components on a wide-area network
from any location in the world.
The Company offers 21 different language versions of cc:Mail.
Products under development - The Company is currently developing
enhanced versions of cc:Mail for the Windows, Windows 95, DOS,
Macintosh and OS/2 operating system platforms.
Lotus Messaging Switch
As a result of the Soft*Switch acquisition in July 1994, the
Company began shipping the then-current version of LMS (1.2 patch
3), a UNIX-based multi-protocol messaging switch that links
disparate electronic messaging systems. LMS is an open
architecture product designed to switch messages through a local
area network to other domains or networks using an X.400 message
transport service. LMS is sold as a network appliance and comes
with hardware and software that plug into the network. LMS runs
on Data General AViiON hardware using Data General's DG/UX
operating system. LMS provides standards-based connectivity,
electronic mail network management and mail-enabled applications
that add value to customers' expanding electronic mail networks.
Products under development - The Company is currently developing
significantly enhanced versions of LMS.
Soft*Switch Central
Also as a result of the Soft*Switch acquisition, the Company
began shipping Soft*Switch Central Version 4.3, a mainframe-based
enterprise network switch used to link disparate electronic
messaging systems. Soft*Switch Central integrates organizations'
mainframe, midrange and local area network messaging systems,
including those based on standard protocols such as X.400 and the
Internet's Simple Mail Transfer Protocol ("SMTP"). Soft*Switch
Central runs on IBM and compatible mainframes with the MVS or VM
operating system.
Products under development - The Company is currently developing
an enhanced version of Soft*Switch Central.
Lotus Notes/cc:Mail Communications Server ("CommServer")
The Company is currently developing CommServer, a technology
that was formerly referred to as the Lotus Communications Server,
or LCS. CommServer will present Notes and cc:Mail customers with
a single and flexible enterprise-scale back end, thereby providing
integration of the Notes and cc:Mail environments with common
management, directories and administration. CommServer will be a
bundled product that will include the Notes Version 4.0 server and
the cc:Mail Connector for connectivity to cc:Mail file-sharing
subnetworks. CommServer will include a cc:Mail Router backbone,
native X.400 and SMTP connectivity and high function management.
Over time, CommServer and enhanced versions of LMS will be
integrated to provide connectivity and integration with other
third-party legacy and messaging systems.
<PAGE> 9
Support, Services and Education
The Company's support, education and services offerings include
technical support, consulting, education and training and
research.
Technical Support
The Company's worldwide technical support organization
provides product support programs to help users get the most out
of their purchases of Lotus products. The Company hires
individuals with product expertise and provides them with tools,
continuous product education and training and processes to deliver
quality support. Support programs range from free warranty
support to various fee-based offerings.
Lotus Consulting
Founded in 1990, Lotus Consulting is a worldwide professional
services organization. Lotus Consulting provides business process
and technology services to Lotus' major commercial and government
customers. Lotus Consulting focuses on delivering effective
business solutions based on Lotus technology, most notably Notes.
Lotus Consulting also works with third party business partners and
value added resellers to develop solutions for its customers.
Lotus Education
Lotus Education is a worldwide organization dedicated to
providing consistent, high-quality training and education programs
to users of Notes, cc:Mail and the full range of Lotus desktop
products. Lotus Education programs range from those that have
been developed for technical professionals who want to upgrade or
expand their skills to end-users who want basic training in Lotus
products.
Lotus Institute
Lotus Institute was formed by the Company as a research and
executive education endeavor. Its mission is to help customers
achieve optimal performance by identifying and delivering analysis
on emerging organizational, technological and business trends.
Through its work with affiliated partners, industry thought
leaders, business schools and researchers, the Institute offers
its customers specific methods, knowledge and applied research to
help them achieve their business goals.
Public Networks and Inter-Enterprise Computing
In 1994, the Company launched a third business area which it
has named public networks and inter-enterprise computing. This
business, which is in its start-up phase, has been established to
help organizations share information from both within and between
enterprises. In March 1994, Lotus and AT&T announced an agreement
which forms the foundation of this new business. The agreement
calls for Lotus to develop and AT&T to market a product known as
AT&T Network Notes. This product, which is currently under
development, is intended to provide businesses with access to a
cost-effective, secure and reliable client/server computing
platform over AT&T public networks without the costs of supporting
and staffing their own private networks. The Company believes
that this product will be appropriate for use by small workgroups
as well as large worldwide enterprises. In addition, AT&T Network
Notes will create new opportunities to provide business
information and conduct business transactions over public
electronic networks. The Company expects that AT&T Network Notes
will become available in 1995.
There has been explosive growth in the use of the public
Internet for messaging and information distribution - a trend that
the Company expects will continue. In January 1995, Lotus
announced plans to develop InterNotes, a new group of products
that will integrate Notes with popular Internet applications such
as the World Wide Web ("WWW") and Usenet News. The first two
products in the InterNotes product group will be InterNotes Web
Publisher and InterNotes News. The InterNotes Web Publisher is
intended to enable users to publish public information created in
Notes on the WWW for access by NCSA Mosaic, Netscape or other WWW
browsers. InterNotes News is intended to provide Notes users with
seamless, bi-directional access to the Internet Usenet from Notes.
Lotus expects to ship these two InterNotes products in 1995.
<PAGE> 10
PRODUCT DEVELOPMENT
The computer software industry is characterized by rapid
technological change, which requires a continuous high level of
expenditures for enhancing existing products and developing new
products. The Company's product development activities are
focused on delivering organizational productivity to its customers
through its suite of desktop applications and communications
products. Key development objectives of the Company include
tightening integration across applications, furthering the
networking and communications capability of all of its products,
making applications more customizable and introducing more of its
products to the growing portable computing market.
Most of the Company's software products are developed
internally. The Company believes that a crucial factor in the
success of a new product is getting it to market quickly to
respond to users' needs or technological advances, without
compromising product quality. Strategic acquisitions and
relationships have focused on acquiring base technology to
accelerate time-to-market in the areas of communications, end-user
databases, personal information management and word processing.
Lotus' U.S. development organizations are located in
Cambridge, Massachusetts; Atlanta, Georgia; Mountain View,
California; Wayne, Pennsylvania; and Westford, Massachusetts. The
Company supplements its U.S.-based development activities with
product development organizations in Ireland, England, Singapore
and Japan that primarily produce localized versions of Lotus
products and provide third-party support for existing products.
Foreign development efforts are aimed at modifying products to
permit operation in different natural languages, adding features
that are tailored to local markets, and supporting hardware
platforms and operating systems that are prevalent outside the
U.S.
During the years ended December 31, 1994, 1993 and 1992,
research and development costs charged to operations were $158.7
million, $126.9 million and $118.3 million. In 1994, the Company
charged $67.9 million to operations for purchased research and
development related to the acquisitions of Soft*Switch and Edge.
In 1993, the Company charged $19.9 million to operations for
purchased research and development related to the acquisition of
Approach Software Corporation. Additionally, the Company
capitalized internal software development costs and acquired
technology intangibles of $55.1 million, $32.8 million and $43.6
million in 1994, 1993 and 1992.
New product development schedules are difficult to predict,
because software development, quality assurance testing and
debugging are complex processes that often take longer than
expected. Accordingly, although the Company estimates the
shipment dates of proposed new products for internal purposes,
such estimates are subject to frequent adjustment based on the
Company's own periodic assessments of its progress in the
development process. The Company has from time to time
experienced product delays; however, it believes that its
experience has been comparable with that of other companies in the
software industry. No assurance can be given that any of the
development projects referred to in the "Products and Services"
section will be successful or that any announced shipping dates
for new products will be met. See "Issues and Risks" on pages 7-9
of the Financial section of the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1994 (the
"1994 Annual Report to Shareholders"), which is incorporated
herein by reference. A copy of the 1994 Annual Report to
Shareholders has been filed as Exhibit 13 to this Form 10-K.
<PAGE> 11
MARKETING AND SALES
Lotus sells its products through four principal channels of
distribution: the reseller channel, value added resellers
("VARs"), directly to end users and through original equipment
manufacturers ("OEMs").
The reseller channel is Lotus' principal means of
distribution and consists of distributors and resellers. To
facilitate sales through this channel and provide a high level of
sales support and product coverage to resellers and large
corporate accounts, the Company has dedicated account teams to
manage these business relationships. In addition, the Company has
sales representatives who work directly with strategic end-user
customers to generate large volume contracts. These volume
contracts are consummated by the Company's resellers through the
Passport program, a sales program launched in May 1994 that is
intended to facilitate and simplify volume purchases by corporate
customers on a worldwide basis. Under the Passport program, the
Company's resellers offer discounted worldwide pricing to end-user
customers based on customers' cumulative program purchases or
their non-binding commitments to purchase certain volumes of Lotus
products in the future.
The Company has also established a network of business
partners who provide networked computing solutions and services to
their customer bases.
In some instances, the Company sells its products directly to
end-users. However, the Passport program was designed to increase
sales through the reseller channel and consequently will decrease
such direct sales. The Company also engages in direct marketing
programs focused on end-users, primarily for upgrade product
versions.
Lotus has an OEM sales channel to sell its products to PC
manufacturers. Lotus' aim is to seed new products and technology
to first time users and to PC buyers who may not have otherwise
purchased these products on a standalone basis.
At December 31, 1994, Lotus maintained 91 sales offices
throughout the world. In North America, there were 43 sales
offices with a sales and sales support staff of approximately 620.
The Company also has a direct presence in countries throughout
Europe, the Middle East, South America, Central America, Asia,
Africa, Japan and the Pacific Rim. Lotus maintained 48 foreign
sales offices in 37 countries with a sales and sales support staff
of approximately 440. In countries where the Company has not
established a presence of its own, it sells its products through
authorized distributors. In addition, the consulting services
business employed approximately 190 consultants worldwide at
December 31, 1994.
The Company believes that the loss of a major distributor
could have an adverse effect on its financial results in a given
quarter. However, the Company does not believe that the loss
would have a materially adverse effect on its overall operations
as the Company believes there are a number of other distributors
through which the Company could sell its products. Lotus offers
various credit terms to its resellers and distributors that it
believes are typical for the personal computer software industry.
The Company's practice is to ship its products promptly upon
receipt of purchase orders from its customers and, as a result,
backlog is not meaningful. Ingram Micro accounted for 13% of
worldwide sales in 1994. Two of the Company's distributors,
Ingram Micro and Merisel, accounted for 12% and 11% of worldwide
sales in 1993. No one customer was responsible for more than 10%
of worldwide sales in 1992.
<PAGE> 12
The Company continues to maintain its worldwide customer
support organization, which now numbers more than 830 people. The
Company's aim is to globally manage its support organization to
provide consistently high quality support around the world.
Support is an important part of Lotus' product offerings and will
continue to play a key role in delivering organizational
productivity, particularly to the Company's communications
customers.
Sales to unaffiliated customers in the North America,
Europe/Other and Asia Pacific regions were $542.4 million, $255.3
million and $173.0 million in 1994, $527.5 million, $304.0 million
and $149.7 million in 1993 and $490.2 million, $293.9 million and
$116.0 million in 1992. U.S. export sales were not material in
1994, 1993 and 1992. Additional information with respect to
foreign and domestic operations may be found in Note M on pages
23-24 of the Financial Section of the 1994 Annual Report to
Shareholders, which is incorporated herein by reference.
MANUFACTURING AND DISTRIBUTION
The Company has principal manufacturing and distribution
facilities in North Reading, Massachusetts; Dublin, Ireland; and
Singapore. The Massachusetts facility manufactures products sold
in North, South and Central America. The Ireland facility
principally manufactures products that are sold by the Company's
European, African and Middle Eastern subsidiaries and branches.
The Singapore facility manufactures products that are sold by the
Company's Japanese, Australian and other Asian subsidiaries and
branches.
The Company's manufacturing operations involve the
duplication of diskettes, assembly of purchased parts and
fulfillment of product. The chief raw materials and components
used include diskettes and printed text. Raw materials for the
Company's products are in adequate supply and available from a
number of alternative suppliers. At present, the Company does not
anticipate difficulty in securing the raw materials it will
require in connection with its operations. The Company believes
that its inventories are adequate to meet the expected demand.
COMPETITION
The personal computer industry, in both the hardware and
software segments, has been subject to rapid change, which can be
expected to continue. The applications software business is
highly competitive. The Company's products compete with software
products offered by major independent software companies, such as
Microsoft and Novell, Inc. ("Novell"), which have greater
resources than that of the Company. In addition, certain products
offered by the Company are directed at operating environments or
business applications in which these companies were early entrants
and enjoy significant product acceptance and market share.
As consolidation in the software industry continues, the
Company believes that it must offer an integrated suite of desktop
applications in order to be competitive. The desktop suite
magnifies the effects of competition in the desktop applications
market, since the popularity of one major product in a suite may
drive the sale of the entire suite and may enable the software
publisher to occupy the buyer's entire personal computer
"desktop." The Company expects that sales of its desktop suites
will continue to account for a growing percentage of its Windows
desktop sales. In late 1994, desktop suites began to surpass
aggregate sales of individual standalone Windows desktop
applications.
<PAGE> 13
The Company was an early entrant into the market for software
designed to facilitate workgroup computing and believes that its
offerings in this category, Notes and related products, are the
leading products in the category. While the Company does not
believe that competition is currently a significant factor in the
workgroup computing market, several competitors, including
Microsoft and Novell, have announced their intentions to enter
into this market. Workgroup computing is an emerging technology
and, as such, is subject to rapid changes. There can be no
assurance that Notes will continue to gain market acceptance as
increased competition brings new products and new technology to
the marketplace for workgroup computing.
Similar to the market for desktop applications, the market
for LAN-based e-mail products is highly competitive. Sales of
cc:Mail, the Company's LAN-based e-mail product, have grown over
the last few years, but the rate of growth slowed in 1994 due to
increased competition from Microsoft and a decline in the rate of
growth of the LAN-based e-mail market.
The principal considerations for purchasers of personal
computer applications software include product reliability and
performance, compatibility with presently owned hardware and
software, ease-of-use, functionality, price, availability across
multiple operating environments, network capability, workgroup
enabling, the degree of integration across applications, vendor
reputation, and quality of support and training services. The
Company also believes that demand for the Company's products is
indirectly linked to the demand for new personal computers for
business use, particularly in the case of desktop applications.
Competition in the Company's industry has intensified with
greater marketing program activities, increased discounts,
low-priced upgrades and special prices on introductory product
offers and multi-product purchases. Competitors' marketing
efforts also include price offers, including competitive upgrades,
targeted at Lotus customers through direct mail telemarketing and
in-channel promotions.
The Company also competes with other companies in the
personal computer applications software market for resellers and
other product distribution channels. In addition to the factors
listed above, the principal considerations for resellers and
distributors in determining which products to offer include profit
margins, marketing programs, product support and service and
credit terms.
Additional factors with respect to competition as well as
other factors that could affect the future outlook of the Company
may be found in the section captioned "Issues and Risks" appearing
on pages 7-9 of the Financial section of the 1994 Annual Report to
Shareholders. Such information is incorporated herein by
reference.
PRODUCT AND TRADEMARK PROTECTION
The Company regards its applications as proprietary and
attempts to protect them by relying upon copyrights, patents and
common law safeguards, including trade secret protection, as well
as restrictions on disclosure and transferability that are
incorporated into its agreements with other parties. In cases
where, despite these protections, others have unlawfully attempted
to copy aspects of the Company's products or otherwise obtain
information which the Company regards as proprietary, the Company
has taken action to enforce its legal rights. Moreover, the
Company actively seeks to enforce its intellectual property rights
in countries around the world against the unauthorized duplication
of its products by end-users and resellers. See "Legal
Proceedings".
The Company also believes that certain of its trademarks have
significant value. The Company seeks to protect its trademarks by
complying with applicable legal notice requirements and, where the
Company deems it is advisable, through registration with the U.S.
Patent and Trademark Office and similar governmental authorities
in other jurisdictions. The Company has taken action to enforce
its legal rights in cases where others have used infringing marks
or filed infringing marks for registration.
<PAGE> 14
EMPLOYEES
At December 31, 1994, the Company employed 5,522 people, of
which 1,811 were outside the United States. Of the total, 1,601
employees were in product research and development, 2,840 in
sales, marketing and support, 502 in manufacturing, and 579 in
finance, information systems and administration. As necessary,
the Company supplements its regular employees with temporary and
contract personnel. The Company believes that its ability to
attract and retain qualified employees is an important factor in
its growth and development and its future success. To date, the
Company has been successful in recruiting and retaining sufficient
numbers of qualified personnel to conduct its business
successfully. None of the Company's employees is subject to a
collective bargaining agreement, and the Company believes that its
employee relations are favorable.
<PAGE> 15
Item 2. Properties
The Company has two principal office facilities located in
Cambridge, Massachusetts. The Lotus Development Building (260,000
sq. ft.) houses the Company's corporate domestic sales and
marketing organizations in addition to its corporate headquarters'
staff. The Company has occupied space in this building since
1985. During 1994, a new eleven year lease was negotiated with an
option to renew for five years.
The Company's Rogers Street facility (265,000 sq. ft.) is
located adjacent to the Lotus Development Building in Cambridge.
The building is owned by the Company and is occupied by research
and development personnel. During 1993, the Company commenced a
construction project to expand the building by approximately
120,000 square feet. This project is expected to be completed in
1995.
The Company's principal domestic manufacturing, distribution
and warehousing operations and its customer support and service
organization are located in two leased buildings (350,000 sq. ft.)
in North Reading, Massachusetts. The leases, which commenced in
1992, run for a period of ten years with options to renew for two
five-year periods. In 1993, the Company began leasing
approximately 35,000 square feet of office space in Austin, Texas,
which has been used to expand its customer support and service
organization. During 1995, the Company increased this leased
space from 35,000 to 42,000 square feet. The Company also leases
approximately 30,000 square feet of administrative shipping and
receiving space in one building in Cambridge. In January 1994,
the Company sold a former manufacturing facility located in
Cambridge.
The Company also leases manufacturing and/or office
facilities in Dublin, Ireland; Staines, England; Tokyo, Japan; and
Singapore. The Staines facility has a lease term through 1999
with an option to renew through 2013. The Dublin facility has
various lease terms expiring at different dates between 2001 and
2018. The portion expiring in 2001 has an option to renew through
2025. The Japan and Singapore facilities have lease terms that
expire in 1996 and 1995, respectively. The Company also leases 91
sales offices worldwide, including those in North America, Europe,
Central and South America, Asia and the Pacific Rim.
The Company's occupied facilities are substantially utilized,
well maintained and suitable for the products and services offered
by the Company.
<PAGE> 16
Item 3. Legal Proceedings
The Company commenced an action on July 2, 1990 in the U.S.
District Court in Boston against Borland International, Inc.
("Borland") (Civ. Action No. 90-11662-K), alleging infringement of
its copyrights in the Lotus 1-2-3 software program by Borland's
"Quattro" and "Quattro Pro" software products. The action against
Borland alleged that the "1-2-3 compatible modes" of Quattro and
Quattro Pro identically recreate substantial and significant
elements of 1-2-3's user interface, including its menu structure
and command choices. The action sought an injunction preventing
further sale of the infringing products and an award of damages,
attorney's fees and costs. On July 31, 1992, the District Court
found that Borland infringed the Company's copyrights by copying
the menu commands, menu command structure, macro language and
keystroke sequences of Lotus 1-2-3. On June 30, 1993, the
District Court ruled in the Company's favor on all remaining
liability issues except the Company's claim that the macro "Key
Reader" for Quattro Pro for DOS and Quattro Pro for Windows
infringes the Company's copyrights in 1-2-3. On August 19, 1993,
the District Court found that the Key Reader infringed the
Company's copyrights and permanently enjoined Borland from
developing, manufacturing or selling versions of Quattro Pro,
Quattro Pro SE and Quattro Pro for Windows that include Borland's
1-2-3 compatible modes and/or its Key Reader facility. On March
9, 1995, the United States Court of Appeals for the First Circuit
held that the Lotus 1-2-3 menu commands and menu command structure
were not copyrightable, and thus that Borland was not liable for
having copied them. The Company intends to appeal the decision of
the Court of Appeals by filing a petition for writ of certiorari
to the United States Supreme Court.
A suit was filed against the Company on July 27, 1989, in the
U.S. District Court in New York City by REFAC International, Ltd.
("REFAC"). The suit alleges that the Company has committed patent
infringement with respect to a U.S. patent issued in 1983 entitled
"A Process and Apparatus for Converting A Source Program Into An
Object Program". The Court has determined to resolve issues
concerning validity of the patent before addressing the alleged
infringement. In July 1993, a trial was held on one of those
issues, the Company's claim that the patent is unenforceable by
reason of inequitable conduct before the Patent Office. That
issue is pending the judge's decision. If the Company prevails on
this issue, judgment will be entered on its behalf. If it does
not prevail, the Company intends to file one or more motions for
summary judgment on other grounds claiming that the subject patent
is invalid or unenforceable. The Company also believes that the
claim of infringement is without merit.
Six complaints against the Company were filed in June and
July 1994 in the U.S. District Court in Boston, which were
subsequently consolidated under the caption "In re Lotus
Development Corporation Securities Litigation" (Civ. Action No.
94-11279 (PBS)). The consolidated amended complaint alleges that
the Company and two of its officers, Jim P. Manzi and Edwin J.
Gillis, violated Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by failing to disclose
allegedly material adverse information concerning the Company's
anticipated revenues and earnings for the fiscal quarter ending
July 2, 1994. The amended complaint purports to be brought on
behalf of a class of persons who purchased Lotus stock between
April 20, 1994 and June 20, 1994, when the Company made certain
public disclosures concerning its anticipated revenues and
earnings. The Company has moved to dismiss the amended complaint
for failure to state a claim upon which relief may be granted.
The Company believes that the allegations of the amended complaint
are without merit and intends to defend these actions vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of 1994.
<PAGE> 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Information with respect to this item may be found in the
section captioned "Quarterly Results of Operations" appearing on
page 26 of the Financial section of the 1994 Annual Report to
Shareholders. Such information is incorporated herein by
reference.
Item 6. Selected Financial Data
Information with respect to this item may be found in the
section captioned "Five-Year Summary of Selected Financial Data"
appearing on page 26 of the Financial section of the 1994 Annual
Report to Shareholders. Such information is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information with respect to this item may be found in the
sections captioned "Management's Discussion and Analysis" and
"Results of Operations" appearing on pages 2 through 10 of the
Financial section of the 1994 Annual Report to Shareholders. Such
information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Information with respect to this item may be found in the
Financial section of the 1994 Annual Report to Shareholders on
pages 11 through 26. Such information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE> 18
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors and compliance with
Section 16(a) of the Exchange Act may be found in the sections
captioned "Proposal No. 1 - Election of Directors" and "Executive
Compensation and Other Information Concerning Directors and
Executive Officers" appearing in the definitive Proxy Statement to
be delivered to shareholders in connection with the Annual Meeting
of Shareholders to be held on Tuesday, May 2, 1995. Such
information is incorporated herein by reference.
Executive Officers of the Registrant
The executive officers of the Company as of February 28, 1995
are:
Name Age Position
---- --- --------
Jim P. Manzi ............ 43 Chairman of the Board, President
and Chief Executive Officer
Kc Branscomb ............ 39 Senior Vice President,
Business Development
Edwin J. Gillis ......... 46 Senior Vice President,
Finance and Operations and Chief
Financial Officer
John B. Landry .......... 47 Senior Vice President,
Communications Business Group
and Chief Technology Officer
Ilene H. Lang ........... 51 Senior Vice President,
Desktop Business Group
June L. Rokoff .......... 45 Senior Vice President,
Worldwide Services Group
Robert K. Weiler ........ 44 Senior Vice President,
Worldwide Sales and Marketing
Mr. Manzi has served as President since October 1984 and was
named Chief Executive Officer in April 1986. In July 1986 he was
appointed Chairman of the Board upon the resignation of the former
Chairman and founder of the Company, Mitchell Kapor. Mr. Manzi
joined Lotus in May 1983 as Director of Corporate Marketing and
was named Vice President of Marketing and Sales in September 1983.
Ms. Branscomb joined Lotus in October 1992 as Senior Vice
President of Business Development. From November 1991 until
joining Lotus, Ms. Branscomb was the Chief Executive Officer of
IntelliCorp, Inc. She had previously held the position of Chief
Operating Officer since late 1988. Prior to joining IntelliCorp,
Ms. Branscomb was Senior Vice President of Sales and Marketing at
Aion Corporation, founding Principal and Vice President of
Metaphor Computer Systems and a consultant with the Boston
Consulting Group Inc.
Mr. Gillis joined Lotus in July 1991 as Senior Vice President
of Finance and Administration and Chief Financial Officer and, in
February 1994, Mr. Gillis was named Senior Vice President of
Finance and Operations and Chief Financial Officer. Mr. Gillis
came to Lotus after 15 years at Coopers and Lybrand, an
international accounting and consulting firm, where he was a
partner and served as chairman of the software industry group.
<PAGE> 19
Mr. Landry joined Lotus in December 1991 as Senior Vice
President of Software Development and Chief Technology Officer
and, in October 1994, Mr. Landry was named Senior Vice President
of the Communications Business Group and Chief Technology Officer.
From December 1990 until joining Lotus, Mr. Landry was Executive
Vice President and Chief Technology Officer of Dun & Bradstreet
Software. Prior to joining Dun & Bradstreet, Mr. Landry was
Chairman and Chief Executive Officer of Agility Systems, Inc.,
which he formed in September 1989. Previously, he served as
executive vice president and a member of the Board of Directors of
Cullinet Software. Mr. Landry joined Cullinet Software in 1987
when it acquired Distribution Management Systems where he was
Chairman.
Ms. Lang joined Lotus in 1993 as Vice President of
International Product Development, and was named Senior Vice
President of the Desktop Business Group in October 1994. Prior to
joining Lotus, Ms. Lang was interim Chief Operating Officer of the
Industrial Technology Institute. Previously, Ms. Lang served as
President of Adelie Corporation, and held senior management
positions at Ontos, Inc. and Symbolics, Inc.
Ms. Rokoff was named Senior Vice President of Worldwide
Services in October 1994. She had previously held the positions
of Senior Vice President of Development since May 1992, Senior
Vice President of the Consulting and Information Services Group
since November 1991 and Vice President of the Communications and
Information Services Group since June 1990. Ms. Rokoff came to
Lotus in 1986 as Director of Development for the Information
Services Division. She has held several executive positions since
joining Lotus including Vice President of the Graphics and
Information Management Group and general manager of both the
Workstation Products Group and 1-2-3 Release 3.0.
Mr. Weiler joined Lotus in 1991 as Senior Vice President of
Sales and Marketing, and was named Senior Vice President of the
North American Business Group in November 1991. In October 1994,
Mr. Weiler was named Senior Vice President of Worldwide Sales and
Marketing. From 1989 until joining Lotus, Mr. Weiler was
President and Chief Operating Officer of Interleaf, Inc. Prior to
joining Interleaf, Mr. Weiler served as Executive Vice President
of North American Sales and Client Service of Cullinet Software
before being appointed President and Chief Operating Officer. Mr.
Weiler joined Cullinet in 1987 when it acquired Distribution
Management Systems where he was President and Chief Operating
Officer.
Item 11. Executive Compensation
Information with respect to this item may be found in the
sections captioned "Executive Compensation and Other Information
Concerning Directors and Executive Officers" appearing in the
definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on
Tuesday, May 2, 1995. Such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item may be found in the
section captioned "Principal Holders of Voting Securities"
appearing in the definitive Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders
to be held on Tuesday, May 2, 1995. Such information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item may be found in the
sections captioned "Proposal No. 1 - Election of Directors,
Certain Transactions" appearing in the definitive Proxy Statement
to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on Tuesday, May 2, 1995. Such
information is incorporated herein by reference.
<PAGE> 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
The following information is contained in the Financial section
of the 1994 Annual Report to Shareholders, filed as Exhibit 13
hereto, and such information is incorporated herein by reference:
* Report of Independent Accountants
* Consolidated Statements of Operations for each of the three
years ended December 31, 1994
* Consolidated Balance Sheets as of December 31, 1994 and 1993
* Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1994
* Consolidated Statements of Stockholders' Equity for each of
the three years ended December 31, 1994
* Notes to Consolidated Financial Statements
* Supplemental Financial Information
2. Financial Statement Schedules
* Report of Independent Accountants
* Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since
they are either not required or not applicable or the information is
otherwise included.
3. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
2 Amendment and Plan of Reorganization dated as of May 23, 1994,
among the Company and Iris Associates, Inc. (filed as Exhibit 2
to Amendment No. 4 to Registration Statement No. 33-53773 on
Form S-4 and incorporated herein by reference).
3(a)* Third Restated Certificate of Incorporation of the Company.
3(b)* By-Laws of the Company, as amended May 25, 1994.
4(a) Rights Agreement dated as of November 7, 1988, between the
Company and The First National Bank of Boston as Rights Agent
in respect of Preferred Share Purchase Rights (filed as
Exhibit 1 to the Company's Registration Statement on Form 8-A
filed November 10, 1988, and incorporated herein by reference).
4(a)(1) Amendment dated as of April 5, 1990 between the Company and The
First National Bank of Boston to the Rights Agreement dated as
of November 7, 1988 (filed as Exhibit 28(a) to the Company's
Current Report on Form 8-K dated April 5, 1990 and incorporated
herein by reference).
4(a)(2) Amendment dated as of September 16, 1991 between the Company
and the First National Bank of Boston as Rights Agent in
respect of Preferred Share Purchase Rights (Filed as Exhibit
28(a) to the Company's Current Report on Form 8-K dated
September 16, 1991 and incorporated herein by reference).
<PAGE> 21
4(b) Authorizing resolutions adopted by the Board of Directors of
the Company on November 7, 1988, in respect of Preferred Share
Purchase Rights (filed as Exhibit 4(c)(2) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1988 and incorporated herein by reference).
4(c)* Multicurrency Revolving Credit Agreement among the Company and
The First National Bank of Boston et al. dated as of June 7,
1994.
10(a)* 1986 Stock Option Plan for Non-Employee Directors, as amended
May 24, 1994.
10(b) Lotus Development Corporation Defined Contribution Restoration
Plan dated as of January 1, 1990 (filed as Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference).
10(c)* Lease for Lotus Development Building, Cambridge, Massachusetts,
between the Company and CC&F Cambridge Parkway Trust, dated as
of May 1, 1994.
10(c)(1)* First Amendment to Lease between the Company and CC&F Cambridge
Parkway Trust, dated as of May 1, 1994.
10(d) Net Lease dated as of July 25, 1990 between Lotus Rogers Street
Corporation, as Landlord, and the Company, as Tenant (filed as
Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 29, 1990 and incorporated
herein by reference).
10(e) Form of Indemnification Agreement between the Company and each
of its officers and directors pursuant to Article VII of the
Company's By-Laws (filed as Exhibit 10(k) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1987 and incorporated herein by reference).
10(f)* Resolution adopted by the Board of Directors of the Company on
December 15, 1994 concerning compensation of Directors.
10(g) Lease Agreement dated October 25, 1990 by and between the
Trustees of River Park 93 Realty Trust, as Landlord, and the
Company, as Tenant, pertaining to Lot 3A, Riverside Park Drive,
North Reading, Massachusetts (filed as Exhibit (10)(l) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference).
10(h) Lease Agreement dated October 25, 1990 by and between the
Trustees of River Park 93 Realty Trust, as Landlord, and the
Company, as Tenant, pertaining to Lot 4A, Riverside Park Drive,
North Reading, Massachusetts (filed as Exhibit (10)(m) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference).
11* Computation of Earnings Per Share.
13* Annual Report to Shareholders for the year ended December 31,
1994. With the exception of the information incorporated by
reference in Items 1,5,6,7,8 and 14 of this Form 10-K, the
1994 Annual Report to Shareholders is not deemed filed as part
of this report.
21* Subsidiaries of the Registrant.
23* Consent of Independent Accountants.
27* Financial Data Schedule.
(NOTE: The Company agrees to furnish to the Securities
and Exchange Commission upon request a copy of any
instrument with respect to long-term debt of the Company or
any of its subsidiaries which is not filed herewith or listed
herein since it relates to outstanding debt in an amount not
greater than 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.)
_________________
*filed herewith
<PAGE> 22
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter
ended December 31, 1994.
<PAGE> 23
14(a) 2 Financial Statement Schedules
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Lotus
Development Corporation has been incorporated by reference in this
Form 10-K and is included in the Financial section of the 1994
Annual Report to Shareholders of Lotus Development Corporation.
In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed
in Item 14(a) 2 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 24, 1995
<PAGE> 24
Schedule II
LOTUS DEVELOPMENT CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Col. A Col. B Col. C (1) Col. C (2) Col. D Col. E
---------------------------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other Charged to At End of
Description of Period Expenses Accounts Reserves Period
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances:
1994 ....................... $30,002 $16,820 - $8,851 $37,971
1993 ....................... $25,326 $14,124 - $9,448 $30,002
1992 ....................... $24,899 $16,291 - $15,864 $25,326
</TABLE>
<PAGE> 25
SIGNATURES
Pursuant of 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.
LOTUS DEVELOPMENT CORPORATION
(Registrant)
By /s/ Jim P. Manzi
-----------------------
Jim P. Manzi, President
Date: March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on the
27th day of March 1995.
Signature Title
--------- -----
/s/ Jim P. Manzi Chairman of the Board,
Jim P. Manzi President, CEO and Director
(Principal Executive Officer)
/s/ Edwin J. Gillis Senior Vice President, Finance and
Edwin J. Gillis Operations and Chief Financial Officer
(Principal Financial Officer)
/s/ William J. Sample Director of Financial Services
William J. Sample (Principal Accounting Officer)
/s/ Richard S. Braddock Director
Richard S. Braddock
/s/ Elaine L. Chao Director
Elaine L. Chao
/s/ William H. Gray III Director
William H. Gray III
/s/ Michael E. Porter Director
Michael E. Porter
/s/ Henri A. Termeer Director
Henri A. Termeer
______________________________________________________________________________
Exhibit 3(a)
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
LOTUS DEVELOPMENT CORPORATION
FIRST. The name of the corporation (hereinafter called
the "Corporation") is LOTUS DEVELOPMENT CORPORATION.
SECOND. The address of the registered office of the
Corporation in the State of Delaware is 32 Loockerman Square,
Suite L-100, City of Dover, County of Kent, and the name of the
registered agent of the Corporation at such address is The
Prentice-Hall Corporation System, Inc.
THIRD. The nature of the business and the purposes to be
conducted and promoted by the Corporation, which shall be in
addition to the authority of the Corporation to conduct any
lawful business, to promote any lawful purpose, and to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware, is as follows:
To develop, sell or license, and to acquire, by sale or
license, (a) computer programs, (b) languages and operating
systems embodied in computer hardware, (c) computer software or
documentation, and (d) related tangible and intangible
properties, and to engage in the performance, utilization,
purchase and sale of related services.
The foregoing provisions of this Article THIRD shall be
construed both as purposes and powers and each as an independent
purpose and power. The foregoing enumeration of specific
purposes and powers shall not be held to limit or restrict in any
manner the purposes and powers of the Corporation, and the
purposes and powers herein specified shall, except when otherwise
provided in this Article THIRD, be in no way limited or
restricted by reference to, or inference from, the terms of any
provision of this or any other Article of this certificate of
incorporation provided that the Corporation shall not conduct any
business, promote any purpose, or exercise any power or privilege
within or without the State of Delaware which, under the laws
thereof, the Corporation may not lawfully conduct, promote or
exercise.
FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is two hundred five
million (205,000,000) shares, of which 200,000,000 shares shall
be Common Stock, $.01 par value, and 5,000,000 shares shall be
Preferred Stock, $1.00 par value. The Preferred Stock may be
issued in such classes, including one or more series within any
such class, and will possess such specific terms including
dividend rates, conversion prices, voting rights, redemption
prices, maturity dates and other special rights, preferences,
qualifications, limitations and restrictions thereof, as shall be
determined in the resolution or resolutions providing for the
issue of such Preferred Stock adopted by the Board of Directors
from time to time.
Subject to the powers of the Board of Directors of the
Corporation to designate certain provisions relating to the
Preferred Stock, a statement of the designations of the
authorized classes of stock, and the power, preference and
relative participatory, options or other special rights and
qualifications, limitations or restrictions thereof, is as
follows: Except as provided to the contrary by a resolution or
resolutions of the Board of Directors establishing a class or
series of Preferred Stock, each issued and outstanding share of
stock of the Corporation shall entitle the holder thereof to full
voting powers without distinction as to class and voting shall
not be by class except as required by law, provided, however,
that the holders of shares of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by them
and, except as otherwise provided to the contrary by a resolution
or resolutions of the Board of Directors establishing a class or
series of Preferred Stock, the holders of shares of Preferred
Stock shall be entitled to one vote for each share of Common
Stock into which the shares of Preferred Stock held of record by
them are convertible.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this
Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
or class of creditors, and/or on all the stockholders, of this
Corporation, as the case may be, and also on this Corporation.
SEVENTH. For the management of the business and for the
conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the
Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed by, or in the manner
provided in, the By-Laws.
EIGHTH. The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
NINTH. From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed,
and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted in the
manner and at the time prescribed by said laws, and all rights at
any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the
provisions of this Article NINTH.
______________________________________________________________________________
Exhibit 3(b)
[As amended through July 27, 1994]
BY-LAWS
OF
LOTUS DEVELOPMENT CORPORATION
Article I. Offices.
Section 1. Registered Office. The registered office of the
Corporation shall be c/o The Corporation Trust Company, 1209
Orange Street, in the City of Wilmington, County of New Castle,
State of Delaware 19801.
Section 2. Additional Offices. The Corporation may also have
offices at such other places, both within and without the State
of Delaware, as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
Article II. Meetings of Stockholders.
Section 1. Time and Place. A meeting of stockholders for any
purpose may be held at such time and place within or without the
State of Delaware as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders,
commencing with the year 1982, shall be held on the second
Tuesday of May if not a legal holiday, or, if a legal holiday,
then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall, from time to time, be designated by
the Board of Directors and stated in the notice of the meeting.
At such annual meetings, the stockholders shall elect a Board of
Directors and transact such other business as may properly be
brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the
annual meeting, stating the place, date, and time thereof, shall
be given of each stockholder entitled to vote at such meeting not
less than ten (unless a longer period is required by law) nor
more than sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the
stockholders may be called for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of
Incorporation, by the Chairman of the Board, if any, or the
President, and shall be called by the President or Secretary at
the request, in writing, of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed
meeting.
Section 5. Notice of Special Meeting. Written notice of a
special meeting, stating the place, date, and time thereof and
the purpose or purposes for which the meeting is called, shall be
given to each stockholder entitled to vote at such meeting not
less than ten (unless a longer period is required by law) nor
more than sixty days prior to the meeting.
Section 6. List of Stockholders. The officer in charge of the
stock ledger of the Corporation or the transfer agent shall
prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, at a place
within the city where the meeting is to be held, which place, if
other than the place of the meeting, shall be specified in the
notice of the meeting. The list shall also be produced and kept
at the place of the meeting during the whole time thereof and may
be inspected by any stockholder who is present in person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the
Chairman of the Board. If he/she is not present or there is
none, they shall be presided over by the President, or, if he/she
is not present or there is none, by a Vice President, or, if
he/she is not present or there is none, by a person chosen by the
Board of Directors, or, if no such person is present or has been
chosen, by a chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued
and outstanding and entitled to vote at the meeting and who are
present in person or represented by proxy. The Secretary of the
Corporation, or, if he/she is not present, an Assistant
Secretary, or, if he/she is not present, a person chosen by the
Board of Directors, shall act as secretary at meetings of
stockholders; if no such person is present or has been chosen,
the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at
the meeting who are present in person or represented by proxy
shall choose any person present to act as secretary of the
meeting.
(b) The following order of business, unless otherwise determined
at the meeting, shall be observed as far as practicable and
consistent with the purposes of the meeting.
(1)Call of the meeting to order.
(2)Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the call
thereof.
(3)Presentation of proxies.
(4)Announcement that a quorum is present.
(5)Reading and approval of the minutes of the previous
meeting.
(6)Reports, if any, of officers.
(7)Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
(8)Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has been
called, if the meeting is a special meeting.
(9)Transaction of such other business as may properly come
before the meeting.
(10)Adjournment.
Section 8. Quorum and Adjournments. The presence in person or
representation by proxy of the holders of a majority of the
shares of the capital stock of the Corporation issued and
outstanding and entitled to vote shall be necessary to, and shall
constitute a quorum for, the transaction of business at all
meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a
quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat who are
present in person or represented by proxy shall have the power to
adjourn the meeting from time to time until a quorum shall be
present or represented. If the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is
taken, no further notice of the adjourned meeting need be given.
Even if a quorum shall be present or represented at any meeting
of the stockholders, the stockholders entitled to vote thereat
who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time for good cause to
a date that is not more than thirty days after the date of the
original meeting. Further notice of the adjourned meeting need
not be given if the time and place thereof are announced at the
meeting at which the adjournment is taken. At any adjourned
meeting at which a quorum is present in person or represented by
proxy, any business may be transacted that might have been
transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or if, after the
adjournment, a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy.
Except as otherwise provided by law or the Certificate of
Incorporation, each stockholder of record shall be entitled to
one vote for each share of capital stock registered in his/her
name on the books of the Corporation.
(b) Except as otherwise provided by law and the Certificate of
Incorporation, all elections shall be determined by a plurality
vote, and all other matters shall be determined by a vote of a
majority of the shares present in person or represented by proxy
and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted
by law or the Certificate of Incorporation to be taken at any
meeting of stockholders may be taken without a meeting, without
prior notice, and without a vote, if a written consent, setting
forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present or represented by proxy and voted. Such written consent
shall be filed with the minutes of the meetings of stockholders.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing thereto.
Section 11. Nomination of Directors for Election. Nominations
for the election of a director or directors at any meeting of
stockholders may be made by the Board of Directors or by any
stockholder entitled to vote for the election of directors at
such meeting. Any such stockholder may make such a nomination
only if written notice of such stockholder's intent to make such
nomination which complies with this Section is delivered
personally to the Secretary of the Corporation or by certified
United States mail, postage prepaid, return receipt requested, to
the attention of the Secretary of the Corporation at its
principal executive office, in either case not later than (i)
with respect to an annual meeting of stockholders, the close of
business on the 90th day prior to such meeting or (ii) with
respect to a special meeting of stockholders, the close of
business on the seventh day following the date on which notice of
such meeting its first mailed to stockholders. Each such notice
of intent shall set forth or be accompanied by: (a) the name and
address of the stockholder intending to make such nomination and
of each intended nominee; (b) a representation that such
stockholder is a holder of record of stock of the Corporation
entitled to vote at such meeting and that such stockholder will
appear in person or by proxy at such meeting to nominate each
such intended nominee; (c) a description of all arrangements or
understandings between such stockholder and each such intended
nominee or any other person or persons (naming and stating the
address of each such person) pursuant to which such intended
nominee is to be nominated by such stockholder; (d) such other
information regarding each such intended nominee as would be
required in a proxy statement filed pursuant to the rules of the
Securities and Exchange Commission if the Board of Directors had
nominated such intended nominee; and (e) the written consent of
each such intended nominee to serve as a director of the
Corporation if so elected. The presiding officer at such meeting
may refuse to recognize the nomination of any person for election
as a director of the Corporation which is not made in compliance
with the procedures set forth in this Section.
Section 12. Control Share Acquisitions. The provisions of
Chapter 110E of the Massachusetts General Laws, as amended from
time to time, shall apply to control share acquisitions (as
defined in such chapter) of the shares of the Corporation.
Article III. Directors.
Section 1. General Powers, Number, and Tenure. The business of
the Corporation shall be managed by its Board of Directors, which
may exercise all powers of the Corporation and perform all lawful
acts that are not by law, the Certificate of Incorporation, or
these By-Laws directed or required to be exercised or performed
by the stockholders. The number of directors shall be determined
by the Board of Directors; if no such determination is made, the
number of directors shall be 5. The directors shall be elected
at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold
office until his/her successor is elected and shall qualify.
Directors need not be stockholders.
Section 2. Vacancies. Except as otherwise provided by the
Certificate of Incorporation, if any vacancies occur in the Board
of Directors, or if any new directorships are created, they may
be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Each
director so chosen shall hold office until the next annual
meeting of stockholders and until his/her successor is duly
elected and shall qualify. If there are no directors in office,
any officer or stockholder may call a special meeting of
stockholders in accordance with the provisions of the Certificate
of Incorporation or these By-Laws, at which meeting such
vacancies shall be filled.
Section 3. Removal or Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice
to the Board of Directors, the Chairman of the Board, if any, or
the President or Secretary of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect
upon delivery thereof to the Board of Directors or the designated
officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the
State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly
elected Board of Directors shall be held at the first regular
meeting of the Board of Directors following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to
the newly elected directors in order to constitute the meeting
legally, provided a quorum shall be present.
Section 6. Regular Meetings. Additional regular meetings of the
Board of Directors may be held without notice of such time and
place as may be determined from time to time by the Board of
Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the
President, or by two or more directors on at least two days'
notice to each director, if such notice is delivered personally
or sent by telegram, or on at least three days' notice if sent by
mail. Special meetings shall be called by the Chairman of the
Board, President, Secretary, or two or more directors in like
manner and on like notice on the written request of one-half or
more of the number of directors then in office. Any such notice
need not state the purpose or purposes of such meeting, except as
provided in Article XI.
Section 8. Quorum and Adjournments. At all meetings of the
Board of Directors, a majority of the directors then in office
shall constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by
law or the Certificate of Incorporation. If a quorum is not
present at any meeting of the Board of Directors, the directors
present may adjourn the meeting from time to time, without notice
other than announcement at the meeting at which the adjournment
is taken, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such
reimbursement for any reasonable expenses incurred in attending
directors' meetings as may from time to time be fixed by the
Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director
may waive compensation for any meeting. Any director receiving
compensation under these provisions shall not be barred from
serving the Corporation in any other capacity and receiving
compensation and reimbursement for reasonable expenses for such
other services.
Section 10. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent to such action is signed
by all members of the Board of Directors and such written consent
is filed with the minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications
Equipment. The Board of Directors may participate in a meeting
by means of conference telephone or similar communications
equipment by means of which all directors participating in the
meeting can hear each other, and participation in such a meeting
shall constitute presence in person by any such director at such
meeting.
Article IV. Committees.
Section 1. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may appoint
an Executive Committee consisting of one or more directors, one
of whom shall be designated as Chairman of the Executive
Committee. Each member of the Executive Committee shall continue
as a member thereof until the expiration of his/her term as a
director or his/her earlier resignation, unless sooner removed as
a member or as a director.
Section 2. Powers. The Executive Committee shall have and may
exercise those rights, powers, and authority of the Board of
Directors as may from time to time be granted to it by the Board
of Directors to the extent permitted by law, and may authorize
the seal of the Corporation to be affixed to all papers that may
require it.
Section 3. Procedure and Meetings. The Executive Committee
shall fix its own rules of procedure and shall meet at such times
and at such place or places as may be provided by such rules or
as the members of the Executive Committee shall fix. The
Executive Committee shall keep regular minutes of its meetings,
which it shall deliver to the Board of Directors from time to
time. The Chairman of the Executive Committee or, in his/her
absence, a member of the Executive Committee chosen by a majority
of the members present shall preside at meetings of the Executive
Committee, and another member chosen by the Executive Committee
shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the
affirmative vote of a majority of the members present at any
meeting at which there is a quorum shall be required for any
action of the Executive Committee; provided, however, that when
an Executive Committee of one member is authorized under the
provisions of Section 1 of this Article, that one member shall
constitute a quorum.
Section 5. Other Committees. The Board of Directors, by
resolutions adopted by a majority of the whole Board, may appoint
such other committee or committees as it shall deem advisable and
with such rights, powers, and authority as it shall prescribe.
Each such committee shall consist of one or more directors.
Section 6. Committee Changes. The Board of Directors shall have
the power at any time to fill vacancies in, to change the
membership of, and to discharge any committee.
Section 7. Compensation. Members of any committee shall be
entitled to such compensation for their services as members of
the committee and to such reimbursement for any reasonable
expenses incurred in attending committee meetings as may from
time to time be fixed by the Board of Directors. Any member may
waive compensation for any meeting. Any committee member
receiving compensation under these provisions shall not be barred
from serving the Corporation in any other capacity and from
receiving compensation and reimbursement of reasonable expenses
for such other services.
Section 8. Action by Consent. Any action required or permitted
to be taken at any meeting of any committee of the Board of
Directors may be taken without a meeting if a written consent to
such action is signed by all members of the committee and such
written consent is filed with the minutes of its proceedings.
Section 9. Meetings by Telephone or Similar Communications
Equipment. The members of any committee designated by the Board
of Directors may participate in a meeting of such committee by
means of conference telephone or similar communications equipment
by means of which all persons participating in such meeting can
hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at
such meeting.
Article V. Notices.
Section 1. Form and Delivery. Whenever a provision of any law,
the Certificate of Incorporation, or these By-Laws requires that
notice be given to any director or stockholder, it shall not be
construed to require personal notice unless so specifically
provided, but such notice may be given in writing, by mail
addressed to the address of the director or stockholder as it
appears on the records of the Corporation, with postage prepaid.
Except as otherwise provided by the Certificate of Incorporation,
these notices shall be deemed to be given they are deposited in
the United States mail. Notice to a director may also be given
personally or by telegram sent to his/her address as it appears
on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given
under the provisions of any law, the Certificate of
Incorporation, or these By-Laws, a written waiver thereof signed
by the person entitled to said notice, whether before or after
the time stated therein, shall be deemed to be equivalent to such
notice. In addition, any stockholder who attends a meeting of
stockholders in person or is represented at such meeting by
proxy, without protesting at the commencement of the meeting the
lack of notice thereof to him/her, or any director who attends a
meeting of the Board of Directors without protesting, at the
commencement of the meeting, the lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
Article VI. Officers.
Section 1. Designations.
(a) Executive Officers. The Chairman of the Board, the President
and such other officers of the Corporation as the Board of
Directors may expressly so designate from time to time shall be
executive officers of the Corporation (each of the aforesaid
being hereinafter referred to as an "Executive Officer").
Executive Officers are the only officers who shall have power and
authority to make or authorize policy decisions on behalf of the
Corporation.
(b) Officers. The officers of the Corporation shall consist of a
Chairman of the Board, a President, one or more Vice Presidents
(including without limitation senior or executive vice
presidents), a Secretary, a Treasurer and such other officers or
agents, with such titles and designations, as the Board of
Directors shall from time to time deem necessary or desirable for
the conduct of the Corporation's business. Subject to such
limitations as the Board of Directors may from time to time
impose, each officer shall have the power and authority, in the
name and on behalf of the Corporation, to execute and deliver and
otherwise enter into, and cause to be fulfilled and performed,
such agreements, instruments and other obligations and documents
as shall from time to time be authorized by or pursuant to
authority granted by the Board of Directors. Officers shall, in
addition, exercise such other powers and perform such duties as
shall from time to time be determined by or pursuant to authority
granted by the Board of Directors.
Section 2. Term of and Removal From Office.
At its first regular meeting after each annual meeting of
stockholders, the Board of Directors shall choose a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary
and a Treasurer. It may also choose such other officers or
agents, with such titles and designations, as it shall deem
necessary or desirable for the conduct of the Corporation's
business. Each officer shall hold office until the next such
meeting and until his/her successor is chosen and shall qualify.
Any officer may be removed, with or without cause, at any time by
the affirmative vote of a majority of the Board of Directors.
Removal from office, however, shall not prejudice the contract
rights, if any, of the person removed. Any vacancy occurring in
any office of the Corporation may be filled for the unexpired
portion of the term thereof by the Board of Directors.
Section 3. Compensation.
The salaries and any bonuses or other compensation (except stock
options) of the Chairman of the Board, the President, all officers
of the Corporation who are direct subordinates of the President
and any other Vice Presidents of the Corporation shall be fixed
from time to time by the Board of Directors, and the salaries,
bonuses or other compensation (except stock options) of all other
officers of the Corporation shall be fixed from time to time in
writing; provided that no officer shall be prevented from receiving
a salary because he/she is also a director of the Corporation; and
provided further that no officer so designated by the President
shall fix his/her own compensation.
Section 4. The Chairman of the Board. The Chairman of the
Board, if any, shall be an officer of the Corporation and,
subject to the direction of the Board of Directors, shall perform
such executive, supervisory, and management functions and duties
as may be assigned to him/her from time to time by the Board of
Directors. He/She shall, if present, preside at all meetings of
stockholders and of the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of
Directors, shall have general charge of the business, affairs,
and property of the Corporation and general supervision over its
other officers and agents. In general, he/she shall perform all
duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into
effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and
vote on behalf of the Corporation at any meeting of the security
holders of other corporations in which the Corporation may hold
securities. At any such meeting, the President shall possess and
may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have
possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other
person or persons.
(c) (i) Subject to such limitations as the Board of Directors
may from time to time impose (including without limitation by
revocation), the President shall have full power and authority to
execute (including without limitation by facsimile) and deliver
or otherwise enter into, and cause to be fulfilled or performed
all conditions, obligations and other transactions contemplated
by, any and all agreements, instruments, and any other documents,
including without limitation for the opening of accounts, the
borrowing of money, the acquisition, liening or disposition of
property or the making of guarantees; to make or issue any and
all payments, orders, filings and registrations (with
governmental or private bodies), designations of depositories,
appointments of statutory resident agents, representations and
warranties and other undertakings; and otherwise to commit the
resources of the Corporation or do such other acts and things in
the name and on behalf of the Corporation (including without
limitation amendments, waivers or other modifications of any of
the things aforesaid in this subsection (i)) as may be permitted
by law and by the Certificate of Incorporation. Such power and
authority shall include the power from time to time, subject to
such limitations as the President may from time to time impose,
to delegate (in each case by written instrument a copy of which
shall have been certified by the Secretary to have been delivered
to each of the Directors) all or any part of such power or
authority to such subordinate officers and other employees of the
Corporation (including in the case of Executive Officers the
power of further delegation) as the President may from time to
time determine.
(ii) Without limiting the generality of the foregoing, any
delegation pursuant to this subsection (c) shall be deemed
automatically revoked upon the first to occur of (A) termination
of the delegee's employment for any reason, (B) cessation for any
other reason of the delegee's direct or indirect supervision by a
person holding the office of the delegor, (C) demotion of the
delegee, (D) revocation of such delegation by any direct or
indirect supervisor of the delegee or (E) cessation of the
delegation authority of the delegor's office.
Section 6. The Vice President(s).
(a) Each Vice President designated by the Board of Directors as
an Executive Officer, if any, shall, in the absence of the
President or in the event of his/her disability, be deemed
empowered in the order designated to perform the duties and to
exercise the powers of the President and shall generally assist
the President and perform such other duties and have such other
powers as may from time to time be prescribed by or pursuant to
authority of the Board of Directors.
(b) Other Vice Presidents, if any, shall generally assist the
respective Executive Officers to whom they are subordinate and
shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors or by
such Executive Officers pursuant to authority granted by the
Board of Directors.
Section 7. The Secretary. The Secretary shall attend all
meetings of the Board of Directors and the stockholders and
record all votes and the proceedings of the meetings in a book to
be kept for that purpose. He/She shall perform like duties for
the Executive Committee or other committees, if required. He/She
shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board,
or the President, under whose supervision he/she shall act.
He/She shall have custody of the seal of the Corporation, and
he/she, or an Assistant Secretary, shall have authority to affix
it to any instrument requiring it, and, when so affixed, the seal
may be attested by his/her signature or by the signature of the
Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the
Corporation and to attest the affixing thereof by his/her
signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if
any, or in the event there be more than one, the Assistant
Secretaries in the order designated, or in the absence of any
designation, in the order of their election, shall, in the
absence of the Secretary or in the event of his/her disability,
perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody
of the corporate funds and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may from
time to time be designated by or pursuant to authority of the
Board of Directors. He/She shall disburse the funds of the
Corporation in accord with the orders of the Board of Directors,
taking proper vouchers for such disbursements, and shall render
to the Chairman of the Board, if any, the President, and the
Board of Directors, whenever they may require it or at regular
meetings of the Board, an account of all his/her transactions as
Treasurer and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer,
if any, or in the event there shall be more than one, the
Assistant Treasurers in the order designated, or in the absence
of any designation, in the order of their election, shall, in the
absence of the Treasurer or in the event of his/her disability,
perform such other duties and have such other powers as may from
time to time be prescribed by or pursuant to authority of the
Board of Directors.
Article VII. Indemnification.
Section 1. Indemnification. (a) The Corporation shall
indemnify, defend and hold harmless (i) each director and officer
of the Corporation, and (ii) each other person designated in
writing by the President or the Chief Financial Officer from time
to time, against all expenses, losses, claims, damages and
liabilities, including, without limitation, attorneys' fees,
judgments, fines and amounts paid in settlement (all such
expenses, collectively, "Costs") actually and reasonably incurred
by him/her in connection with the investigation, defense or
appeal of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, to which the director, officer or other person
(collectively "persons") is a party or threatened to be made a
party (all such actions, collectively, "Proceedings") (A) by
reason of the fact that he/she is or was a director, officer,
employee or agent of the Company or of any other corporation,
partnership, joint venture, trust or other enterprise
(collectively "Affiliates") of which he/she has been or is
serving at the request of, for the convenience of, or to
represent the interest of the Corporation or (B) by reason of
anything done or not done by him/her in any such capacity
referred to in the immediately foregoing clause (A). Pursuant to
this Article VII, the Board of Directors may authorize the
execution and delivery by the Corporation of any agreement or
undertaking with or on behalf of any person not inconsistent with
this Article VII or applicable law with respect to the matters
set forth herein.
Section 2. Culpable Action. (a) Notwithstanding the
provisions of Section 1, a person shall not be entitled to
indemnification if (i) the Corporation is prohibited from paying
such indemnification under applicable law, (ii) the person
breached his/her duty of loyalty to the Corporation or its
stockholders or any Affiliate or its stockholders, (iii) the
person's actions or omissions were not in good faith or involved
intentional misconduct or knowing violation of law or (iv) the
person derived an improper personal benefit from any transaction
which is a subject of the applicable Proceeding (any existence or
occurrence described in the foregoing clauses (i)-(iv),
individually, a "Culpable Action").
(b) The existence or occurrence of a Culpable Action shall be
conclusively determined by (i) a non-appealable, final decision
of the court having jurisdiction over the applicable Proceeding
or (ii) a non-appealable, final decision of the Court of Chancery
of the State of Delaware (or if such a decision is appealable, by
the court in such State which has jurisdiction to render a
non-appealable, final decision).
(c) The existence or occurrence of a Culpable Action may also
be determined by (i) the Board of Directors, by a majority vote
of a quorum consisting of directors who were not parties to the
applicable Proceeding (the "Disinterested Directors"), (ii) the
stockholders of the Corporation, by a majority vote of a quorum
consisting of stockholders who were not parties to the applicable
Proceeding (the "Disinterested Stockholders"), or (iii) any other
entity to which the Disinterested Directors or the Disinterested
Stockholders shall have delegated the authority to make such a
determination: provided, however, that such determination shall
not have been made or shall not be subsequently made pursuant to
subsection (b) above.
(d) If a Proceeding involves more than one claim, issue or
matter, the determination as to whether there exists or has
occurred a Culpable Action shall be severable as to each and
every claim, issue and matter.
(e) The termination of any proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or
its equivalent, does not change the presumption of Section 1 that
a person is entitled to indemnification hereunder and does not
create a presumption that there exists a Culpable Action.
Section 3. Payment of Costs. The Costs incurred by a person
in connection with any Proceeding, including any Proceeding
brought pursuant to Section 2(b), shall be paid by the
Corporation on an "as incurred" basis; provided, however, that if
it shall ultimately be determined that there exists or has
occurred a Culpable Action with respect to such Proceeding, the
person shall repay the Corporation the amount (or the appropriate
portion thereof as contemplated by Section 2 (d)) so advanced,
including the costs of obtaining a determination pursuant to
Section 2(b).
Article VIII. Affiliated Transactions and Interested Directors.
Section 1. Affiliated Transactions. No contract or transaction
between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or
more of its directors or officers are directors or officers or
have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or
committee thereof that authorizes the contract or transaction or
solely because his/her or their votes are counted for such
purpose if:
(a) The material facts as to his/her relationship or interest and
as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors
be less than a quorum; or
(b) The material facts as to his/her relationship or interest and
as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by the vote of
the stockholders; or
(c) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved, or ratified by the Board
of Directors, a committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors
may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee thereof which
authorizes the contract or transaction.
Article IX. Stock Certificates.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to
a certificate stating the number and class, and series, if any,
of shares owned by him/her, signed by the Chairman of the Board,
if any, or the President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, and bearing the seal of the Corporation. The
signatures and the seal may be facsimile. A certificate may be
signed, manually or by facsimile, by a transfer agent or
registrar other than the Corporation or its employee. In case
any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer
before the certificate is issued, it may nevertheless be issued
by the Corporation with the same effect as if he/she were such
officer at the date of its issue.
(b) All stock certificates representing shares of capital
stock that are subject to restrictions on transfer or to other
restrictions shall have imprinted thereon any notation to that
effect determined by the Board of Directors.
Section 2. Registration of Transfer. Upon compliance with
provisions restricting the transfer or registration of transfer
of shares of stock, if any, transfer or registration of transfer
of shares of stock of the Corporation shall be made only on the
stock ledger of the Corporation by the registered holder thereof,
or by his/her attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation or
with a transfer agent or a registrar, if any, and on surrender of
the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is
registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions and to vote or
consent as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the
owner of shares of its capital stock. The Corporation shall not
be bound to recognize any equitable or legal claim to, or
interest in, such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends shall
be sent to a name or address other than the name or address
appearing on the stock ledger maintained by the Corporation, or
its transfer agent or registrar, if any, the stockholder shall
have the duty to notify the Corporation, or its transfer agent or
registrar, if any, in writing of his/her desire and specify the
alternate name or address to be used.
Section 4. Record Date.
(a) In order that the Corporation may determine the stockholders
of record who are entitled to receive notice of, or to vote at,
any meeting of stockholders or any adjournment thereof, to
receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose
of any lawful action, the Board of Directors may, in advance, fix
a date as the record date for any such determination. Such date
shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to the date
of any other action. A determination of stockholders of record
entitled to notice of, or to vote at, a meeting of stockholders
shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and
which record date shall note be more than 10 days after the date
upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder(s) of record seeking to
have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board
of Directors shall promptly, but in all events within 10 days
after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been
fixed by the Board of Directors within 10 days after the date on
which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors
is required by applicable law, shall be the first date on which a
written consent setting forth the action taken or authorized or
proposed to be taken or authorized is delivered to the
Corporation, signed by one or more stockholders of record on the
date of such delivery, at its registered office in the State of
Delaware or its principal executive office, addressed to the
attention of the Secretary of the Corporation, or personally
delivered to the Secretary of the Corporation. Delivery made to
the Corporation's registered or principal executive office or the
Secretary shall be by hand or by postage prepaid certified United
States mail, return receipt requested. If no record date has
been so fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the
resolution taking such prior action.
Section 5. Lost, Stolen, or Destroyed Certificates. The
President or the Treasurer may direct that a new certificate be
issued to replace any certificate theretofore issued by the
Corporation that, it is claimed, has been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen, or
destroyed. When authorizing the issue of a new certificate, the
President or the Treasurer may, in his/her discretion and as a
condition precedent to the issuance thereof, require the owner of
the lost, stolen, or destroyed certificate, or his/her legal
representative, to advertise the same in such manner as it shall
require, and/or to give the Corporation a bond in such sum, or
other security in such form, as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate claimed to have been lost, stolen, or
destroyed.
Article X. General Provisions.
Section 1. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding
capital stock of the Corporation may be declared by the Board of
Directors at any regular or special meeting, and may be paid in
cash, in property, or in shares of the Corporation's capital
stock.
Section 2. Reserves. The Board of Directors shall have full
power, subject to the provisions of law and the Certificate of
Incorporation, to determine whether any, and, if so, what part,
of the funds legally available for the payment of dividends shall
be declared as dividends and paid to the stockholders of the
Corporation. The Board of Directors, in its sole discretion, may
fix a sum that may be set aside or reserved over and above the
paid-in capital of the Corporation as a reserve for any proper
purpose, and may, from time to time, increase, diminish, or vary
such amount.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal" and "Delaware".
Article XI. Amendments.
Subject to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have the power to
alter and repeal these By-Laws and to adopt new By-Laws by an
affirmative vote of a majority of the whole Board, provided that
notice of the proposal to alter or repeal these By-Laws or to
adopt new By-Laws must be included in the notice of the meeting
of the Board of Directors at which such action takes place.
______________________________________________________________________________
Exhibit 4(c)
MULTICURRENCY REVOLVING CREDIT AGREEMENT
among
LOTUS DEVELOPMENT CORPORATION,
THE FIRST NATIONAL BANK OF BOSTON,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
CREDIT SUISSE
THE BANK OF TOKYO TRUST COMPANY
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
THE FUJI BANK, LIMITED, NEW YORK BRANCH
SHAWMUT BANK, N.A.,
SOCIETE GENERALE
and
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
Dated as of June 7, 1994
Table of Contents
Section 1 Interpretation 1
1.1 General Provisions Pertaining to
Definitions 1
1.2 Terms Defined 1
Section 2 The Syndicated Advances 13
2.1 Obligations of the Banks to Make
Syndicated Advances 13
2.2 Termination of Commitment 14
2.3 Making the Syndicated Advances 14
2.4 Interest Payable on the Syndicated
Advances, etc. 15
Section 3 Money Market Advances 17
3.1 Money Market Borrowings 17
3.2 Interest on Money Market Advances 21
Section 4 Certain Common Provisions 22
4.1 Determination of Interest Rate 22
4.2 Overdue Amounts 22
4.3 Alternative Interest Rate 22
4.4 Repayments and Prepayments of the
Advances, etc. 22
4.5 Payments and Computations 24
4.6 Payments to be Free of Deductions 25
4.7 Additional Costs, Changes in
Circumstances, etc. 25
4.8 Indemnification 27
4.9 Reduction or Termination by the Company
of Total Commitment 27
4.10 Regulation D Compensation 28
4.11 Optional Currencies 28
4.12 U.S. Withholding Tax Exemption
Certificates 29
4.13 Lending Offices 29
Section 5 Fees 30
5.1 Facility Fee 30
5.2 Agent's Fee 30
Section 6 Conditions of Lending 30
6.1 Conditions Precedent to Each Advance 30
6.2 Conditions Precedent to First Advance 31
Section 7 Representations and Warranties 32
7.1 Representations and Warranties of the
Company 32
7.1.1 Organization, Good Standing,
Authority, etc. 32
7.1.2 Governmental Approvals 33
7.1.3 Subsidiaries 33
7.1.4 Compliance with Other Instruments 33
7.1.5 Litigation 33
7.1.6 Financial Statements 34
7.1.7 Changes 34
7.1.8 Business 34
7.1.9 Taxes 34
7.1.10 No Defaults 34
7.1.11 Regulation U 34
7.1.12 Pension Plans 35
7.1.13 Investment Company; Public Utility
Holding Company 35
7.2 Representations and Warranties of Each
Borrowing Subsidiary 35
7.2.1 Organization, Good Standing,
Authority, etc. 35
7.2.2 Governmental Approvals 36
7.2.3 Borrowing Subsidiary 36
7.2.4 Investment Company; Public Utility
Holding Company 36
Section 8 Certain Affirmative Covenants 36
8.1 Punctual Payment 36
8.2 Conduct of Business 36
8.3 Taxes, etc. 37
8.4 Maintenance of Properties 37
8.5 Maintenance of Insurance 37
8.6 Records and Accounts 37
8.7 Financial Statements 37
8.8 Inspection 38
8.9 Notice of Litigation 39
8.10 Further Assurances 39
8.11 Borrowing Subsidiaries 39
8.12 ERISA 39
8.13 Ownership of Subsidiaries 40
Section 9 Certain Negative Covenants 40
9.1 Liens 40
9.2 Merger, Consolidation or Sale of
Assets, etc. 42
9.3 Minimum Consolidated Net Worth 43
9.4 Maximum Consolidated Debt to Consolidated
Net Worth Ratio 43
Section 10 Guaranty 43
10.1 Guaranty 43
10.2 Guaranty Absolute 43
10.3 Effectiveness, Enforcement 44
10.4 Waiver 45
10.5 Subrogation 45
10.6 Payments 45
Section 11 Events of Default; Acceleration 45
Section 12 Set-Off; Pro Rata Sharing 48
Section 13 The Agent 49
13.1 Authorization 49
13.2 Employees and Agents 50
13.3 No Liability 50
13.4 No Representations 50
13.5 Distribution by Agent 50
13.6 Agent as Bank 51
13.7 Holders of Notes; Initial Lenders 51
13.8 Indemnity 51
13.9 Resignation 51
13.10 Delinquent Banks 52
13.11 Notification of Defaults and Events of
Default 52
13.12 Information 52
Section 14 Miscellaneous 52
14.1 Expenses 52
14.2 Notices, etc. 53
14.3 Reliance, etc. 54
14.4 Captions 54
14.5 Consents, Amendments, Waivers, etc. 54
14.6 Benefit; Assignments; Participations 56
14.7 Governing Law 56
14.8 Counterparts 56
14.9 Consent to Jurisdiction; Waiver of Jury
Trial 56
14.10 Exempt Character of Transaction 57
14.11 Indemnity for Use of Proceeds 57
14.12 Exchange Rate 58
Section 15 Assignment and Participation 58
15.1 Conditions to Assignment by Banks 58
15.2 Certain Representations and Warranties;
Limitation; Covenants 59
15.3 Bank List 59
15.4 Exchange of Notes 60
15.5 Participations 60
15.6 Disclosure 61
15.7 Assignee or Participant Affiliated
with any Borrower 61
15.8 Miscellaneous Assignment Provisions 61
15.9 Assignment by Borrower 62
LOTUS DEVELOPMENT CORPORATION
MULTICURRENCY REVOLVING CREDIT AGREEMENT
This MULTICURRENCY REVOLVING CREDIT AGREEMENT (this
"Agreement") is entered into as of June 7, 1994 among LOTUS
DEVELOPMENT CORPORATION, a Delaware corporation (the
"Company"), THE FIRST NATIONAL BANK OF BOSTON and the other
lending institutions listed on Schedule 1 hereto and THE
FIRST NATIONAL BANK OF BOSTON, as Agent (in such capacity,
referred to as the "Agent").
In consideration of the mutual promises, covenants and
agreements contained in this Agreement, the Company, the
Agent and the Banks hereby agree as follows:
*. INTERPRETATION.
1.1. General Provisions Pertaining to Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided herein or unless the context otherwise
requires:
(a) terms specifically defined in Section 1.2 hereof have the
meanings therein assigned to them, and other terms defined
elsewhere in this Agreement shall have the meanings therein
assigned to them, and all such definitions shall be
applicable to both the singular and plural forms of the
terms defined;
(b) accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally
accepted accounting principles;
(c) "Agreement" or "this Agreement" means this
Agreement as originally executed, or if subsequently
modified, amended or supplemented, as so modified, amended
or supplemented and in effect at the time of reference
thereto; and
(d) the words "herein," "hereof," "hereunder" and
other words of similar import refer to this Agreement as a
whole and not to any particular Section or other subdivision
of this Agreement.
1.2. Terms Defined. Subject to the provisions of Section 1.1
hereof, the following terms shall have the respective
meanings set forth below:
"Absolute Rate Auction" shall mean a solicitation of
Money Market Quotes setting forth Money Market Absolute
Rates pursuant to Section 3.
"Adjustment Date" shall have the meaning assigned to
such term in Section 2.4(e) hereof.
"Advance" shall mean either a Syndicated Advance or a
Money Market Advance, as applicable hereunder.
"Affiliate" shall mean any Person that would be
considered to be an affiliate of the Company under Rule
144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the
Borrower were (at the time of determination of Affiliate
status) issuing securities.
"Agent" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Agent's Fee" shall have the meaning assigned to such
term in Section 5.2 hereof.
"Applicable Margin" shall have the meaning assigned to
such term in Section 2.4(d) hereof.
"Applicable Percentage" shall mean that percentage set
forth in 12 C.F.R. Section 221.2(g)(2)(i).
"Assessment Rate" shall mean, for any Interest Period,
the net annual assessment rate payable by the Agent to the
Federal Deposit Insurance Corporation (or any successor) for
such Corporation's (or such successor's) insuring time
deposits made in Dollars at offices of the Agent in the
United States of America during the most recent period for
which such rate has been determined prior to the
commencement of such Interest Period.
"Assignment and Acceptance" shall have the meaning
assigned to such term in Section 15 hereof.
"Balance Sheet Date" shall mean December 31, 1993.
"Bank Affiliate" shall mean, with respect to any Bank,
any holding company or subsidiary of that Bank or any other
subsidiary of any such holding company.
"Bank List" shall have the meaning assigned to such
term in Section 15.3 hereof.
"Banks" shall mean FNBB and the other lending
institutions listed on Schedule 1 hereto and any other
Person who becomes an assignee of any rights and obligations
of a Bank pursuant to Section 15 hereof.
"Base Rate" shall mean, for any day, a fluctuating rate
per annum (rounded upwards, if necessary, to the next 1/8 of
1%) equal to the greater of (a) the rate of interest
publicly announced from time to time by the Agent as its
base rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such date plus 1/2 of 1%.
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate per annum equal for each day
during such period to the weighted average of the rates on
overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average
of the quotations for such day on such transactions received
by the Agent from three Federal funds brokers of recognized
standing selected by it. For purposes of this Agreement any
change in the Base Rate due to a change in the rate
specified in clause (a) hereof or the Federal Funds
Effective Rate shall be effective on the effective date of
such change in the rate specified in clause (a) hereof or
the Federal Funds Effective Rate, as applicable. If for any
reason the Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable
to ascertain the Federal Funds Effective Rate for any
reason, including, without limitation, the inability or
failure of the Agent to obtain sufficient bids or
publications in accordance with the terms thereof, the Base
Rate shall be the rate specified in clause (a) hereof until
the circumstances giving rise to such inability no longer
exist. Any interest rate calculated with reference to the
Base Rate shall change as the Base Rate shall change, and
any change in such interest rates shall become effective as
of the beginning of the day during which such change in the
Base Rate occurs.
"Base Rate Advance" shall mean any Syndicated Advance
denominated in Dollars upon which interest will accrue based
on the Base Rate.
"Board" shall mean the Board of Governors of the
Federal Reserve System of the United States of America.
"Borrower" shall mean the Company or any Borrowing
Subsidiary, and "Borrowers" shall mean the Company and each
Borrowing Subsidiary.
"Borrowing Date" shall mean, in relation to any
Advance, the day on which that Advance is made or to be made
to a Borrower.
"Borrowing Subsidiary" shall mean a Wholly-owned
Subsidiary of the Company which shall have delivered to each
of the Banks an election to become a Borrowing Subsidiary,
in substantially the form of Exhibit C hereto, duly executed
by such Wholly-owned Subsidiary and the Company; provided,
however, that at any time at which a Borrowing Subsidiary
owes no amounts hereunder, such Borrowing Subsidiary may, by
written notice to the Agent (receipt of which is
acknowledged by the Agent), rescind its election to become a
Borrowing Subsidiary.
"Business Day" shall mean a day, other than a Saturday
or Sunday, on which banks are open for business in Boston,
Massachusetts, and New York, New York, U.S.A., and if (a)
Eurocurrency Rate Advances or Money Market Eurocurrency
Advances are involved, a day on which dealings in Dollars
and in relevant foreign currency and exchange can be carried
on in the relevant interbank Eurocurrency market and Dollar
settlements of such dealings are able to be effected in New
York City, and (b) if any currency other than Dollars is
involved, a day on which dealings in Dollars and in relevant
foreign currency and exchange can be carried on in the
principal financial center of the country in which such
currency is legal tender.
"Capitalized Lease" shall mean any lease if the
obligation to make rental payment thereunder constitutes a
Capitalized Lease Obligation.
"Capitalized Lease Obligation" shall mean any rental
obligation which, under generally accepted accounting
principles, is required to be capitalized on the books of
the Company or any Subsidiary, taken at the amount thereof
accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"Cash Flow Coverage Ratio" shall mean the ratio,
determined as of the end of any fiscal quarter or year (a
"Ratio Calculation Date") of (a) the sum of (i) Consolidated
Pretax Income for the period of eight consecutive fiscal
quarters ending with such Ratio Calculation Date plus (ii)
Consolidated Interest Expense (excluding interest on
Non-recourse Debt) for such period to (b) Consolidated
Interest Expense (excluding interest on Non-recourse Debt)
for such period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended (or any successor statute), and the
rules and regulations promulgated thereunder, as in effect
from time to time.
"Commitment" shall mean, in relation to any Bank, its
commitment to participate in the revolving credit facility
provided under this Agreement upon the terms and subject to
the conditions of this Agreement up to the amount set
opposite its name on Schedule 1 hereto (such amount to be
deemed reduced by the amount of any reductions of such
Bank's Commitment in accordance with this Agreement), or, if
such commitment is terminated pursuant to the provisions
hereof, zero (in each case such amount to be subject to
appropriate adjustment upon any assignments permitted by Section 15
hereof).
"Commitment Expiry Date" shall have the meaning
assigned to that term in Section 2.2. hereof.
"Commitment Percentage(s)" shall mean, with respect to
each Bank, the percentage set forth on Schedule 1 hereto as
such Bank's percentage of the Total Commitment (subject to
adjustment upon any assignments permitted by Section 15 hereof).
"Company" shall have the meaning assigned to such term
in the preamble to this Agreement.
"Compliance Certificate" shall have the meaning
assigned to such term in Section 8.7 hereof.
"Consolidated" or "consolidated" shall mean, as applied
to any term used in this Agreement, that term as applied to
the accounts of the Company and its Subsidiaries on a
consolidated basis determined in accordance with generally
accepted accounting principles.
"Consolidated Assets" shall mean the assets of the
Company and its Subsidiaries consolidated in accordance with
generally accepted accounting principles.
"Consolidated Current Debt" shall mean the Current Debt
of the Company and its Subsidiaries, consolidated in
accordance with generally accepted accounting principles.
"Consolidated Debt" shall mean the Debt of the Company
and its Subsidiaries, consolidated in accordance with
generally accepted accounting principles.
"Consolidated Interest Expense" for any period shall
mean the aggregate amount of interest paid in respect of any
Debt by the Company and its Subsidiaries for such period,
determined and consolidated in accordance with generally
accepted accounting principles consistently applied.
"Consolidated Liabilities" shall mean the liabilities
of the Company and its Subsidiaries consolidated in
accordance with generally accepted accounting principles.
"Consolidated Net Income (or Deficit)" shall mean, with
respect to any fiscal period of the Company, the
consolidated net income (or deficit) of the Company and its
Subsidiaries for such period, determined in accordance with
generally accepted accounting principles consistently
applied, but excluding from such net income any net
extraordinary gains for such period.
"Consolidated Net Worth" shall mean, as of the time of
determination thereof, the amount of Consolidated Assets
less the amount of Consolidated Liabilities.
"Consolidated Pretax Income" for any period shall mean
Consolidated Net Income for such period, but before giving
effect to any provision for income taxes for such period.
"Consolidated Tangible Assets" shall mean Consolidated
Assets, less cash and cash equivalents and intangible
assets, all as shown on the latest balance sheet of the
Company delivered in accordance with Section 8.7.
"Convert," "Conversion," and "Converted" refers to the
conversion of any Base Rate Advance or Eurocurrency Rate
Advance into any Syndicated Advance of another type.
"Current Debt" shall mean any obligation for borrowed
money (and any notes payable and drafts accepted
representing extensions of credit whether or not
representing obligations for borrowed money) payable on
demand or within a period of one year from the date of the
creation thereof; provided that any such obligation shall be
treated as Funded Debt (and not Current Debt) regardless of
its term, if such obligation is renewable pursuant to the
terms thereof or of a revolving credit or similar agreement
effective for more than one year after the date of the
creation of such obligation or if there is an existing
commitment to loan funds sufficient to refinance (for more
than one year) such obligation and such loan is available.
"Debt" shall mean all Funded Debt and Current Debt.
"Default" shall mean any event or condition which, with
the giving of notice or the lapse of time or both, would
constitute an Event of Default.
"Delinquent Bank" shall have the meaning assigned to it
in Section 13 hereof.
"Dollar(s)" and "$" shall mean dollars of the United
States of America.
"Effective Date" shall mean June 7, 1994.
"Eligible Assignee" shall mean any of (a) with respect
to any assignor Bank, any Bank Affiliate; (b) a commercial
bank organized under the laws of the United States, or any
State thereof or the District of Columbia, and having total
assets in excess of $1,000,000,000; (c) a savings and loan
association or savings bank organized under the laws of the
District of Columbia, and having a net worth of at least
$100,000,000, calculated in accordance with generally
accepted accounting principles; (d) a commercial bank
organized under the laws of any other country which is a
member of the Organization for Economic Cooperation and
Development (the "OECD") or any successor organization, or a
political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank
is acting through a branch or agency located in the country
in which it is organized or another country which is also a
member of the OECD; (e) the central bank of any country
which is a member of the OECD; and (f) if, but only if, any
Event of Default has occurred and is continuing, any other
bank, insurance company, commercial finance company or other
financial institution or other Person approved in writing by
the Agent.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder, as in effect from time
to time.
"ERISA Affiliate" shall mean any trade or business
(whether or not incorporated) which is a member of a group
of which the Company is a member and which is under common
control within the meaning of Sections 414(b) and 414(c) of
the Code, and the regulations promulgated thereunder.
"Eurocurrency Auction" shall mean a solicitation of
Money Market Quotes setting forth Money Market Margins based
on the Eurocurrency Rate pursuant to Section 3.
"Eurocurrency Rate" shall mean, in relation to each
Interest Period relating to any Eurocurrency Rate Advance,
the percentage annual rate of interest determined by the
Agent as being the arithmetic average of the rate at which
deposits of the currency in which such Advance is to be
denominated during such Interest Period are being offered to
each Reference Bank by prime banks in any recognized
interbank Eurocurrency market selected by the Reference
Banks in good faith, at the time of the quotation thereof to
the applicable Borrower, for delivery on the first day of
such Interest Period, and for the number of days comprised
therein, in amounts equal (as nearly as may be) to the
largest amount to be provided by any Bank participating in
the Advance to which such Interest Period relates. Each
Reference Bank shall use its best efforts to furnish
quotations of rates to the Agent as contemplated hereby. If
any of the Reference Banks fails to supply such rates to the
Agent upon its request, the rate of interest shall be
determined on the basis of the quotations of the remaining
Reference Bank(s).
"Eurocurrency Rate Advance" shall mean any Syndicated
Advance denominated in an Optional Currency or in Dollars
upon which interest will accrue based on the Eurocurrency
Rate.
"Eurocurrency Reserve Percentage" shall mean, with
respect to any Interest Period, for any day thereof, the
percentage (expressed as a decimal) which is in effect on
such day, as prescribed by the Board (or any successor) for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve
requirement) for such day under Regulation D of the Board
(or any successor or similar regulations relating to such
reserve requirements) in respect of "Eurocurrency
Liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which
the interest on Eurocurrency Advances or Money Market
Eurocurrency Advances is determined for such day) having a
term comparable to such Interest Period.
"Event of Default" shall mean any of the events or
conditions described in Sections 11(a) through 11(n) hereof.
"Excess Margin Stock" shall mean, with respect to
Margin Stock owned by the Company and its Subsidiaries at
any time, that portion of such Margin Stock which, if not
subject to any restriction (within the meaning of Regulation
U of the Board) upon the right or ability of the Company to
sell, pledge or otherwise dispose of assets including Margin
Stock hereunder, or under any other agreement between the
Company and a Bank or an affiliate of a Bank evidencing Debt
("Pledge"), would result in all Margin Stock which would
remain subject to Pledge being no more than the Applicable
Percentage of the value of all such assets (including such
remaining Margin Stock) subject to Pledge.
"Facility Fee" shall have the meaning assigned to that
term in Section 5.1 hereof.
"Federal Funds Effective Rate" shall have the meaning
assigned to that term in the definition of Base Rate.
"Fee Letter Agreement" shall have the meaning assigned
to that term in Section 5.2 hereof.
"Fixed Rate Advances" shall mean Eurocurrency Rate
Advances or Money Market Advances or any continuation of the
foregoing permitted by the terms hereof.
"FNBB" shall mean The First National Bank of Boston, a
national banking association, in its individual capacity.
"Funded Debt" shall mean and include without
duplication,
(a) any obligation payable more than one year from the
date of creation thereof, which under generally accepted
accounting principles is shown on the balance sheet as a
liability (including Capitalized Lease Obligations but
excluding reserves for deferred income taxes and other
reserves to the extent that such reserves do not constitute
an obligation),
(b) indebtedness payable more than one year from the
date of creation thereof which is secured by any lien on
property owned by the Company or any Subsidiary, whether or
not the indebtedness secured thereby shall have been assumed
by the Company or such Subsidiary,
(c) guarantees (other than guarantees of the
obligations of any Subsidiaries under non-financial
operating leases), endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course
of business), reimbursement obligations in respect of
letters of credit, and other contingent liabilities (whether
direct or indirect) in connection with the obligations,
stock or dividends of any person,
(d) obligations under any contract providing for the
making of loans, advances or capital contributions to any
person, or for the purchase of any property from any person,
in each case in order to enable such person primarily to
maintain working capital, net worth or any other financial
statement condition or to pay debts, dividends or expenses,
(e) obligations under any contract for the purchase of
materials, supplies or other property or services if such
contract (or any related document) requires that payment for
such materials, supplies or other property or services shall
be made regardless of whether or not delivery of such
materials, supplies or other property or services is ever
made or tendered,
(f) obligations under any contract to rent or lease
(as lessee) any real or personal property if such contract
(or any related document) provides that the obligation to
make payments thereunder is absolute and unconditional under
conditions not customarily found in operating leases then in
general use (and is in the
nature of a guarantee) or requires that the lessee purchase
or otherwise acquire securities or obligations of the
lessor,
(g) obligations under any contract for the sale or use
of materials, supplies or other property or services if such
contract (or any related document) requires that payment for
such materials, supplies or other property or services, or
the use thereof, shall be subordinated to any indebtedness
(of the purchaser or user of such materials, supplies or
other property or the person entitled to the benefit of such
services) owed or to be owed to any person, and
(h) obligations under any other contract which, in
economic effect, is substantially equivalent to a guarantee;
all as determined in accordance with generally accepted
accounting principles consistently applied.
"generally accepted accounting principles" shall mean
(a) when used in Section 9 hereof, whether directly or indirectly
through reference to a capitalized term used therein, (i)
principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards
Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, and (ii) to the extent
consistent with such principles, the accounting practice of
the Company reflected in its financial statements for the
year ended on the Balance Sheet Date, and (b) when used in
general, other than as provided above, means principles that
are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors, as in effect from time to the time, and (ii)
consistently applied with the past financial statements of
the Company adopting the same principles, provided that in
each case referred to in this definition of "generally
accepted accounting principles" a certified public
accountant would, insofar as the use of such accounting
principles is pertinent, be in a position to deliver an
unqualified opinion (other than a qualification regarding
changes in generally accepted accounting principles) as to
financial statements in which such principles have been
properly applied.
"Guaranteed Obligations" shall have the meaning
specified in Section 10.1 hereof.
"Head Office" shall mean the head office of the Agent,
presently located at 100 Federal Street, Boston,
Massachusetts.
"Interest Payment Date" shall mean,
(a) with respect to Eurocurrency Rate Advances, the
last day of any Interest Period, and with respect to Base
Rate Advances, any date when interest is due and payable as
provided under Section 2.4(c) hereof; and
(b) with respect to Money Market Advances, any date
when interest is due and payable as provided under Section 3.2
hereof.
All interest accruing hereunder shall be payable when
and as provided in Section 2.4 and Section 3.2 hereof.
"Interest Period" shall mean,
(a) With respect to each Eurocurrency Rate Advance (i)
initially as specified by a Borrower in its notice of
borrowing, the period commencing on the Borrowing Date, or,
in the case of a Conversion into Eurocurrency Rate Advances,
commencing on the date of such Conversion, and expiring 1,
2, 3, or 6 months thereafter or, if each of the Banks shall
so agree and advise the Agent with respect to any particular
requested Interest Period, 9 or 12 months thereafter, in
each case as elected by such Borrower hereunder, and (ii)
with respect to subsequent Eurocurrency Rate Advances as
specified by such Borrower in a written notice furnished to
the Agent no later than 11:00 a.m. Boston time one (1)
Business Day prior to the Rate-fixing Day with respect to
such Eurocurrency Rate Advance, any successive periods of 1,
2, 3, 6, 9 or 12 months, as elected by such Borrower
hereunder (or as may be otherwise agreed to by the Banks)
commencing on the same day on which the next preceding
Interest Period with respect to such Eurodollar Rate Advance
shall have expired. If such Borrower does not elect
otherwise, each Interest Period with respect to a
Eurocurrency Rate Advance shall be three (3) months. The
number of days in each Interest Period and the particular
day on which each Interest Period ends and the next begins
shall be fixed by the Agent in accordance with the Agent's
generally accepted practice in the relevant foreign currency
deposits market and notified to such Borrower on the
Rate-fixing Day therefor. If any Interest Period would
otherwise end on a day which is not a Business Day, such
Interest Period shall end and the next Interest Period shall
commence on the next preceding or the next succeeding day
which is a Business Day as determined conclusively by the
Agent in accordance with the Agent's current practice in the
relevant interbank Eurocurrency market and notified to such
Borrower on the Rate-Fixing Day therefor.
(b) With respect to each Base Rate Advance, the period
commencing on the Borrowing Date of such Advance and
expiring on the date when the Base Rate Advance is repaid
or, as the case may be, Converted to a Eurocurrency Rate
Advance.
(c) With respect to each Money Market Eurocurrency
Advance, the period commencing on the Borrowing Date of such
Advance and ending 1, 2, 3, 6, 9 or 12 months thereafter, as
a Borrower may elect in accordance with Section 3 hereof.
(d) With respect to each Money Market Absolute Rate
Advance, the period commencing on the Borrowing Date of such
Advance and ending not more than 360 days thereafter, as a
Borrower may elect in accordance with Section 3 hereof.
No Interest Period may be selected in respect to all or
any portion of any Advance which would expire on a date
which occurs after the Commitment Expiry Date or which is
not a Business Day.
"Invitation for Money Market Quotes" shall have the
meaning assigned to it in Section 3.1 hereof.
"Loan Account(s)" shall have the meaning specified in
Section 4.4(f) hereof.
"Loan Documents" shall mean, collectively, this
Agreement, the Notes (if any), and the Fee Letter Agreement.
"Majority Banks" shall mean Banks holding at least 60%
of the aggregate amount of the Total Commitment or, if the
Total Commitment shall have been terminated, holding Loan
Accounts (or Notes in lieu thereof) evidencing at least 60%
of the aggregate unpaid principal amount of the Advances.
"Margin Stock" shall have the meaning assigned to such
term in Regulation U of the Board.
"Money Market Absolute Rate" has the meaning set forth
in Section 3.1(d)(ii)(D) hereof.
"Money Market Absolute Rate Advance" shall mean an
Advance to be made pursuant to Section 3 hereof by a Bank pursuant
to an Absolute Rate Auction; provided that, such an Advance
may only be made in Dollars.
"Money Market Advance" shall mean a Money Market
Eurocurrency Advance or a Money Market Absolute Rate
Advance.
"Money Market Eurocurrency Advance" shall mean an
Advance to be made pursuant to Section 3 hereof by a Bank pursuant
to a Eurocurrency Auction; provided that, such an Advance
may only be made in Dollars.
"Money Market Margin" has the meaning set forth in
Section 3.1(d)(ii)(C) hereof.
"Money Market Quote" shall mean an offer by a Bank to
make a Money Market Advance in accordance with Section 3.
"Money Market Quote Request" shall have the meaning
assigned to it in Section 3.1 hereof.
"Multiemployer Plan" shall mean any "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA to which the
Company or any ERISA Affiliate of the Company is making or
accruing any obligation to make contributions, or has within
any of the preceding five plan years made or accrued an
obligation to make contributions.
"Non-recourse Debt" shall have the meaning specified in
Section 9.4 hereof.
"Notes" shall have the meaning specified in Section 4.4(g)
hereof.
"Notice of Money Market Borrowing" shall have the
meaning assigned to it in Section 3.1(f) hereof.
"OECD" shall have the meaning assigned to it in the
definition of Eligible Assignee.
"Optional Currency" shall mean any currency other than
Dollars which is freely convertible into Dollars and which
is traded on any recognized interbank foreign currency
deposits market selected by the Agent in good faith.
"Permitted Margin Stock" means any security
constituting Margin Stock beneficially owned by the Company
or any Subsidiary that belongs to a class of securities and
an issuer that are the subject of a filing on Schedule 14D-1
by the Company or such Subsidiary with the United States
Securities and Exchange Commission.
"Person" shall mean any individual, partnership, joint
venture, corporation, trust, unincorporated organization or
government (including any department or agency thereof).
"Plan" means any employee plan of the Company which is
subject to the provisions of Title IV of ERISA and which is
maintained (in whole or in part) for employees.
"Pledge" shall have the meaning assigned to it in the
definition of Excess Margin Stock.
"Prior Credit Agreements" shall mean, collectively, (a)
the Amended and Restated Multicurrency Revolving Credit
Agreement dated as of December 1, 1990, as amended, among
the Company; The First National Bank of Boston as Agent;
FNBB, and the other parties thereto, and (b) the U.S.
$50,000,000 Revolving Credit Facility Agreement dated as of
June 29, 1990, as amended, among the Company; Credit Suisse
First Boston Limited as Facility Agent; Barclays Bank PLC as
Swing Line Agent; Credit Suisse First Boston Limited as
Arranger, and the other parties thereto.
"Process Agent" shall have the meaning specified in
Section 14.9 hereof.
"Rate-fixing Day" shall mean the second Business Day
preceding the Business Day on which an Interest Period
relating to a Eurocurrency Advance begins.
"Ratio Calculation Date" shall have the meaning
assigned to such term in the definition of Cash Flow
Coverage Ratio.
"Reference Banks" shall mean The First National Bank of
Boston, Morgan Guaranty Trust Company of New York and Bank
of America National Trust and Savings Association.
"Reportable Event" shall mean a Reportable Event as
defined in Section 4043(b) of ERISA.
"Subsidiary" shall mean any present or future
corporation a majority of whose shares of stock of any class
(however designated) having voting power for the election of
a majority of the members of the board of directors or other
governing body of such corporation (other than stock having
such power only by reason of the happening of a contingency)
shall at the time be owned by the Company or by one or more
of the Company's Subsidiaries.
"Syndicated Advance" shall mean any Advance made or to
be made to any Borrower pursuant to Section 2 hereof.
"Third-Party Financing Arrangements" shall mean those
arrangements whereby any Person has purchased, or advanced
funds to the Company against, (i) contracts of the Company
or (ii) accounts receivable of the Company in respect of
inventory sold by the Company; provided that (x) the sole
recourse of any such Person against the Company in respect
of any account receivable so purchased (or for recovery of
loans against any account receivable) is to require the
Company to repurchase from such Person the inventory whose
sale gave rise to such account receivable and (y) such
Person shall have no recourse against the Company in respect
of any contract so purchased (or for recovery of loans
against any contract).
"Threshold Lien Amount" shall mean, as of any time of
determination, the amount equal to the excess (if any) of
(a) the greater of (i) $75,000,000 or (ii) fifteen percent
(15%) of Consolidated Tangible Assets as of such time, minus
(b) the cumulative aggregate net book value of assets sold,
leased, transferred or assigned pursuant to Section 9.2(d)(i)
hereof after the date of this Agreement (such net book value
of such assets to be determined as to each such disposition
of assets as of the time thereof and as shown on the
Company's Consolidated books maintained in accordance with
this Agreement as of the time of such disposition).
"Total Commitment" shall mean the aggregate Commitments
of all of the Banks (including the Commitments of applicable
assignee Banks pursuant to assignments made under Section 15
hereof) at any time of the determination thereof.
"Wholly-owned Subsidiary" shall mean a Subsidiary all
of the capital stock (exclusive of directors' qualifying
shares) of which is owned directly or indirectly by the
Company.
Section 2. THE SYNDICATED ADVANCES.
2.1. Obligations of the Banks to Make Syndicated
Advances. The Banks severally agree, on the terms and
conditions of this Agreement, to make Syndicated Advances,
in Dollars and/or, at any Borrower's option from time to
time, subject to Section 4.11 hereof, in an Optional Currency, to
the respective Borrowers from time to time from the
Effective Date to (but not including) the Commitment Expiry
Date in an aggregate principal amount not to exceed their
respective Commitment Percentages of the Total Commitment.
Notwithstanding any other provision herein to the
contrary, at no time shall the aggregate principal amount of
Syndicated Advances outstanding exceed the Total Commitment
minus the aggregate principal amount of Money Market
Advances outstanding at such time.
The Company hereby confirms to the Banks that the
aggregate principal amount of the advances outstanding under
the Prior Credit Agreements (whether made on a syndicated
basis or a competitive bid basis) on the date hereof is $0
and that no advances have been made under the Prior Credit
Agreements to any Person other than the Company. The
Company hereby agrees that on and as of the date hereof, the
lending commitments of the respective lenders under the
Prior Credit Agreements shall be terminated in full and all
amounts owing thereunder, whether in respect of fees,
expenses, or otherwise shall be paid in full.
2.2. Termination of Commitment. The Total Commitment
will terminate in full at 11:00 A.M. Boston time, June 1,
1997 unless earlier terminated as provided in this Agreement
(the "Commitment Expiry Date").
2.3. Making the Syndicated Advances.
(a) Subject to the terms and conditions of this
Agreement, a Borrower may obtain Base Rate Advances, each in
the minimum principal amount of $1,000,000, and Eurocurrency
Rate Advances, each in the minimum principal amount of
$5,000,000 (or, in the case of Eurocurrency Rate Advances,
the equivalent thereof in Optional Currency), from the
several Banks from time to time from and after the Effective
Date, but not on or after the Commitment Expiry Date.
(b) Unless otherwise agreed to by the Banks, whenever
a Borrower desires and is entitled hereunder to receive any
Syndicated Advance, the Borrower shall notify the Agent in
writing in the case of a Base Rate Advance not later than
12:00 noon, Boston time, on the requested Borrowing Date or
in the case of a Eurocurrency Rate Advance not later than
11:00 a.m., Boston time, one (1) Business Day prior to the
Rate-fixing Day with respect to such Advance, of (i) the
Borrowing Date (which must be a Business Day) and the amount
of such Advance, stated either in Dollars or, subject to
Section 4.11 hereof, in an Optional Currency, (ii) with respect to
a Eurocurrency Rate Advance, the Interest Period of such
Advance, and (iii) the Borrower's bank account with the
Agent to which payment of the proceeds thereof is to be
made. The Agent will give the Banks prompt notice of each
notice of borrowing and of each other notice received from
the Borrowers hereunder.
(c) If, on or prior to the Borrowing Date of any
requested Syndicated Advance, the Total Commitment has not
terminated in full and the applicable conditions of Section 6
hereof are satisfied, each Bank will advance to the Borrower
making the request such Bank's respective Commitment
Percentage of the amount requested to be borrowed by
crediting the Agent for further credit to the Borrower's
specified account with the Agent in immediately available
funds not later than the close of business on such Borrowing
Date. Unless the Agent shall have received notice from a
Bank (i) in the case of any Base Rate Advance, prior to 2:00
p.m., Boston time, on the applicable Borrowing Date of such
Base Rate Advance, and (ii) in the case of any Eurocurrency
Rate Advance, prior to the applicable Borrowing Date of such
Eurocurrency Rate Advance, that such Bank will not make
available to the Agent such Bank's portion of such
Syndicated Advance, the Agent may assume that such Bank has
made such portion available to the Agent on such Borrowing
Date in accordance with this paragraph (c), and the Agent
may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have made such portion
available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for
each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent
at (i) in case of the Borrower, the interest rate applicable
at the time to the Syndicated Advances in question and (ii)
in the case of such Bank, the Federal Funds Effective Rate.
If such Bank shall repay to the Agent such corresponding
amount, such amount shall constitute such Bank's Advance as
part of such borrowing of Syndicated Advances for purposes
of this Agreement.
(d) The failure of any Bank to make its pro rata share
of any Syndicated Advance shall not relieve the other Banks
of their obligations, if any, hereunder to make their pro
rata shares of such Syndicated Advance on the requested
Borrowing Date, but no Bank shall be responsible for the
failure of any other Bank to make the part of the Syndicated
Advance to be made by such other Bank on the Borrowing Date.
2.4. Interest Payable on the Syndicated Advances, etc.
(a) With respect to any Syndicated Advance denominated
in Dollars, the rate of interest which shall be payable by
the applicable Borrower on the unpaid principal outstanding
to such Borrower shall be the annual percentage rate of
interest determined by the Agent to be the sum of (i) the
Applicable Margin in effect plus (ii) either of (A) the Base
Rate, or (B) if the Borrower has so elected pursuant to this
paragraph (a), the Eurocurrency Rate relating to the
Interest Period with respect to any such Advance. Any
Borrower may elect at any time and from time to time in
accordance with the terms of this Agreement, prior to the
Commitment Expiry Date, (A) to draw down all or a portion of
the funds available under this Agreement in Dollars upon
which interest will accrue based on the Eurocurrency Rate or
the Base Rate or (B) to Convert any Base Rate Advance or
Eurocurrency Rate Advance denominated in Dollars (or
translated into an equivalent Dollar amount from an Optional
Currency at the rates in effect hereunder from time to
time), to or from any other type of Syndicated Advance, on
the last day of the Interest Period with respect to the
Advance to be so Converted provided that, such Conversion
may be effected prior to the last day of the relevant
Interest Period subject to the terms of Section 4.8 hereof. In
order to exercise the foregoing option, a Borrower must
deliver to the Agent a written notice subject to any other
notice requirements under this Agreement designating the
election of the basis on which the interest rate will be
determined at least (x) in the case of a Conversion to the
Base Rate, on the proposed date of Conversion, and (y) in
the case of a Conversion to the Eurocurrency Rate, three (3)
Business Days prior to the proposed date of Conversion
relating to such portion of the Borrower's Advance on which
such Conversion is to occur. At the Commitment Expiry Date,
all Syndicated Advances shall mature and become due and
payable.
(b) The rate of interest which shall be payable by a
Borrower on any portion of the principal of any Syndicated
Advance extended to such Borrower which is denominated in an
Optional Currency for the time being, and is outstanding
during each Interest Period relating thereto, shall be the
annual percentage rate of interest determined by the Agent
to be the sum of (i) the Applicable Margin in effect plus
(ii) the Eurocurrency Rate relating to such Interest Period.
(c) Interest shall be payable by each Borrower, and
each Borrower hereby absolutely and unconditionally promises
to pay to the Agent, for the account of the Banks, in
arrears in Dollars, or, as the case may be, in the Optional
Currency in which that portion of the principal amount of
the Advance extended to such Borrower in respect of which
payment is made is denominated (i) with respect to its
Eurocurrency Rate Advances, on each Interest Payment Date,
provided, however, that if the duration of any such Interest
Period is longer than three months, the Borrower shall pay
the accrued interest on the last Business Day of each
successive three-month period within such Interest Period
and on the Interest Payment Date relating thereto and (ii)
with respect to Base Rate Advances, quarterly on the first
Business Day of each December, March, June and September
hereafter, and on any earlier date when a Base Rate Advance
is Converted to a Eurocurrency Rate Advance.
(d) The Applicable Margin (the "Applicable Margin")
shall be the percentage rate per annum in effect from time
to time in accordance with the following provisions of this
Section 2.4. From time to time the Applicable Margin for
Eurocurrency Rate Advances shall be determined by the Agent
following the time of delivery to the Agent of the required
quarterly and annual financial statements pursuant to Section 8.7
hereof together with the related Compliance Certificate,
based upon the Cash Flow Coverage Ratio determined as of the
Ratio Calculation Date which is the last day of the fiscal
quarter or year covered by such financial statements. The
Applicable Margin shall mean (i) with respect to
Eurocurrency Rate Advances, (A) if the Cash Flow Coverage
Ratio as so determined shall be greater than 4.0:1.0, 0.3%
per annum, and (B) if the Cash Flow Coverage Ratio as so
determined shall be less than or equal to 4.0:1.0, 0.425%
per annum, and (ii) with respect to Base Rate Advances, at
all times 0% per annum. Notwithstanding the foregoing, if
at any time the Company shall fail to deliver to the Agent
any quarterly or annual financial statements within the
applicable time period set forth in Section 8.7 hereof, the Agent
shall determine the Applicable Margin by reference to the
applicable quarterly or annual financial statements
appearing in the Borrower's quarterly or annual reports
filed with the Securities and Exchange Commission on Form
10-Q or Form 10-K, for such fiscal quarter or year, as the
case may be.
(e) The Applicable Margin so determined for
Eurocurrency Rate Advances pursuant to the foregoing Section 2.4(d)
shall become effective as of the date (the "Adjustment
Date") which is the day immediately following the applicable
Ratio Calculation Date and shall apply as of such Adjustment
Date to all outstanding Eurocurrency Rate Advances. The
Applicable Margin which becomes effective on each such
Adjustment Date shall remain in effect (subject to the other
provisions of this Section 2.4 and except as otherwise provided in
Section 4.2 hereof) with respect to all Eurocurrency Rate Advances
outstanding from time to time until the next Adjustment
Date. Notwithstanding the provisions of the preceding two
sentences, if at any time, the Cash Flow Coverage Ratio for
any period of eight consecutive fiscal quarters ending as of
any applicable Ratio Calculation Date was actually a ratio
other than the ratio on the basis of which there was
determined the rate of interest in effect hereunder on any
date, then such interest rate determination shall be
adjusted retroactively to the appropriate Adjustment Date on
the basis of such corrected determination of the actual Cash
Flow Coverage Ratio as of such Ratio Calculation Date, and
within three (3) Business Days after notice thereof in
reasonable detail requesting a retroactive adjustment of
interest previously paid given by any Borrower, the Agent or
any Bank, the relevant Borrower, as the case may be, shall
pay to the several Banks, or the Banks severally, on a
ratable basis, shall credit such relevant Borrower with, as
the case may be, the amount of the appropriate retroactive
adjustment in respect of such adjusted interest rate for any
portion of any Interest Period as to which interest has been
paid.
Section 3. MONEY MARKET ADVANCES.
3.1. Money Market Borrowings.
(a) The Money Market Option. In addition to the
Advances permitted to be made hereunder pursuant to Section 2
hereof, a Borrower may, pursuant to the terms of this Section 3,
cause the Agent to request the Banks to make offers to fund
Money Market Advances, in Dollars, to such Borrower from
time to time prior to the Commitment Expiry Date. The Banks
may, but shall have no obligation to, make such offers and a
Borrower may, but shall have no obligation to, accept such
offers in the manner set forth in this Section 3.
(b) Money Market Quote Request. When a Borrower
wishes to request offers to make Money Market Advances under
this Section 3, it shall transmit to the Agent by telex or
telecopier a Money Market Quote Request substantially in the
form of Exhibit D hereto (a "Money Market Quote Request") so
as to be received no later than (i) 11:00 a.m. (Boston time)
on the fourth Business Day prior to the requested Borrowing
Date, in the case of Eurocurrency Auction or (ii) 2:00 p.m.
(Boston time) on the second Business Day prior to the
requested Borrowing Date, in the case of an Absolute Rate
Auction, specifying (A) the requested Borrowing Date (which
must be a Business Day) and the amount of such Advance
(which must be a minimum of $1,000,000), (B) the Interest
Period of such Advance and (C) whether the Money Market
Quotes requested are to set forth a Money Market Margin or a
Money Market Absolute Rate. A Borrower may request offers
to make Money Market Advances for more than one Interest
Period in a single Money Market Quote Request.
(c) Invitation for Money Market Quotes; Alternative
Manner of Auction. Subsequent to receipt of a Money Market
Quote Request, the Agent shall send to the Banks by telex or
telecopier an Invitation for Money Market Quotes (as
hereafter defined) not later than (i) in the case of a
Eurocurrency Auction, 2:00 p.m. (Boston Time) on the fourth
Business Day preceding the requested Borrowing Date and (ii)
in the case of an Absolute Rate Auction, not later than 4:00
p.m. (Boston time) on the second Business Day prior to the
requested Borrowing Date, substantially in the form of
Exhibit D hereto (an "Invitation for Money Market Quotes"),
which shall constitute an invitation by the Borrower so
requesting such quote to each Bank to submit Money Market
Quotes offering to make the Money Market Advances to which
such Money Market Quote Request relates in accordance with
this Section 3. If, after receipt by the Agent of a Money Market
Quote Request from a Borrower in accordance with subsection
(b) of this Section 3.1, the Agent or any Bank shall be unable to
complete any procedure of the auction process described in
subsections (c) through (f) (inclusive) of this Section 3.1 due to
the inability of such Person to transmit or receive
communications through the means specified therein, such
Person may rely on telephonic notice for the transmission or
receipt of such communications. In any case where such
Person shall rely on telephone transmission or receipt, any
communication made by telephone shall, as soon as possible
thereafter, be followed by written confirmation thereof.
(d) Submission and Contents of Money Market Quotes.
(i) Each Bank may submit a Money Market Quote containing an
offer or offers to make Money Market Advances in response to
any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection
(d) and must be submitted to the Agent by telex or
telecopier not later than (A) 10:00 a.m. (Boston time) on
the third Business Day prior to the requested Borrowing
Date, in the case of Eurocurrency Auction or (B) 9:15 a.m.
on the requested Borrowing Date in the case of an Absolute
Rate Auction; provided, that, Money Market Quotes may be
submitted by the Agent in the capacity of a Bank only if the
Agent notifies the relevant Borrower of the terms of the
offer or offers contained therein not later than 9:00 a.m.
(Boston time) on the third Business Day prior to the
requested Borrowing Date, in the case of a Eurocurrency
Auction or 9:00 a.m. (Boston time) on the requested
Borrowing Date, in the case of an Absolute Rate Auction.
Subject to the provisions of Sections 6 and 11 hereof, any Money
Market Quote so made shall be irrevocable except with the
written consent of the Agent given on the instructions of
the Borrower.
(ii) Each Money Market Quote shall be in substantially the
form of Exhibit F hereto and shall in any case specify:
(A) the requested Borrowing Date,
(B) the principal amount of the Money Market Advance for
which each such offer is being made, which principal amount
(X) may be greater than the Commitment of the quoting Bank
but may not exceed the Total Commitment, (Y) must be
$1,000,000 or a larger multiple thereof and (Z) may not
exceed the principal amount of Money Market Advances for
which offers were requested,
(C) in the case of Eurocurrency Auction, the margin above
or below the applicable Eurocurrency Rate (the "Money Market
Margin") offered for each such Money Market Advance,
expressed as a percentage (rounded to the nearest 1/100th of
1%) to be added to or subtracted from the Eurocurrency Rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (rounded to the nearest 1/100th of 1%)
(the "Money Market Absolute Rate") offered for each such
Money Market Advance, and
(E) the identity of the quoting Bank.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in the form of Exhibit F hereto or
does not specify all of the information required by
subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes;
or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. Not later than (i) 11:00 a.m.
(Boston time) on the third Business Day prior to the
requested Borrowing Date, in the case of a Eurocurrency
Auction or (ii) 9:45 a.m. (Boston time) on the requested
Borrowing Date, in the case of an Absolute Rate Auction, the
Agent shall notify the Borrower requesting such quote of the
terms of any Money Market Quote submitted by a Bank that is
in accordance with the preceding subsection (d). The Agent's
notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Advances for which offers
have been received for each Interest Period specified in the
related Money Market Quote Request and (B) the respective
principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered.
(f) Acceptance and Notice by Borrower. Not later than
(i) 12:00 noon (Boston time) on the third Business Day prior
to a requested Borrowing Date, in the case of a Eurocurrency
Auction or (ii) 10:30 a.m. (Boston time) on the requested
Borrowing Date, in the case of an Absolute Rate Auction, the
Borrower shall notify the Agent by telex or telecopier of
its acceptance or non-acceptance of the offers so notified
to it pursuant to the preceding subsection (e). In the case
of an acceptance, such notice (a "Notice of Money Market
Borrowing") shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. A
Borrower may accept any Money Market Quote in whole or in
part; provided that:
(i) the aggregate principal amount of each Money
Market Advance may not exceed the applicable amount set
forth in the related Money Market Quote Request,
(ii) the principal amount of each Money Market Advance
must be $1,000,000 or a larger multiple of $500,000,
(iii) acceptance of offers may only be made on the basis
of ascending Money Market Margins or Money Market Absolute
Rates, as the case may be, and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to
comply with the requirements of this Agreement.
(g) Allocation by Agent; Usage of Commitments. If
offers are made by two or more Banks with the same Money
Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the
amount in respect of which offers are accepted for the
related Interest Period, the principal amount of Money
Market Advances in respect of which such offers are accepted
shall be allocated by the Agent among such Banks as nearly
as possible (in such multiples, not greater than $100,000,
as the Agent may deem appropriate) in proportion to the
aggregate principal amounts of such offers. Determinations
by the Agent of the amounts of Money Market Advances shall
be conclusive in the absence of manifest error. Promptly
upon its receipt of notice from the applicable Borrower of
any acceptance or non-acceptance of offers pursuant to
Section 3.1(f) hereof, the Agent shall notify each of the Banks
having submitted a Money Market Quote in response to the
applicable Invitation for Money Market Quotes, by telecopier
or by telephone, as to the acceptance or rejection of such
Bank's Money Market Quote by the Borrower.
Upon each occasion that a Money Market Advance is made,
and during the period for which such Money Market Advance is
outstanding, each Bank's Commitment shall be deemed
automatically utilized by an amount equal to the amount of
such Money Market Advance multiplied by such Bank's
Commitment Percentage, regardless of the extent to which
such Bank makes such Money Market Advance.
(h) Funding of Money Market Advances. If, on or prior
to the Borrowing Date of any Money Market Advance, the Total
Commitment has not terminated in full and if, on such
Borrowing Date, the applicable conditions of Section 4.7(b), Section 6.1,
or Section 6.2, as the case may be, are satisfied, the Bank or
Banks whose offers in respect of such Money Market Advance
the Borrower has accepted will fund each such Money Market
Advance so accepted. The Bank or Banks funding such Money
Market Advance will make such Advance by crediting the
Agent, for further credit to the Borrower's specified
account with the Agent, in immediately available funds not
later than the close of business on such Borrowing Date.
(i) Maximum Money Market Advances. Notwithstanding
any other provision herein to the contrary, at no time shall
the aggregate principal amount of Money Market Advances
outstanding at any time exceed the Total Commitment minus
the aggregate principal amount of Syndicated Advances
outstanding at such time.
3.2. Interest on Money Market Advances. Each Money
Market Eurocurrency Advance shall bear interest on the
outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the
sum of the Eurocurrency Rate for such Interest Period and
the positive or negative Money Market Margin quoted by the
Bank making such Advance in accordance with Section 3.1(d)(ii)(C)
hereof. Each Money Market Absolute Rate Advance shall bear
interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum
equal to the Money Market Absolute Rate quoted by the Bank
making such Advance in accordance with Section 3.1(d)(ii)(D). Such
interest shall be payable for each Interest Period on the
last day thereof or, if such Interest Period is longer than
three months, every three months after the first day thereof
and on the last day thereof.
Section 4. CERTAIN COMMON PROVISIONS.
4.1. Determination of Interest Rate. Each
determination of any interest rate by the Agent pursuant to
the terms hereof with respect to any Advance shall be
conclusive in the absence of manifest error.
4.2. Overdue Amounts. Overdue principal and, to the
extent permitted by applicable law, overdue interest and
other amounts overdue under any provision of this Agreement
shall bear interest at the rate determined by the Agent to
be one percent (1%) per annum above the rate which would
otherwise be payable in respect of principal not at the time
overdue. Such interest on overdue principal and overdue
interest and other amounts overdue shall be payable on
demand and shall continue to accrue from the due date of
such principal, interest or amounts and shall be compounded
monthly until the obligation of the defaulting Borrower in
respect of the payment thereof is discharged (whether before
or after judgment).
4.3. Alternative Interest Rate. Except as otherwise
provided in this Agreement, if on any Rate-fixing Day on
which the interest rate with respect to any Syndicated
Advance is to be based on the Eurocurrency Rate, the Agent
shall determine that it is unable to quote the Eurocurrency
Rate, or that the Majority Banks are unable to or it is
impracticable for them to fund the Advance for the requested
Interest Period, the Agent will so notify the applicable
Borrower on such day (by telephone), and unless the Borrower
elects, by notice to the Agent prior to 5:00 p.m. (Boston
time) on such Rate-fixing Day, to rescind its request for an
Advance, the Borrower shall be deemed to have elected that
the Advance be denominated in Dollars as a Base Rate
Advance.
4.4. Repayments and Prepayments of the Advances, etc.
(a) Each Borrower hereby absolutely and
unconditionally agrees to pay to the Agent for the account
of the Banks on the Commitment Expiry Date and there shall
become absolutely due and payable on said date, the entire
unpaid principal of and interest on such Borrower's Advances
from each Bank outstanding on such date.
(b) Each Borrower may, pursuant to this paragraph (b),
elect to prepay the principal of any Advance outstanding at
any time in full or from time to time in part without
premium or penalty, except as provided in Section 4.8 hereof. The
amount of any partial prepayment of the unpaid principal of
any Advance pursuant to this paragraph (b) shall be (i) in
the case of Base Rate Advances, in a principal amount of not
less than $1,000,000, or (ii) in the case of Eurocurrency
Advances, in a principal amount of not less than $5,000,000
or the equivalent thereof in any Optional Currency in which
that portion of the principal amount of the Advance in
respect of which the prepayment is to be made is
denominated. Amounts prepaid pursuant to this paragraph (b)
may, subject to the terms and conditions of this Agreement,
be reborrowed before the Commitment Expiry Date.
(c) Each Borrower shall make repayments as and when
required by Section 4.11(c) hereof.
(d) Upon each repayment or prepayment by any Borrower
of any principal of any Advance pursuant to any of the
provisions of this Agreement, such Borrower hereby
absolutely and unconditionally promises to pay to the Agent
for the account of each Bank to which a portion of such
payment is owing, and there shall become absolutely due and
payable on the date of each such repayment or prepayment,
all of the unpaid interest accrued to such date on the
amount of the principal of the Advance being repaid or
prepaid on such date, together with all, if any, other sums
then due and payable hereunder in respect of the principal
of the Advance being repaid or prepaid on such date,
including, but not limited to, any sums payable in
accordance with Sections 4.7 and 4.8 hereof. Whenever any interest
on and any principal of an Advance are paid simultaneously
hereunder, the whole amount paid shall be applied first to
interest then due and payable.
(e) Each repayment or prepayment of principal which is
less than the entire unpaid principal amount owed by any
Borrower under this Agreement in respect of any Syndicated
Advance, shall be allocated among the Banks in proportion,
as nearly as practicable, to the unpaid principal amount of
each Bank's portion of such Syndicated Advance, with
adjustments to the extent practical to equalize any prior
payments not exactly in proportion.
(f) The obligations of each Borrower to repay all
amounts borrowed by it hereunder, all interest thereon and
all fees and other amounts payable by it in respect thereof
shall be evidenced by this Agreement and by individual loan
accounts (the "Loan Accounts" and individually, a "Loan
Account") maintained by the Agent on its books for each of
the Banks, it being the intention of the parties hereto
that, except as provided for in paragraph (g) of this Section 4.4,
each Borrower's obligation with respect to Advances are to
be evidenced only as stated herein and not by separate
promissory notes.
(g) Any Bank may at any time, and from time to time,
request that any Advances outstanding to such Bank be
evidenced by a promissory note or notes (the "Notes") of the
applicable Borrower. Upon such request, the applicable
Borrower shall promptly execute and deliver to such Bank a
Note substantially in the form of Exhibit A attached hereto,
appropriately completed. Upon execution and delivery by a
Borrower of a Note, such Borrower's obligation to repay the
Advances made to it by such Bank and all interest thereon
shall thereafter be evidenced by such Note.
(h) Notwithstanding any other provision of this
Agreement, each Fixed Rate Advance shall mature and become
due and payable in full on the last day of the Interest
Period relating thereto (whether upon the initial borrowing
thereof or upon the continuation thereof, or any Conversion
of any such Fixed Rate Advance pursuant to Section 2.4). However,
at such maturity the Borrower thereof shall be entitled
inter alia to reborrow the principal amount of each
Syndicated Advance as a new Syndicated Advance of the same
type by continuation of such Advance or a Syndicated Advance
of a different type by Conversion pursuant to Section 2.4(a), for
one or more additional Interest Periods, subject to all of
the conditions precedent set forth in Section 6.1, exclusive,
however, of Section 6.1(e) to the extent such section incorporates
Section 7.1.7. At the time of each such reborrowing as a new
Syndicated Advance the Company shall be deemed to have made
a representation, and if the Advance is outstanding to a
Borrowing Subsidiary, such Borrowing Subsidiary shall be
deemed to have made a representation, in each case, to the
effect set forth in Section 6.1(e), except in respect of Section 7.1.7.
The provisions of this Section 4.4(h) apply to the repayment and
reborrowing of Syndicated Advances which do not result in an
increase in the aggregate principal amount of Syndicated
Advances at the time outstanding. Borrowings increasing
such aggregate principal amount are governed by the
provisions of this Section 4.4 and the whole of Section 6.1.
4.5. Payments and Computations.
(a) Each payment payable by a Borrower (i) denominated
in Dollars hereunder shall be made to the Agent at its Head
Office, in immediately available funds, or, (ii) denominated
in any Optional Currency shall be made in immediately
available funds, for the account of the Agent at a
depository designated by the Agent in the country in which
such Optional Currency is legal tender. Each payment in
respect of any Advance made by a Borrower shall be made in
the same currency in which such Advance was made. Each
Borrower authorizes the Agent to charge any of its
respective accounts with the Agent or the Banks for payments
of principal, interest and commitment fees due from it
hereunder or any other fees payable by it which are provided
for in Section 5 hereof.
(b) If any sum would, but for the provisions of this
Section 4.5(b), become due and payable hereunder on a day which is
not a Business Day, then such sum shall become due and
payable on either the Business Day next preceding or the
Business Day next succeeding the day on which such sum would
otherwise have become due and payable hereunder, such
Business Day to be selected (which selection shall be
conclusive and binding on each Borrower) by the Agent in
accordance with the Agent's current banking practice in the
relevant interbank Eurocurrency market or Boston (as the
case may be) and notified to such Borrower not less than
five (5) Business Days prior to such non-Business Day, and
interest and fees hereunder shall be adjusted accordingly.
(c) All computations of interest and fees payable
hereunder shall be made by the Agent on the basis of actual
number of days elapsed and on a 360-day year provided that,
interest on Base Rate Advances shall be calculated based on
a 365-day year.
(d) Each determination by the Agent of an amount of
interest or any fee payable by any Borrower hereunder shall,
save for manifest error, be conclusive and binding upon the
Borrower.
(e) Promptly upon receipt of all payments under this
Agreement with respect to Syndicated Advances, the Agent
shall pay to each of the Banks its pro rata share thereof.
Promptly upon receipt of all payments with respect to Money
Market Advances, the Agent shall pay the proper portion of
such payment to each Bank which made such Money Market
Advance.
4.6. Payments to be Free of Deductions. All payments
by the Borrowers under this Agreement shall be made without
set-off or counterclaim and free and clear of and without
deduction for any taxes, levies, imposts, duties, charges,
fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter
imposed or levied by any country or any political
subdivision thereof or taxing or other authority therein
unless a Borrower is compelled by law to make such deduction
or withholding. If any such obligation is imposed upon a
Borrower with respect to any amount payable by it hereunder,
the Borrower will pay to the Agent for the account of each
Bank, on the date on which the said amount becomes due and
payable hereunder, such additional amount as shall be
necessary to enable each Bank to receive the same net amount
which it would have received on such due date had no such
obligation been imposed upon the Borrower. Each Borrower
will deliver promptly to the Agent certificates or other
valid vouchers for all taxes or other charges deducted from
or paid with respect to payments made by such Borrower
hereunder.
4.7. Additional Costs, Changes in Circumstances, etc.
(a) Anything herein to the contrary notwithstanding,
if any present or future applicable law (which expression,
as used in this Agreement, includes statutes and rules and
regulations thereunder and interpretations thereof by any
competent court or by any governmental or other regulatory
body or official charged with the administration or the
interpretation thereof and requests, directives,
instructions and notices at any time or from time to time
heretofore or hereafter made upon or otherwise issued to the
Agent or any Bank by any central bank or other fiscal,
monetary or other authority, whether or not having the force
of law) shall (i) subject the Agent or any Bank to any tax,
levy, impost, duty, charge, fee, deduction or withholding of
any nature with respect to this Agreement, the amount of any
Commitment or the Total Commitment, or the payment to the
Agent or any Bank of any amounts due to it hereunder, or
(ii) materially change the basis of taxation of payments to
the Agent or any Bank of the principal or the interest on or
any other amounts payable to the Agent or any Bank
hereunder, or (iii) impose or increase or render applicable
any special or supplemental special deposit or reserve or
similar requirements or assessment against assets held by,
or deposits in or for the account of, or any eligible
liabilities of, or loans by an office of the Agent or any
Bank in respect of the transactions contemplated herein, or
(iv) impose on the Agent or any Bank any other condition or
requirement with respect to this Agreement, any Commitment
or the Total Commitment, and the result of any of the
foregoing is (A) to increase the cost to any Bank of making,
funding or maintaining all or any part of the Advances, or
(B) to reduce the amount of principal, interest or other
amount payable to any Bank hereunder, or (C) to require the
Agent or any Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which
payment or foregone interest or other sum is calculated by
reference to the gross amount of any sum receivable or
deemed received by the Agent or any Bank from any Borrower
hereunder, then, and in each such case not otherwise
provided for hereunder, such Borrower will, upon demand made
by the Agent accompanied by calculations thereof in
reasonable detail, pay to the Agent for its account or for
the account of such Bank, as the case may be, such
additional amounts as will be sufficient to compensate them
for such additional cost, reduction, payment or foregone
interest or other sum, provided that the foregoing
provisions of this sentence shall not apply in the case of
any additional cost, reduction, payment or foregone interest
or other sum resulting from any taxes charged upon or by
reference to the overall net income, profits or gains of the
Agent or any Bank.
(b) If the Agent shall determine that any change in
applicable law shall make it unlawful for any Bank to comply
with or to maintain its obligations to fund Eurocurrency
Rate Advances, Money Market Eurocurrency Advances or
Advances in any Optional Currency hereunder in the relevant
interbank market, then the Agent may notify any affected
Borrower of such determination in writing. If the Agent so
notifies such Borrower, then (i) each Bank's obligations to
fund such Advances as Eurocurrency Rate Advances, Money
Market Eurocurrency Advances or in such Optional Currency or
Currencies, as the case may be, shall terminate in full on
and as of the date of such notice, and (ii) such Advances
shall on the last day of any Interest Period which is
current when the Borrower is so notified or, if the same
would be unlawful, then as soon as practicable after the
date of such notice, be automatically Converted to Base Rate
Advances.
(c) If any change in law or any governmental rule,
regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a
court or governmental authority with appropriate
jurisdiction affects the amount of capital required or
expected to be maintained by any of the Banks or any Person
controlling any of the Banks and such Bank determines that
the amount of capital required is increased by or based upon
the existence of the credit facility established hereunder
or any Advances made pursuant hereto then such Bank shall
notify the Company of such fact showing the calculation
thereof in reasonable detail. To the extent that the costs
of such increased capital requirements are not reflected in
the Base Rate, Eurocurrency Rate, Money Market Margin, Money
Market Absolute Rate, or in amounts paid by a Borrower
pursuant to Section 4.7(a) hereof, the Company and such Bank shall
thereafter attempt to negotiate in good faith an adjustment
within thirty days of the day on which the Company receives
such notice. If no such adjustment is agreed pursuant
thereto within such time, then commencing on the date of
such notice (but not earlier than the effective date of any
such change), the amounts payable by the applicable Borrower
hereunder shall increase by an amount which will, in such
Bank's reasonable determination, provide adequate
compensation. Such Bank shall allocate such cost increases
among its customers in good faith and on an equitable basis.
4.8. Indemnification. In the event that any Borrower
shall at any time (a) repay or prepay any principal of any
Fixed Rate Advance on a date other than the last day of the
Interest Period with respect thereto, whether such repayment
or prepayment is pursuant to Sections 4.4, 4.11, as a result of
acceleration or otherwise, or (b) for any reason (other than
as permitted under Sections 4.3 and 4.7(b) hereof) fail to borrow
or Convert any Fixed Rate Advance (including, without
limitation, any Money Market Advance for which the Borrower
has accepted the Money Market Quote), as requested, such
Borrower shall, upon demand by the Agent accompanied by
calculations in reasonable detail, pay to the Agent for the
account of the Banks any amounts required to compensate the
Banks for any and all losses, costs and expenses of the
Banks (other than incidental, special, indirect or
consequential damages, except to the extent that the amount
calculated in accordance with the formula set forth below
could be construed as constituting such incidental, special,
indirect or consequential damages) in respect of the
Borrower's payment, prepayment or failure to borrow or
Convert, on the date of such payment or failure to borrow or
Convert, including, but not limited to, compensation
relating to liquidation or reemployment of deposits or other
funds acquired by any Bank to fund or maintain such
Advances. Such compensation may include, without
limitation, an amount equal to the excess, if any, of (x)
the amount of interest which would have accrued on the
amount so paid or prepaid or not borrowed or so Converted
for the period from the date of such payment or prepayment
or failure to borrow or so Convert to the last day of the
then current Interest Period for such Advances (or, in the
case of a failure to borrow or Convert the Interest Period
for such Advances which would have commenced on the date of
such failure to borrow or Convert) at the applicable rate of
interest for such Advances provided for herein, over (y) the
amount of interest (as reasonably determined by the Agent in
consultation with the Banks) the Banks would have paid on
Eurocurrency deposits, certificates of deposit or deposits
used to fund Advances at the Money Market Absolute Rate (as
the case may be) of comparable amounts having terms
comparable to such period placed with it by leading banks in
the relevant Eurocurrency market in deposits of foreign
currencies among banks, the New York certificate of deposit
market or any other applicable deposits market (as the case
may be).
4.9. Reduction or Termination by the Company of Total
Commitment. Prior to the Commitment Expiry Date the Company
may from time to time reduce, pro rata according to the
Banks' respective Commitment Percentages in the aggregate
principal amount of $5,000,000 or any integral multiple
thereof, or at any time terminate, the Total Commitment, in
each case by giving at least ten (10) Business Days' prior
written notice thereof to the Agent and, if necessary,
making, or causing to be made, a payment against principal
of the Advances in such amount as will reduce the unpaid
principal balance thereof to an amount not in excess of the
desired reduced amount of the Total Commitment or, if the
Total Commitment is being terminated, paying, or causing to
be paid, all obligations then due hereunder, including, but
not limited to, any accrued fees payable pursuant to Section 5
hereof. No reduction or termination of the Commitment
Percentages of the Banks may be reinstated.
4.10. Regulation D Compensation. Each Bank may
require a Borrower to pay, contemporaneously with each
payment of interest on Eurocurrency Advances or Money Market
Eurocurrency Advances, as the case may be, additional
interest on the related Advance of such Bank at a rate per
annum equal to the excess of (i) (A) the applicable
Eurocurrency Rate divided by (B) one minus the Eurocurrency
Reserve Percentage over (ii) the rate specified in clause
(i)(A) of this Section 4.10. Any Bank requiring payment of such
additional amounts shall notify the applicable Borrower and
the Agent, showing calculations in reasonable detail, in
which case such additional amounts payable in respect of
such Eurocurrency Advances or Money Market Eurocurrency
Advances, as the case may be, shall be payable to such Bank.
4.11. Optional Currencies.
(a) A Borrower may elect, prior to the Commitment
Expiry Date at any time or from time to time in accordance
with the terms of this Agreement, to draw down or convert
all or a portion of the funds available as Syndicated
Advances under this Agreement in, or to, an Optional
Currency (if any), in each case funded by the Banks on a
several basis, provided that the aggregate principal amount
outstanding under this Agreement immediately following any
such drawdown or conversion in or to Optional Currencies (if
any) shall not exceed the equivalent of the Dollar amount of
the aggregate Commitments of the Banks, and provided further
that any funds proposed to be converted at any one time
under this Section 4.11 shall be in amounts of not less than U.S.
$1,000,000 or shall be an integral multiple thereof, or the
equivalent in any Optional Currency. In order to exercise
the foregoing option, a Borrower must deliver to the Agent a
written notice, subject to any other notice requirements
under this Agreement, designating the currency in or into
which the designated portion of the Borrower's Advance is to
be drawn down or, as the case may be, converted, at least
three (3) Business Days prior to the commencement of the
subsequent Interest Period relating to such portion of the
Borrower's Advance, and any such drawdown or conversion
shall be effected on such date. If any such conversion
notice is not delivered to the Agent by such Borrower within
the required time, the Borrower shall be deemed to have
elected that the relevant portion of the principal amount of
the Borrower's Advance continue to be denominated in the
currency in which it then currently stands denominated. No
Interest Period during which a portion of the principal of a
Borrower's Advance is to be denominated in any Optional
Currency shall have an Interest Payment Date which occurs
after the Commitment Expiry Date.
If the Agent determines, after consultation with the
Reference Banks (which determination shall be conclusive),
on or prior to the second Business Day preceding the first
day of any Interest Period during which a portion of the
principal of a Borrower's Advance is to be denominated
(whether as a new Advance, by conversion or otherwise) in
any Optional Currency, that the Optional Currency is not
freely transferable and convertible into Dollars or (whether
based upon such consultation or upon notification to the
Agent by any Bank) that it will be impracticable for any of
the Banks to fund the Advance in such Optional Currency,
then the Agent shall so notify the Borrower making the
election, stating the reason therefor in reasonable detail,
and that portion of the principal amount of the Borrower's
Advance to be drawn down or so converted shall,
notwithstanding any contrary election by such Borrower or
any other provisions hereof, be denominated in Dollars and
be in the form of a Base Rate Advance.
(b) Except as provided in Section 14.12 hereof, for purposes
of this Agreement the amount in one currency which shall be
equivalent on any particular date to a specified amount in
another currency shall be that amount (as conclusively
ascertained by the Agent absent manifest error) in the first
currency which is or could be purchased by the Agent (in
accordance with its normal banking practices) with such
specified amount in the second currency in any recognized
interbank foreign currency deposits market selected by the
Agent in good faith for delivery on such date at the spot
rate of exchange prevailing on such date.
(c) In the event that any portion of the funds
available under the terms of this Agreement is denominated
in one or more Optional Currencies, the Dollar equivalent of
such portion of the funds shall be calculated pursuant to
paragraph (b) above. The amount so determined shall then be
added to the amount already outstanding in Dollars for the
purpose of determining the remaining availability of funds
under Section 4.11(a) hereof and any required repayments under
Section 4.4(c) hereof. Notwithstanding the foregoing, if at any
time prior to the Commitment Expiry Date, the Dollar
equivalent of the aggregate principal amount outstanding
hereunder shall exceed the aggregate Commitments of the
Banks by an amount equal to (or exceeding) the lesser of (i)
five percent (5%) of such aggregate Commitments of the Banks
or (ii) $7,500,000 as a result of fluctuations in respective
conversion rates, the Company shall pay or cause to be paid
immediately, upon demand made by the Agent, such amounts as
are sufficient to reduce the aggregate principal amount
outstanding to the Dollar equivalent of the aggregate
Commitments of the Bank.
4.12. U.S. Withholding Tax Exemption Certificates. If
any Bank is not incorporated under the laws of the United
States of America or any state thereof, it shall, prior to
the date on which any interest or Facility Fees are payable
hereunder for its account, deliver to the Company and the
Agent proper certification as to its exemption from
deduction or withholding of any United States federal income
taxes.
4.13. Lending Offices. Each Syndicated Advance made
by a Bank in an Optional Currency, and each payment by any
Borrower in respect thereof, shall be made by, or, as the
case may be, for the account of, such applicable lending
office of such Bank as such Bank may from time to time
specify in writing to the Agent.
Section 5. FEES.
5.1. Facility Fee. The Company agrees to pay to the
Agent for the account of the Banks on the first day of each
December, March, June and September hereafter, so long as
the Banks' Commitment to make Advances hereunder is
outstanding, a facility fee (the "Facility Fee") on the
average daily amount of the Total Commitment during the
preceding three-month period or portion thereof. The
Facility Fee shall be one-eighth of one percent (1/8%) per
annum of the Total Commitment and shall be allocable among
the Banks in accordance with their respective Commitment
Percentages.
5.2. Agent's Fee. The Company hereby agrees to pay
the Agent an agent's fee (the "Agent's Fee") in the amounts
and at the times described in a letter agreement (the "Fee
Letter Agreement") between the Company and the Agent, dated
as of the date hereof.
Section 6. CONDITIONS OF LENDING.
6.1. Conditions Precedent to Each Advance. The
obligation of the Banks to make any Advance is subject to
the performance by the Company or the Borrowing Subsidiary,
as the case may be, of all its agreements theretofore to be
performed by it hereunder and to the satisfaction, prior to
or at the time of making such Advance, of the following
conditions:
(a) The Agent shall have timely received from the
applicable Borrower any notice required under any provisions
of this Agreement, signed by any one of the
Chief Executive Officer, Vice President-Finance, Treasurer,
Assistant Treasurer or Chief Financial Officer of the
Company and if the Borrower is a Borrowing Subsidiary, an
individual having comparable authority to any of such
officers, which request, without more, will constitute
certification by such officers as to the matters set forth
in paragraphs (c) and (e) below;
(b) The Agent and the Banks shall have received duly
certified copies of the necessary and appropriate (if any)
votes passed or other corporate action taken by the Board of
Directors of the Borrower with respect to authorizing and
approving the transactions contemplated by this Agreement,
and duly certified copies of the incorporation or charter
documents, by-laws, and other organizational documents of
such Borrower, together with appropriate certificates of
public officials as to the legal existence and corporate
good standing of such Borrower;
(c) All necessary and appropriate (if any) votes,
resolutions, consents, waivers, approvals, amendments and
other action on the part of the Board of Directors of the
Company or any Subsidiary, or on the part of any holders of
Indebtedness or shares of capital stock of any class or
classes of the Company or any Subsidiary necessary and
appropriate to have been obtained or effected in order to
carry out its obligations to be performed pursuant to this
Agreement shall have been duly obtained or effected and
shall be in full force and effect;
(d) The making of an Advance shall not contravene any
law or rule or regulations thereunder or any Executive Order
of the President of the United States binding on the
Borrower or any Bank;
(e) Subject to Section 4.4(h) hereof, the representations and
warranties in Section 7 hereof and all other representations in
writing made by or on behalf of the Company or any
Subsidiary to the Banks in connection with the transactions
contemplated by this Agreement shall be true as of the date
on which they were made and shall also be true at and as of
the time of the making of the Advance with the same effect
as if made at and as of the time (except that each reference
to financial statements shall be deemed a reference to the
latest such financial statements delivered hereunder and
except to the extent of changes resulting from transactions
contemplated by this Agreement and changes occurring in the
ordinary course of business which singly or in the aggregate
are not materially adverse in relation to the Company and
its Subsidiaries on a Consolidated basis, and to the extent
that such representations and warranties relate expressly to
an earlier date or to projections relating to the business
of the Company and the Subsidiaries delivered to the Banks
prior to the date of this Agreement) and no Default or Event
of Default shall exist; and
(f) All fees, and all expenses and other amounts due
and payable pursuant hereto prior to or on the date of the
Advance shall have been paid.
6.2. Conditions Precedent to First Advance.
(a) The obligation of the Banks to make the first
Advance to the Company hereunder is subject to all of the
conditions set forth in Section 6.1 hereof and to the following
further conditions, each to be fulfilled to the satisfaction
of each of the Agent and the Banks:
(i) This Agreement and the Fee Letter Agreement shall have
been duly executed and delivered by the parties thereto;
(ii) The Company shall have certified to the Agent and the
Banks the name and a specimen signature of each officer of
the Company authorized to sign requests for Advances on
behalf of the Company. The Agent and the Banks may rely
conclusively on such certification until the Agent receives
notice in writing to the contrary from the Company;
(iii) The Agent and the Banks shall have received an
opinion addressed to the Banks from Christine C. Ciotti,
Esq., counsel for the Company, in form and substance
satisfactory to the Agent as to the matters relating to the
Company specified in Sections 7.1.1, 7.1.2, 7.1.3, 7.1.4, 7.1.5,
7.1.11, 7.1.12 and 7.1.13, and as to such other matters as
the Agent and the Banks may reasonably request; and
(iv) On and as of the date of this Agreement, the lending
commitments of the respective lenders under the Prior Credit
Agreements shall have been terminated in full and all
amounts owing thereunder, whether in respect of fees,
expenses, or otherwise, shall have been paid in full.
(b) The obligation of the Banks to make the first
Advance (which shall mean the initial Advance to a
Subsidiary after each election by such Subsidiary to become
a Borrowing Subsidiary) to any Borrowing Subsidiary is
subject to all of the conditions set forth in Section 6.1 hereof
and to the following further conditions, each to be
fulfilled to the satisfaction of each of the Agent and the
Banks:
(i) Such Borrowing Subsidiary shall have certified to the
Agent and the Banks the name and a specimen signature of
each officer of such Borrowing Subsidiary authorized to sign
requests for Advances on behalf of such Borrowing
Subsidiary. The Agent and the Banks may rely conclusively
on such certification until the Agent receives notice in
writing to the contrary from such Borrowing Subsidiary;
(ii) The Agent and the Banks shall have received an opinion
addressed to the Banks from counsel to such Borrowing
Subsidiary, such counsel to be reasonably acceptable to the
Agent, in form and substance reasonably satisfactory to the
Agent and the Banks, as to matters relating to such
Subsidiary specified in Sections 7.1.4, 7.1.11, 7.1.13, 7.2.1,
7.2.2, 7.2.3 and 7.2.4 as to such other matters as the Agent
and the Banks may reasonably request; provided that as to
factual matters referred to therein, such opinion may be
given based on such counsel's best knowledge after
reasonable inquiry; and
(iii) The Agent and the Banks shall have received a
certificate from a duly authorized officer of such Borrowing
Subsidiary, representing and warranting to the Banks, on
behalf of such Borrowing Subsidiary, that no approval of, or
filing with, any governmental agency or authority (which has
not already been obtained) is required to make valid and
legally binding the execution, delivery and performance of
the election to become a Borrower and this Agreement and
consummation of the transactions contemplated hereby.
Section 7. REPRESENTATIONS AND WARRANTIES.
7.1. Representations and Warranties of the Company.
The Company represents and warrants to the Banks that:
7.1.1. Organization, Good Standing, Authority, etc.
The Company and each Subsidiary (a) is a corporation duly
organized, existing and in good standing under the laws of
the jurisdiction of its incorporation, (b) has all requisite
corporate power to own its property and conduct its business
as now conducted and (c) to the best of the Company's
knowledge, is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction where
the nature of its properties or its business requires such
qualification except where the failure to so qualify or be
in good standing will not have a materially adverse effect
on the Company and its Subsidiaries on a Consolidated basis.
The execution, delivery and performance of this Agreement
and the transactions contemplated hereby are within the
corporate authority of the Company, have been authorized by
proper corporate proceedings and do not and will not
contravene any provisions of its charter, other
incorporation papers, by-laws or any stock provision or any
amendment thereof or, to the best of the Company's
knowledge, any provisions of law or of any indenture,
agreement, instrument or undertaking binding upon the
Company or any Subsidiary. The execution, delivery and
performance of this Agreement by the Company will result in
valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their
respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting generally the enforcement of
creditor's rights and the availability of equitable
remedies.
7.1.2. Governmental Approvals. No approval or consent
of, or filing with, any governmental agency or authority is
required to make valid and legally binding the execution,
delivery and performance of this Agreement and consummation
of the transactions between the parties hereto contemplated
hereby.
7.1.3. Subsidiaries. Attached hereto as Schedule 2 is
a schedule which correctly identifies all present
Subsidiaries. All of the issued and outstanding shares of
stock of each Subsidiary have been validly issued and are
fully paid and non-assessable and, except for directors'
qualifying shares and as otherwise noted on Schedule 2
hereto, are owned by the Company or a Subsidiary free and
clear of any mortgage, pledge, lien, encumbrance, charge or
restriction on transfer. Except as described on Schedule 2
hereto, no rights to subscribe to additional shares of stock
of any Subsidiary have been granted to any entity other than
the Company or any majority-owned Subsidiary.
7.1.4. Compliance with Other Instruments. Neither the
Company nor any Subsidiary is in material default under any
provisions of its charter, other incorporation papers,
by-laws or stock provisions or any amendment thereof.
7.1.5. Litigation Except as disclosed in the Company's
reports filed with the Securities and Exchange Commission on
Forms 10-K for the fiscal year ended December 31, 1993 and
10-Q for the fiscal quarter ended April 2, 1994 (copies of
which have been provided to the Banks on or prior to the
date hereof), no action, suit, investigation or proceeding
is pending or known to be threatened against the Company or
any Subsidiary before any court or administrative agency
which, by itself or taken together with other such
litigation, could reasonably be expected to have a material
adverse effect upon the business or financial condition of
the Company and its Subsidiaries on a Consolidated basis.
7.1.6. Financial Statements. The Company has
heretofore furnished to the Agent (with copies for each of
the Banks) a Consolidated balance sheet, income statements,
and statements of cash flow as of and for the fiscal years
ended December 31, 1993, audited and reported upon by
Coopers & Lybrand, independent public accountants. Such
balance sheet, income statements and statements of cash flow
present fairly the financial condition and results of
operations of the Company and its Subsidiaries as of the
dates and for the periods indicated. Such balance sheet,
together with the notes thereto, discloses all material
liabilities, direct or contingent, of the Company and its
Subsidiaries as of the date thereof. The financial
statements referred to in this Section 7.1.6 have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis.
7.1.7. Changes. Since the date of the latest
financial statements delivered by the Company pursuant to
Section 8.7 hereof, there has been no change in the assets,
liabilities, financial condition or business of the Company
and its Subsidiaries on a Consolidated basis, other than
changes the effect of which has not been in any case, or in
the aggregate, materially adverse.
7.1.8. Business. The Company and its Subsidiaries
have good and marketable title to their properties and
assets, including such properties and assets as are
reflected in the Consolidated balance sheets referred to in
Section 7.1.6 hereof or acquired after the date hereof
(subject to liens, defects in title or other encumbrances
permitted under Section 9.1 hereof) except for those properties and
assets disposed of since that date. The Company and each
Subsidiary owns or possesses the right to own all the
franchises, rights and licenses necessary for the conduct of
its business as now conducted in all material respects on a
Consolidated basis.
7.1.9. Taxes. All federal, state and other tax
returns of the Company and the Subsidiaries required by law
to be filed have been filed, and all federal, state and
other taxes, assessments and other governmental charges upon
the Company and the Subsidiaries or their properties which
as shown thereon to be due have been paid except such of
those items as are being in good faith appropriately
contested by the Company or such Subsidiary, and as to which
appropriate reserves (in accordance with generally accepted
accounting principles) have been set aside on the Company's
or such Subsidiary's books. The Company has set aside on
its books provisions reasonably adequate for the payment of
all taxes for periods which have elapsed subsequent to the
periods for which such returns have been filed.
7.1.10. No Defaults. No event has occurred and is
continuing and no condition exists which constitutes a
Default or an Event of Default.
7.1.11. Regulation U. (a) Neither the Company nor any
of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit
for the purpose of purchasing or carrying Margin Stock; (b)
no part of the proceeds of the Advances will be used,
directly or indirectly, and whether immediately,
incidentally or ultimately for any purpose which entails a
violation of, or which is inconsistent with, the provisions
of any of the regulations of the Board including, without
limitation, Regulations G, T, U and X thereof; and (c) on
the date of and after giving effect to each Advance, the
Company and its Subsidiaries on a Consolidated basis will
not beneficially own any Excess Margin Stock in an amount
greater than the value (as determined in accordance with the
provisions of Regulation U of the Board) of Permitted Margin
Stock.
7.1.12. Pension Plans. The Company and each ERISA
Affiliate is in compliance in all material respects with
those provisions of ERISA and the regulations and published
interpretations thereunder which are applicable to the
Company and each ERISA Affiliate. As of the date hereof, no
Reportable Event has occurred with respect to any Plan or
Plans as to which the Company or any ERISA Affiliate was
required to file a report with the Pension Benefit Guaranty
Corporation, and no material unfunded benefit liabilities
exist under any Plan.
7.1.13. Investment Company; Public Utility Holding
Company. Neither the Company nor any Subsidiary is an
"investment company" or a "company controlled" by an
"investment company" or an "affiliate" of an "investment
company" within the meaning of the Investment Company Act of
1940, as amended. Neither the Company nor any Subsidiary is
a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms
are defined in the Public Utility Holding Company Act of
1935, as amended.
7.2. Representations and Warranties of Each Borrowing
Subsidiary. Each Borrowing Subsidiary shall be deemed by
the execution and delivery of its election to become a
Borrowing Subsidiary to have represented and warranted to
the Banks as of the date thereof as follows:
7.2.1. Organization, Good Standing, Authority etc. It
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation, (b) has all requisite corporate power to own
its property and conduct its business as now conducted and
(c) to the best of its knowledge, is duly qualified to do
business and in good standing as a foreign corporation in
each jurisdiction where the nature of its property or
business requires such qualification except where the
failure to so qualify or be in good standing will not have a
materially adverse effect on the Company and its
Subsidiaries on a Consolidated basis. The execution,
delivery and performance of its election to become a
Borrowing Subsidiary, and the performance of its obligations
thereunder and under the provisions of this Agreement
applicable to it are within the corporate authority of such
Borrowing Subsidiary, have been duly authorized by all
necessary corporate proceedings, and do not and will not
contravene any provisions of its charter, other
incorporation papers, by-laws or any stock provision or any
amendment thereof, or, to the best of its knowledge, any
provisions of law or any indenture, agreement, instrument or
undertaking binding upon it. The execution, delivery and
performance of its election to become a Borrowing Subsidiary
will result in valid and legally binding obligations of such
Borrowing Subsidiary, enforceable against it in accordance
with the terms and provisions thereof and hereof, except as
limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
generally the enforcement of creditor's rights and the
availability of equitable remedies.
7.2.2. Governmental Approvals. No approval or consent
of, or filing with, any governmental agency or authority
(which has not already been obtained) is required to make
valid and legally binding the execution, delivery and
performance of the election to become a Borrower and this
Agreement and consummation of the transactions contemplated
hereby.
7.2.3. Borrowing Subsidiary. It qualifies as a
Borrowing Subsidiary under this Agreement.
7.2.4. Investment Company; Public Utility Holding
Company. Such Borrowing Subsidiary is not an "investment
company" or a "company controlled" by an "investment
company" or an "affiliate" of an "investment company" within
the meaning of the Investment Company Act of 1940, as
amended. Such Borrowing Subsidiary is not a "holding
company", or a "subsidiary company" of a "holding company",
or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined
in the Public Utility Holding Company Act of 1935, as
amended.
Section 8. CERTAIN AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, so long as any
amounts are owing with respect to this Agreement or any Bank
shall have a Commitment hereunder, the Company will (and to
the extent applicable to any Subsidiary, will insure like
compliance by each such Subsidiary):
8.1. Punctual Payment. Duly and punctually pay or
cause to be paid the principal of and interest and all other
sums due under this Agreement in accordance with the terms
hereof.
8.2. Conduct of Business. (1) Comply with the
requirements of all applicable laws, rules, regulations and
orders of any governmental authority of the United States of
America or any political subdivision thereof or any other
jurisdiction to which the Company or any of its Subsidiaries
may be subject, a violation of which could reasonably be
anticipated to have a material adverse effect on the
business, assets, operations or condition (financial or
otherwise) of the Company and its Subsidiaries on a
Consolidated basis, (2) at all times do or cause to be done
all things necessary to preserve, renew and keep in full
force and effect the rights, licenses, permits, franchises,
patents, copyrights, trademarks and trade names material to
the conduct of its business and the businesses of its
Subsidiaries; provided that the foregoing shall not be
construed to prohibit disposal by the Company or any of its
Subsidiaries of any thereof if such disposal could not
reasonably be anticipated to have a material adverse effect
on the business, assets, operations or condition (financial
or otherwise) of the Company and its Subsidiaries on a
Consolidated basis, and (3) maintain and operate its
businesses (on a Consolidated basis) in substantially the
manner in which they are presently conducted and operated.
8.3. Taxes, etc. Except where failure to do so could
not reasonably be expected to have a material adverse effect
on the Company and its Subsidiaries on a Consolidated basis,
duly pay and discharge, or cause to be paid and discharged,
before the same shall become in arrears, all taxes,
assessments and other governmental charges imposed upon it
and its properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as
all claims for labor, materials, or supplies which if unpaid
might by law become a lien or charge upon any of its
property, except such of those items as are being in good
faith appropriately contested by it.
8.4. Maintenance of Properties. Except where failure
to do so could not reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries on a
Consolidated basis, maintain and keep the properties used or
deemed by it to be useful in its business in good repair,
working order and condition, and make or cause to be made
all needful and proper repairs thereto and replacements
thereof.
8.5. Maintenance of Insurance. Maintain with
financially sound and reputable insurers, insurance,
including specifically product liability insurance, with
respect to properties and business of the Company and the
Subsidiaries against such casualties and contingencies and
in such types and amounts as shall be in accordance with
reasonable business practices.
8.6. Records and Accounts. Keep true records and
books of account in which full, true and correct entries
will be made and maintain appropriate accounts and reserves
for all taxes (including income taxes), all depreciation,
depletion, obsolescence and amortization of its properties,
all other contingencies, and all other proper reserves, all
in accordance with generally accepted accounting principles.
8.7. Financial Statements. Furnish to the Banks:
(a) as soon as practicable and in any event within 60
days after the end of each of the first three quarterly
periods of each fiscal year of the Company, consolidated
balance sheets of the Company and the Subsidiaries as at the
end of such period and the previous fiscal quarter, and
Consolidated income statements and statements of cash flow
of the Company and the Subsidiaries for the period from the
beginning of the current fiscal year to the end of such
period, all in reasonable detail, prepared in accordance
with generally accepted accounting principles applied on a
consistent basis except as otherwise disclosed, subject to
changes resulting from audit and year-end adjustments, by
the principal financial officer of the Company as such
financial statements shall appear in the Company's quarterly
reports on Form 10-Q filed with the Securities and Exchange
Commission;
(b) as soon as practicable and in any event within 90
days after the end of each fiscal year a Consolidated
balance sheet of the Company and the Subsidiaries as at the
end of such year, and Consolidated income statements and
statements of cash flow, and, stockholders' equity of the
Company and the Subsidiaries for such year, setting forth in
comparative form the figures for the previous fiscal year,
all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a
consistent basis except as otherwise disclosed, and
accompanied by a report and opinion of Coopers & Lybrand,
certified public accountants, or other independent certified
public accountants of internationally recognized standing
selected by the Company which opinion and report shall have
been prepared in accordance with generally accepted auditing
standards, as such financial statements shall appear in the
Company's annual report on Form 10-K filed with the
Securities and Exchange Commission;
(c) promptly upon their becoming available, copies of
all financial statements, reports, notices and proxy
statements sent by the Company to its stockholders
generally, and of all regular and periodic reports filed by
the Company or any Subsidiary with any securities exchange
or with the Securities and Exchange Commission or any
governmental authority succeeding to any or all of the
functions of said Commission except for information so filed
but not available for public inspection (unless such
information is adverse and material in amount with respect
to the Consolidated financial condition or business of the
Company and its Subsidiaries);
(d) from time to time any such information regarding
the business and financial condition of the Company and the
Subsidiaries as may reasonably be requested by the Agent;
and
(e) if the Company shall at any time obtain knowledge
of the existence of any Default or Event of Default, the
Company shall forthwith deliver to the Banks a certificate
specifying the nature and period of existence thereof and
what action the Company proposes to take with respect
thereto.
At the time of each delivery of financial statements
pursuant to paragraphs (a) and (b) of this Section 8.7, the Company
shall furnish a certificate (a "Compliance Certificate") of
the Vice President of Finance or the President, any Vice
President, or the Treasurer of the Company (substantially in
the form of Exhibit G hereto).
8.8. Inspection. Permit any officer or employee
designated by any Bank, at such Bank's expense, to visit and
inspect any of its properties and to examine its books and
discuss the business, finances and accounts of the Company
or any Subsidiary with its officers, all at such reasonable
times, to a reasonable extent, in a reasonable manner and as
often as any Bank may reasonably request. All information
and documents concerning the Company, any Borrowing
Subsidiary or any other Subsidiary supplied by the Company
and/or the Borrower to the Banks and designated as
confidential in connection with any inspection hereunder
shall be held in confidence by the Banks and the Banks shall
not disclose such information and documents, except that the
Borrower and the Company hereby authorize the Banks to
disclose any information obtained pursuant to this Agreement
(a) to any bank regulatory authority, (b) to any independent
auditor of the Bank, provided that such independent auditors
(other than governmental bank examiners) enter into a
confidentiality agreement substantially similar to the
Banks' agreement in this Section 8.8, (c) to all other appropriate
governmental regulatory authorities or courts of competent
jurisdiction to the extent required or subpoenaed, and to
other appropriate Persons to the extent required by
applicable law or legal process, but only (in each case) to
the extent permitted by applicable laws and regulations,
including those applying to classified material, and (d) to
any other of the Banks or to any such Bank's counsel.
8.9. Notice of Litigation. Promptly give notice in
writing to the Agent of the commencement of, and any
material determination in, all litigation and arbitration
not substantially covered by effective insurance and all
proceedings before any governmental or regulatory agencies
affecting the Company or any Subsidiary, except litigation,
arbitration or proceedings which, if adversely determined,
could not reasonably be anticipated to have a material
adverse effect on the business, assets, operations or
condition (financial or otherwise) of the Company and its
Subsidiaries on a Consolidated basis.
8.10. Further Assurances. Cooperate with the Agent
and take such action and execute such further certificates,
opinions and other documents as the Agent shall reasonably
request to carry out to the Agent's reasonable satisfaction
the terms of this Agreement.
8.11. Borrowing Subsidiaries. (a) Permit only a
Wholly-owned Subsidiary, which will be qualified as a
Borrowing Subsidiary as defined in this Agreement, to
execute and deliver an election to become a Borrowing
Subsidiary and to request Advances from the Banks, and (b)
maintain a majority ownership interest or, with the prior
written consent of the Majority Banks, a minority ownership
interest, whether directly or indirectly, free and clear of
all liens and encumbrances, in each Borrowing Subsidiary.
8.12. ERISA. (a) Comply in all material respects with
the applicable provisions of ERISA and (b) furnish to the
Agent (i) as soon as possible, and in any event within 30
days after any officer of the Company knows or has reason to
know that there has occurred any Reportable Event with
respect to any Plan, a statement of an officer of the
Company, setting forth details as to such Reportable Event
and the action which the Company proposes to take with
respect thereto, together with a copy of the notice of such
Reportable Event given to the Pension Benefit Guaranty
Corporation if any notice is required to be given to the
Pension Benefit Guaranty Corporation, (ii) within 10 days
after a filing with the Pension Benefit Guaranty
Corporation, pursuant to Section 412(n) of the Code, of a
notice of failure to make a required installment or other
payment with respect any Plan, a statement of a financial
officer of the Company setting forth details as to such
failure and the action that the Company proposes to take
with respect thereto, together with a copy of such notice
given to the Pension Benefit Guaranty Corporation, (iii)
promptly after receipt thereof, a copy of any notice the
Company may receive from the Pension Benefit Guaranty
Corporation relating to the intention of the Pension Benefit
Guaranty Corporation to terminate any Plan or Plans, or to
appoint a trustee to administer any Plan or Plans and (iv)
promptly after receipt by the Company of a notice of
complete or partial withdrawal liability from the sponsor of
a Multiemployer Plan, a copy of such notice together with
the statement of a financial officer of the Company setting
forth details of such withdrawal and action proposed to be
taken with respect thereto.
8.13. Ownership of Subsidiaries. At all times keep
each of its Subsidiaries as a majority-owned Subsidiary,
directly or indirectly, and shall not, nor permit any
Subsidiary to, sell, transfer or otherwise dispose of such
securities convertible into, or options, warrants or rights
to subscribe for or purchase any shares of, any of its
Subsidiaries as would, upon conversion or exercise of any or
all thereof (regardless of whether any are then convertible
or exercisable), cause the Company to own directly or
indirectly less than a majority of all the issued and
outstanding shares of such Subsidiary; provided that the
Company may, and may permit any Subsidiary to, from time to
time sell, transfer or otherwise dispose of shares, or such
securities, options, warrants or rights, of any Subsidiary
so as to cause such result if immediately thereafter the
aggregate net worth (as to each such sale, transfer or
disposition at the time thereof and as shown on the
Consolidated books of the Company maintained in accordance
with this Agreement) of all Subsidiaries as to which any
such sale, transfer or other disposition shall have taken
place after the date of this Agreement would be permitted if
treated as an asset sale pursuant to Section 9.2(d) hereof.
Section 9. CERTAIN NEGATIVE COVENANTS. So long as any amounts are
outstanding hereunder or any Bank shall have a Commitment
hereunder:
9.1. Liens. The Company will not and will not permit
any Subsidiary to incur, create, assume or permit to exist
any lien on any of its property or assets (including the
stock of any direct or indirect Subsidiary), whether owned
at the date hereof or hereafter acquired, or assign or
convey any rights to or security interest in any future
revenues (other than license or royalty obligations incurred
by the Company in the ordinary course of its business),
except:
(a) liens incurred and pledges and deposits made in
the ordinary course of business in connection with workmen's
compensation, unemployment insurance, old-age pensions and
other social security benefits;
(b) liens securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed
money), statutory obligations, surety, customs and appeal
bonds and other obligations of like nature, incurred as an
incident to and in the ordinary course of business;
(c) liens imposed by law, such as carriers',
warehousemen's, mechanics', materialmen's and vendors'
liens, incurred in good faith in the ordinary course of
business and securing obligations which are not yet due or
which are being contested in good faith by appropriate
proceedings and as to which the Company or a Subsidiary, as
the case may be, shall, to the extent required by generally
accepted accounting principles applied on a consistent
basis, have set aside on its books adequate reserves;
(d) liens securing the payment of taxes, assessments
and governmental charges or levies, either (i) not
delinquent or (ii) being contested in good faith by
appropriate legal or administrative proceedings and as to
which the Company or a Subsidiary, as the case may be,
shall, to the extent required by generally accepted
accounting principles applied on a consistent basis, have
set aside on its books adequate reserves;
(e) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities
of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising
by, through or under a landlord or owner of the leased
property, with or without consent of the lessee) which do
not in the aggregate materially detract from the value of
its property or assets or materially impair the use thereof
in the operation of its business;
(f) liens upon any real property acquired or improved
by the Company or a Subsidiary which are created or incurred
contemporaneously with, or within six months after, such
acquisition or improvement to secure or provide for the
payment of any part of the purchase price of such real
property or the cost of such improvement (but no other
amounts); provided that no such lien shall apply to any
property of the Company or any Subsidiary except such real
property;
(g) liens on property of the Company or a Subsidiary
existing at the time such property is acquired by the
Company or a Subsidiary, or on property of another person
existing at the time such person becomes a Subsidiary;
provided that such liens were not created in contemplation
of the acquisition by the Company or such Subsidiary of such
property or such person;
(h) liens on the property or assets of any Subsidiary
in favor of the Company or a Wholly-owned Subsidiary;
(i) liens on real property existing on the date hereof
and listed on Schedule 3 hereto;
(j) liens on the real property described in Schedule
4; provided that such liens shall not secure any Debt at any
time in excess of 100% of the fair market value of such
property at such time, as reasonably determined by
independent appraisal;
(k) liens consisting of the sale-leaseback
arrangements with respect to certain computer equipment
permitted by Section 9.2(c)(i) hereof;
(l) liens on Excess Margin Stock; and
(m) extensions, renewals and replacements of liens
referred to in paragraphs (a) through (l), provided that any
such extension, renewal or replacement lien shall be limited
to the property or assets covered by the lien extended,
renewed or replaced and that the obligations secured by any
such extension, renewal or replacement lien shall be in an
amount not greater than the amount of the obligations
secured by the lien extended, renewed or replaced.
9.2. Merger, Consolidation or Sale of Assets, etc.
Neither the Company nor any Subsidiary will consolidate with
or merge into any other person, or sell, lease, transfer or
assign to any person or otherwise dispose of (whether in one
transaction or a series of transactions) all or any material
portion of its assets (whether now owned or hereafter
acquired), other than inventory sold in the ordinary course
of business upon customary credit terms, or permit another
person to merge into it, or acquire all or substantially all
the capital stock or assets of any other person, except that
(so long as immediately thereafter and after giving effect
thereto no Event of Default has occurred and is continuing)
from time to time:
(a) any person may be merged with or into or
consolidated with the Company or any Subsidiary in a
transaction in which the surviving entity is the Company or
a Subsidiary,
(b) the Company or any Subsidiary may acquire all or
substantially all the capital stock or assets of another
Person,
(c) the Company or any Subsidiary may sell in order to
lease back (i) computer equipment having an aggregate
Consolidated net book value (as to each such sale at the
time thereof and as shown on the Consolidated books of the
Company maintained in accordance with this Agreement) not
exceeding $30,000,000 and (ii) property described in
Schedule 4 hereto,
(d) in addition to the foregoing, the Company or any
Subsidiary may sell, lease, transfer or assign
(i) material tangible assets, net of any accompanying
liabilities other than accounts receivable and contracts,
which may be sold in accordance with subsection 9.2(d)(ii)
below, if and only to the extent that immediately thereafter
the aggregate net book value (as to each such sale at the
time thereof and as shown on the Consolidated books of the
Company maintained in accordance with this Agreement) of all
such net assets so sold after the date of this Agreement
would not exceed the greater of fifteen percent (15%) of
Consolidated Tangible Assets or $75,000,000, and
(ii) contracts and accounts receivable pursuant to
Third-Party Financing Arrangements in the ordinary course of
business, so long as the aggregate face amount of all such
contracts and receivables sold in any quarter shall not
exceed thirty-five percent (35%) of the total sales of the
Company for the prior fiscal quarter of the Company.
9.3. Minimum Consolidated Net Worth. The Company will
not permit Consolidated Net Worth at any time to be less
than an amount equal to the sum of (a) $325,000,000, plus
(b) 50% of positive Consolidated Net Income, if any, for
each fiscal quarter ending during the period commencing with
the fiscal quarter ending July 2, 1994 to such time, plus
(c) 100% of the proceeds of any sale after the date hereof
by the Company of (i) equity securities issued by the
Company, or (ii) warrants or subscription rights for equity
securities issued by the Company.
9.4. Maximum Consolidated Debt to Consolidated Net
Worth Ratio. The Company will not permit its Consolidated
Debt to exceed 45% of Consolidated Net Worth at any time;
provided that for the purpose of this paragraph only
Consolidated Debt shall not include (i) Debt which is not a
personal liability of the Company or a Subsidiary and has
recourse only to specified assets, and not the general
assets, of the Company or any Subsidiary and Debt of any
Subsidiary that has no material business other than
financing by means of such Debt (herein called "Non-recourse
Debt"), (ii) Capitalized Lease Obligations which are not a
personal liability of the Company or a Subsidiary and which
have recourse only to the assets which are the subject of
the related Capitalized Lease, (iii) Consolidated Current
Debt not in excess of $10,000,000, or (iv) contingent
obligations of the Company or any Subsidiary for the benefit
of employees so long as each such contingent obligation is
approved by the Board of Directors of the Company and the
aggregate amount of such contingent obligations does not
exceed $20,000,000.
Section 10. GUARANTY.
10.1. Guaranty. For value received and hereby
acknowledged and as an inducement to the Banks to make
Advances to the Borrowing Subsidiaries, the Company hereby
unconditionally and irrevocably guarantees: (a) the full
punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of each
Borrowing Subsidiary now or hereafter existing hereunder
whether for principal, interest, fees, expenses or
otherwise, and (b) the strict performance and observance by
each such Borrowing Subsidiary of all agreements, warranties
and covenants in this Agreement applicable to each such
Borrowing Subsidiary (such obligations collectively being
the "Guaranteed Obligations").
10.2. Guaranty Absolute. The Company guarantees that
the Guaranteed Obligations will be paid strictly in
accordance with the terms hereof, regardless of any law,
regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of
the Banks with respect thereto. The liability of the
Company under this guaranty with regard to the Guaranteed
Obligations of each Borrowing Subsidiary shall be absolute
and unconditional irrespective of:
(a) any lack of validity or enforceability or any
illegality of such Borrowing Subsidiary's election to become
a Borrowing Subsidiary, this Agreement and any amendment
hereof (with regard to such Guaranteed Obligations), or any
other obligation, agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Guaranteed
Obligations of such Borrowing Subsidiary or any other
amendment or waiver of or any consent to departure from this
Agreement (with regard to such Guaranteed Obligations);
(c) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any other guaranty, for all or any
of the Guaranteed Obligations of such Borrowing Subsidiary;
(d) any change in ownership of such Borrowing
Subsidiary;
(e) any acceptance of any partial payment(s) from such
Borrowing Subsidiary; or
(f) any other circumstance, other than payment, which
might otherwise constitute a defense available to, or a
discharge of, such Borrowing Subsidiary in respect of its
Guaranteed Obligations.
This guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment
of any Guaranteed Obligation is rescinded or must otherwise
be returned by the Banks upon the insolvency, bankruptcy or
reorganization of any Borrowing Subsidiary or otherwise, all
as though such payment had not been made.
10.3. Effectiveness, Enforcement. The guaranty herein
of the Company shall be effective and shall be deemed to be
made with respect to each Advance made to a Borrowing
Subsidiary as of the time it is made. No invalidity,
irregularity or unenforceability by reason of any bankruptcy
or similar law, or any law or order of any government or
agency thereof purporting to reduce, amend or otherwise
affect any liability of a Borrowing Subsidiary, and no
defect in or insufficiency or want of powers of any
Borrowing Subsidiary or irregular or improperly recorded
exercise thereof, shall impair, affect, be a defense to or
claim against such guaranty. This guaranty is a continuing
guaranty and shall (a) survive any termination of this
Agreement and (b) remain in full force and effect until
payment in full and performance of all Guaranteed
Obligations and all other amounts payable under this
guaranty. This guaranty is made for the benefit of the
Banks and their respective successors and assigns, and may
be enforced from time to time as often as occasion therefor
may arise and without requirement on the part of any Bank
first to exercise any rights against any Borrowing
Subsidiary or to exhaust any remedies available to it
against any Borrowing Subsidiary or to resort to any other
source or means of obtaining payment of any of the
Guaranteed Obligations or to elect any other remedy. In
the event that acceleration of the time for payment (or the
giving of notice of such acceleration) of the Guaranteed
Obligations of any Borrowing Subsidiary is stayed upon the
insolvency, bankruptcy or reorganization of such Borrowing
Subsidiary or for any other reason, all such amounts
otherwise subject to acceleration under the terms of this
Agreement shall be immediately due and payable by the
Company under the guaranty herein provided.
10.4. Waiver. The Company hereby waives promptness,
diligence, protest, notice of protest, all suretyship
defenses, notice of acceptance and any other notice with
respect to any of the Guaranteed Obligations and this
guaranty and any requirement that the Banks secure, perfect
or protect any security interest or lien or any property
subject thereto or exhaust any right or take any action
against any Borrowing Subsidiary or any other person or any
collateral. The Company also irrevocably waives, to the
fullest extent permitted by law, all defenses which at any
time may be available to it in respect of the Guaranteed
Obligations by virtue of any statute of limitations,
valuation, stay, moratorium law or other similar law now or
hereafter in effect.
10.5. Subrogation. The Company will not exercise any
rights which it may acquire by way of subrogation under this
guaranty as to a defaulting Borrowing Subsidiary, by any
payment made hereunder or otherwise, until all the
Guaranteed Obligations of such Borrowing Subsidiary shall
have been irrevocably paid in full. If any amount shall be
paid by such defaulting Borrowing Subsidiary to the Company
on account of such subrogation rights at any time when all
the Guaranteed Obligations of such Borrowing Subsidiary
shall not have been paid in full, such amount shall be held
in trust for the benefit of the Banks and shall forthwith be
paid to the Banks to be credited and applied upon the
Guaranteed Obligations of such Borrowing Subsidiary, whether
matured or unmatured, in accordance with the terms of this
Agreement.
10.6. Payments. All payments made by the Company
pursuant to this Section 10 in respect of any Advances made to any
Borrowing Subsidiary shall be made in the same currency in
which such Advance was made.
Section 11. EVENTS OF DEFAULT; ACCELERATION.
If any of the following events shall occur and be
continuing:
(a) Principal. If any Borrower shall default in any
payment of any principal amount outstanding hereunder when
the same shall become due and payable, whether at maturity
or at any date fixed for payment or prepayment or by
declaration or otherwise other than due to a failure of the
Agent to charge an account of such Borrower having a
sufficient collected credit balance; or
(b) Interest and Fees. If any Borrower shall fail to
pay any interest with respect to principal outstanding
hereunder or fail to pay any Facility Fee or any other fee
payable pursuant to Section 5 hereof within three (3) Business Days
after the due date thereof, whether at maturity or at any
date fixed for payment or prepayment or by declaration or
otherwise other than due to a failure of the Agent to charge
an account of such Borrower having a sufficient credit
balance; or
(c) Negative Covenants and Guaranty. If any Borrower
shall default in the performance of or compliance with (i)
any term contained in any of Sections 9.2, 9.3, 9.4, or 10 hereof,
or (ii) any term contained in Section 9.1 hereof as a result of
liens or security interests with respect to any property or
assets of the Company or any Subsidiary having an aggregate
net book value at such time exceeding the Threshold Lien
Amount; or
(d) Other Covenants. If any Borrower shall default in
the performance of or compliance with (i) any term contained
in Sections 8 or 9.1 (other than as set forth in Section 11(c) hereof),
and such default shall not have been remedied within
fourteen (14) days after written notice thereof shall have
been given to such Borrower by the Agent, or (ii) any term
contained herein other than those referred to above in this
Section 11, and such default shall not have been remedied within
thirty (30) days after written notice thereof shall have
been given to such Borrower by the Agent; or
(e) Representations and Warranties. If any
representation or warranty made in writing by or on behalf
of any Borrower herein or in connection with any of the
transactions contemplated hereby shall prove to have been
false or incorrect in any material respect on the date as of
which made, provided that, if any representation or warranty
proves to have been false or incorrect in any material
respect, such event shall not constitute an "Event of
Default" hereunder if, in the Majority Banks' reasonable
judgment, such event is capable of being remedied, and it is
remedied within fourteen (14) days after written notice
thereof shall have been given to the Company and, in the
case of a Borrowing Subsidiary, such Borrowing Subsidiary,
by the Agent; or
(f) Cross Default. If the Company or any Subsidiary
shall default (as principal or guarantor or other surety
and, in the case of any Subsidiary, such default shall not
have been cured within two (2) Business Days) in the payment
of any principal or premium, if any, or interest on any
other Debt to the Banks, or any other Debt in respect of
borrowed money or credit received or in respect of any
Capitalized Leases having an outstanding principal amount
equal to $10,000,000 or more in the aggregate, or if the
Company or any Subsidiary shall fail to comply with any of
the material terms of any evidence of such Debt or any
mortgage, pledge, assignment, indenture or other agreement
relating thereto, if as a consequence thereof the holder of
such Debt shall have the right to declare all amounts
payable with respect thereto to be due and payable by reason
of such default; or
(g) Declaration of Bankruptcy. If the Company or any
Subsidiary makes an assignment for the benefit of creditors,
or petitions or applies for the appointment of a trustee,
custodian, liquidator or receiver of the Company or any
Subsidiary or of any substantial part of the assets of the
Company or such Subsidiary or commences any proceeding
relating to the Company or such Subsidiary under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect; or
(h) Undischarged Petitions. If any such petition or
application is filed or any such proceeding is commenced
against the Company or any Subsidiary, and the Company or
such Subsidiary indicates its approval thereof, consent
thereto or acquiescence therein or any petition, application
or proceeding remains undischarged for forty-five (45) days,
or an order is entered appointing any such trustee,
custodian, liquidator or receiver, or adjudicating the
Company or any Subsidiary bankrupt or insolvent, or
approving a petition in any such proceeding; or
(i) Dissolution. If any order is entered in any
proceeding by or against the Company or any Subsidiary
decreeing or permitting the dissolution or split-up of the
Company or any Subsidiary or the winding-up of its affairs,
except that the Company may dissolve any Subsidiary (other
than a Borrowing Subsidiary owing any amounts under this
Agreement at such time) not necessary, in the Company's
judgment, to the ongoing conduct of the Company's business;
or
(j) Judgments. If there shall be in force,
undischarged, unsatisfied and unstayed, for more than thirty
(30) days, whether or not consecutive, any final judgment
against the Company or any Subsidiary which is materially
adverse to the Company and its Subsidiaries on a
Consolidated basis; or
(k) Reportable Event. If a Reportable Event shall
have occurred with respect to any Plan with respect to which
the "amount of unfunded benefit liabilities" (as defined in
Section 4001(a)(18) of ERISA) exceeds $1,000,000 and, within
thirty (30) days after the reporting of such Reportable
Event to the Majority Banks, the Majority Banks shall have
notified the Company or any ERISA Affiliate in writing that
(i) the Majority Banks have made a determination that, on
the basis of such Reportable Event, there are reasonable
grounds for the termination of such Plan by the Pension
Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to
administer such Plan and (ii) as a result thereof an Event
of Default exists hereunder; or a trustee shall be appointed
by a United States District Court to administer any such
Plan; or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any Plan; or
(l) Withdrawal Liability. If the Company or any ERISA
Affiliate (i) shall have been notified by the sponsor of a
Multiemployer Plan that it has incurred withdrawal liability
to such Multiemployer Plan, (ii) either does not have
reasonable grounds for contesting such withdrawal liability
or does not in fact contest such withdrawal liability in a
timely and appropriate manner, and (iii) the amount of such
withdrawal liability specified in such notice, when
aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with withdrawal
liabilities (determined as of the date of such
notification), requires payments exceeding $1,000,000 per
annum; or
(m) Unenforceability of Agreement. If either the
Agent or any Bank, on the advice of independent counsel, or
any court of competent jurisdiction, shall determine that
this Agreement or any part hereof shall for any reason have
ceased to be, or this Agreement or any part hereof shall be
asserted by any Borrower not to be, a legal, valid and
binding obligation of such Borrower, enforceable in
accordance with its terms; or
(n) Performance of Agreement Unlawful. If it shall be
unlawful for any Borrower to perform or comply with any one
or more of its obligations under this Agreement.
then and in any such event the Agent may, and upon written
request of the Majority Banks, shall, by written notice to
the Borrower, and if the Borrower is a Borrowing Subsidiary,
the Company, declare: (1) the obligation of each Bank to
make Advances to the Borrowers to be terminated, whereupon
the same shall terminate, and/or (2) the right of any
Subsidiary to become a Borrowing Subsidiary shall terminate,
and/or (3) the principal amount of the Loan Accounts, all
interest thereon and all other amounts payable under this
Agreement and the Notes to be forthwith due and payable,
whereupon the same shall become and be forthwith due and
payable without presentment, demand, protest or notice, all
of which are hereby expressly waived by each of the
Borrowers; provided that, if any of the events described in
clauses (g), (h) or (i) above shall occur, and if such event
involves the Company or a Borrowing Subsidiary (rather than
a non-Borrowing Subsidiary) that at such time owes any
amounts hereunder, the actions described in clauses (1), (2)
and (3) above shall occur automatically without requests by
the Banks, notice to the Company or such Borrowing
Subsidiary, or declaration by the Agent.
Section 12. SETOFF; PRO RATA SHARING.
(a) (i) Regardless of the adequacy of any collateral, any
deposits or other sums credited by or due from any of the
Banks to any Borrower may be appropriately applied to or set
off against any principal, interest and any other amounts
due hereunder from such Borrower, by the Banks at any time
without notice to such Borrower or compliance with any other
condition precedent now or hereafter imposed by statute,
rule of law or otherwise (all of which are hereby expressly
waived by each Borrower).
(ii) Each Bank agrees with each other Bank that (A) if an
amount to be set off is to be applied to indebtedness of a
Borrower hereunder to a Bank, other than the indebtedness
evidenced by this Agreement, such amount shall be applied
ratably to such other indebtedness and to the indebtedness
evidenced by this Agreement, and (B) if a Bank shall receive
from any Borrower or from the Company with respect to such
Borrower, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of
the claim evidenced by this Agreement by proceedings against
such Borrower or enforcement of any claim against the
Company in respect of its guaranty, in either case whether
at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar
proceedings, or otherwise, and shall retain and apply to the
payment of the indebtedness to it hereunder of such
Borrower, any amount in excess of such Bank's ratable
portion of the payments received by all of the Banks in
accordance with Sections 12(b) hereof, such Bank will promptly make
such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, pro
tanto assignment of claims, subrogation or otherwise as
shall result in each Bank receiving in respect of the
indebtedness to it hereunder of such Borrower such Bank's
proportionate payment in accordance with Sections 12(b); provided,
however, that if all or any part of such excess payment is
thereafter recovered from such Bank, such disposition and
arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
(b) Except as otherwise expressly provided in this
Agreement (i) each payment or prepayment of principal by a
Borrower and each payment of interest by a Borrower with
respect to a Syndicated Advance shall be allocated pro rata
among the Banks in accordance with the respective principal
amounts of the Syndicated Advances extended by each Bank,
(ii) each payment or prepayment of principal by a Borrower
and each payment of interest by a Borrower with respect to a
Money Market Advance shall be allocated pro rata among the
Banks having made such Money Market Advance in accordance
with the respective principal amounts of the Money Market
Advances extended by each such Bank, (iii) each cancellation
of the Commitments shall be made pro rata among the Banks in
accordance with their respective Commitments on the date
hereof, and (iv) recoveries by any Bank (whether by direct
payment, by exercise of any right of set-off, combination of
accounts, or lien or otherwise (but excluding any payments
of principal or interest made by any Borrower pursuant to
and in accordance with the terms of Sections 2.4, 3.2 or 4.4 hereof
which payments shall be applied pursuant to clauses (i) or
(ii) of this Section 12(b), as applicable)) in respect of the total
sum that has become due to it from any Borrower under this
Agreement before that time shall be applied pro rata among
the Banks in accordance with all their respective Advances
outstanding.
Section 13. THE AGENT.
13.1. Authorization. The Agent is authorized to take
such action on behalf of each of the Banks and to exercise
all such powers as are hereunder and in related documents
delegated to the Agent, together with such powers as are
reasonably incidental thereto; provided that no duties or
responsibilities not expressly assumed herein or therein
shall be implied to have been assumed by the Agent. The
relationship between the Agent and the Banks is and shall be
that of agent and principal only, and nothing contained in
this Agreement or any of the other Loan Documents shall be
construed to constitute the Agent as a trustee for any Bank.
13.2. Employees and Agents. The Agent may exercise
its powers and execute its duties by or through employees or
agents and shall be entitled to take, and to rely on, advice
of counsel concerning all matters reasonably pertaining to
its rights and duties under this Agreement. The Agent may
for such purpose utilize the services of such persons as
the Agent in its sole discretion may determine, and all
reasonable fees and expenses of any such persons shall be
paid by the Company.
13.3. No Liability. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other
person assisting them in their duties nor any agent or
employee thereof, shall be liable to the Banks for any
waiver, consent or approval given or any action taken, or
omitted to be taken, in good faith by it or them hereunder,
or in connection herewith or therewith or be responsible to
the Banks for the consequences of any oversight or error of
judgment whatsoever, except that the Agent or such other
person, as the case may be, may be liable for losses due to
its willful misconduct or gross negligence.
13.4. No Representations. The Agent shall not be
responsible for the execution or validity or enforceability
of this Agreement, the Notes, or any instrument at anytime
constituting, or intended to constitute, collateral security
for this Agreement, or for the value of any such collateral
security or for the validity, enforceability or
collectability of any such amounts owing with respect to
this Agreement, or for any recitals or statements,
warranties or representations herein or made in any
certificate or instrument hereafter furnished to it by or on
behalf of any of the Borrowers or be bound to ascertain or
inquire as to the performance or observance of any of the
terms, conditions, covenants or agreements herein or in any
instrument at any time constituting, or intended to
constitute, collateral security for this Agreement. The
Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by any of the
Borrowers shall have been duly authorized or is true,
accurate and complete. The Agent has not made nor does it
now make any representations or warranties, express or
implied, nor does it assume any liability to the Banks with
respect to the creditworthiness or financial conditions of
the Company or any of its Subsidiaries, and each Bank
represents and warrants to the Agent that it has made its
own independent evaluation of the creditworthiness of the
Company and its Subsidiaries and has not relied upon the
Agent or any material or information furnished by the Agent
in making such evaluation.
13.5. Distribution by Agent. If in the opinion of the
Agent the distribution of any amount received by it in such
capacity hereunder might involve it in liability, it may
refrain from making such distribution until its right to
make such distribution shall have been adjudicated by a
court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each person to
whom any such distribution shall have been made shall either
repay to the Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such
manner and to such persons as shall be determined by such
court. With respect to obligations of any of the Borrowers
hereunder, a payment to the Agent for the account of any
Bank shall constitute a payment to such Bank. The Agent
agrees promptly to distribute to each Bank such Bank's
applicable share of payments received by the Agent for the
account of the Banks except as otherwise expressly provided
in this Agreement.
13.6. Agent as Bank. In its individual capacity, FNBB
shall have the same obligations and the same rights, powers
and privileges in respect to its Commitment and the Advances
made by it hereunder, as it would have were it not also the
Agent.
13.7. Holders of Notes; Initial Lenders. The Agent
may deem and treat the payee of any note or the initial
lender of any Advance as the absolute owner thereof for all
purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a
subsequent holder, assignee or transferee.
13.8. Indemnity. The Banks agree hereby to indemnify
and hold harmless the Agent, ratably in accordance with the
outstanding Advances owed to the Banks hereunder, from and
against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Agent has not been
reimbursed by the Borrower as required by Section 14), and
liabilities of every nature and character arising out of or
related to this Agreement, the Notes, or any of the other
Loan Documents or the transactions contemplated or evidenced
hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall
be directly caused by the Agent's willful misconduct or
gross negligence; provided, however, that, in the case of
any loss, cost, or expense within the scope of the Company's
obligations under Section 14.1 or Section 14.11 hereof, the Banks shall
only be required to indemnify the Agent pursuant to the
foregoing indemnity to the extent that the Agent shall not
have been reimbursed by the Company for such loss, cost or
expense pursuant to Section 14.1 or Section 14.11 hereof within five (5)
Business Days after the Agent shall have requested such
reimbursement by the Company.
13.9. Resignation. The Agent may resign at any time
upon sixty (60) days' prior written notice to the Banks and
the Company. In such event, a successor Agent shall be
chosen by the Company, with the appointment of such
successor to be subject to the approval of the Majority
Banks. If no such successor Agent shall have been so chosen
by the Company or if no such approval of the Majority Banks
shall have been obtained with respect to such successor
Agent chosen by the Company, in either event within fifteen
(15) days after the retiring Agent's giving of notice of
resignation, then the Majority Banks shall have the right to
appoint a successor Agent from among the remaining Banks.
If no successor Agent shall have been so appointed pursuant
to the foregoing provisions and shall have accepted such
appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring
Agent may, on behalf of the Banks, appoint a successor
Agent, which shall be a financial institution having a
rating of not less than A or its equivalent by Standard &
Poor's Corporation. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring
Agent's resignation, the provisions of this Agreement and
the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be
taken by it while it was acting as Agent.
13.10. Delinquent Banks. Notwithstanding anything to
the contrary contained in this Agreement or any of the other
Loan Documents, any Bank that fails (i) to make available to
the Agent it pro rata share of any Syndicated Advances or
(ii) to comply with the provisions of Section 12(a)(ii) with
respect to making dispositions and arrangements with the
other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of
its ratable share of such payments due and payable to all of
the Banks, in each case as, when and to the full extent
required by the provisions of this Agreement, shall be
deemed delinquent (a "Delinquent Bank") and shall be deemed
a Delinquent Bank until such time as such delinquency is
satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrowers
whether on account of outstanding Advances, interest, fees
or otherwise, to the remaining nondelinquent Banks for
application to, and reduction of, their respective pro rata
shares of all outstanding Syndicated Advances. The
Delinquent Bank hereby authorizes the Agent to distribute
such payments to the nondelinquent Banks in proportion to
their respective pro rata shares of all Syndicated Advances.
A Delinquent Bank shall be deemed to have satisfied in full
a delinquency when and if, as a result of application of the
assigned payments to all outstanding Syndicated Advances of
the nondelinquent Banks, the Banks' respective pro rata
shares of all outstanding Syndicated Advances have returned
to those in effect immediately prior to such delinquency and
without giving effect to the nonpayment causing such
delinquency.
13.11. Notification of Defaults and Events of Default.
Each Bank hereby agrees that, after any officer of such Bank
active upon and having primary responsibility for the
Company's credit facilities hereunder shall learn of the
existence of a Default or an Event of Default, such Bank
shall promptly notify the Agent thereof. The Agent hereby
agrees that upon receipt of any notice under this Section 13.11 it
shall promptly notify the other Banks of the existence of
such Default or Event of Default.
13.12. Information. In the event that any Bank
notifies the Agent that such Bank wishes to obtain at any
time any further or additional information regarding the
business and financial condition of the Company and its
Subsidiaries which the Agent would be entitled to obtain if
so requested pursuant to Section 8.7(d) hereof, the Agent shall
request such information from the Company to be furnished to
the Banks pursuant to Section 8.7(d) hereof.
Section 14. MISCELLANEOUS.
14.1. Expenses. The Company agrees to reimburse the
Agent from time to time on demand for its reasonable
out-of-pocket expenses (including reasonable fees and
expenses of counsel) incurred in connection with the
interpretation, administration and regulation of this
Agreement and the compliance of the Agent with its role as
such as set forth hereunder. Whether or not the
transactions contemplated hereby shall be consummated, the
Company will on demand (a) pay any taxes (other than those
based on income or gross receipts of the Agent or the Banks)
or filing fees in connection with the transactions
contemplated under this Agreement and save the Banks
harmless from and against any and all liabilities resulting
from any delay in paying or omission to pay any such fee or
tax, (b) pay the reasonable fees, expenses and disbursements
of counsel to the Agent incurred in connection with the
negotiation, preparation and completion of this Agreement
and the transactions and other documents contemplated by
this Agreement, or any subsequent waivers, consents or
amendments in connection therewith which are requested by or
caused by the conduct of the Company or any Subsidiary, or
requested by the Agent pursuant to Section 8.10, and (c) pay all
reasonable out-of-pocket fees, expenses and disbursements of
the respective counsel of each of the Banks) in connection
with the enforcement of this Agreement after the occurrence
of any Default or Event of Default; provided, however, that
in connection with any such enforcement action, each Bank
may choose whether to be represented by in-house or outside
counsel, and if in-house counsel is so utilized by any Bank,
as to such Bank the Company's obligations under this clause
(c) with respect to such attorneys' fees and expenses shall
be the reasonable allocated costs and expenses of in-house
counsel, and if outside counsel is so utilized by any Bank,
as to such Bank the Company's obligations under this clause
(c) with respect to such attorneys' fees and expenses shall
be such counsel's reasonable fees and expenses, but in
either case, the Company shall not be obligated under this
clause (c) to pay both the outside counsel fees and the
allocated cost of in-house counsel of any particular Bank in
connection with such enforcement action. The fees and
expenses payable by the Company under this Section 14.1 shall not
include those incurred in connection with any dispute solely
between any Banks (including the Agent) or with the
preparation of any waivers, consents or amendments requested
by the Agent or any of the Banks (but not agreed to by the
Company), except pursuant to Section 8.10 or clause (c) of this
Section 14.1. The Company's obligation to pay any amount pursuant
to this Section 14.1 shall survive payment or satisfaction of all
other amounts owing under this Agreement.
14.2. Notices, etc. Except as otherwise specified
herein, all notices, requests and other communications
pursuant to this Agreement shall be in writing and shall be
mailed by first-class mail, postage prepaid, or sent by
telegraph confirmed by letter, addressed as follows:
(a) If to the Company, at 55 Cambridge Parkway,
Cambridge, Massachusetts 02142, marked "Attention:
Treasurer" or at such other address as the Company shall
last have furnished to the communicating party in writing.
(b) If to a Borrowing Subsidiary at its address as set
forth in its election to become a Borrowing Subsidiary or at
such other address as such Borrowing Subsidiary shall last
have furnished to the communicating party in writing, with a
copy to the Company.
(c) If to the Agent, at its Head Office, marked "Attention:
Tena Lindenauer" or at such other address as the Agent
shall last have furnished to the communicating party in
writing.
(d) If to any Bank, at such Bank's address set forth
on Schedule 1 hereto, or at such other address as such Bank
shall last have furnished to the communicating party in
writing.
Any notice, request or communication so addressed shall
be deemed to have been duly given or made and to have become
effective (a) if delivered by hand to a responsible officer
of the party to which it is directed, at the time of the
receipt thereof by such officer, (b) if sent by registered
or certified first-class mail, postage prepaid, five (5)
Business Days after the posting thereof, and (c) if sent by
telegraph, telecopier or telex, at the time of dispatch
thereof, if in normal business hours on a Business Day of
the country of receipt, or otherwise at the opening of
business on the following Business Day.
Any notice of borrowing hereunder or notices under
Sections 2.4(a) or 3.1(f) hereof shall be signed on behalf of the
applicable Borrower by one of its duly authorized officers
and shall not be revocable by the Borrower and shall
obligate the Borrower to borrow a requested Advance for, or
to convert an Advance to a currency, a Borrowing Day,
Interest Period or interest rate as may be so specified.
Any election made by a Borrower pursuant to Sections 4.4(b) or 4.9
shall be binding upon the Borrower and irrevocable. Notice
of any prepayment having been given as required and all of
the other conditions to such prepayment having been
satisfied by a Borrower in compliance with the provisions of
Section 4.4(b), that amount of the principal of any Advance which
shall have been designated for prepayment in such notice
shall, on the date specified in such notice, become
absolutely due and payable by the Borrower.
14.3. Reliance, etc. All covenants, agreements,
representations and warranties made herein, in certificates
delivered pursuant hereto or otherwise in writing in
connection with the transactions evidenced hereby shall be
deemed to have been relied upon by the Banks,
notwithstanding any investigation made by the Banks or on
the Banks' behalf, and such covenants and agreements, and
the Banks' rights in respect of any representations and
warranties which shall prove false when made, shall survive
the execution of this Agreement and the making of each
Advance hereunder and shall continue in full force and
effect until all of the obligations of the Company and each
Borrowing Subsidiary hereunder have been paid and satisfied
in full.
14.4. Captions. The captions in this Agreement are
for convenience of reference only and shall not define or
limit the provisions hereof.
14.5. Consents, Amendments, Waivers, etc. Except as
otherwise expressly set forth in any particular provision of
this Agreement, any consent or approval required or
permitted by this Agreement to be given by the Banks may be
given, and any term of this Agreement or of any other
instrument related hereto or mentioned herein may be
amended, and the performance or observance by any Borrowers
of any term of this Agreement may be waived (either
generally or in a particular instance and either
retroactively or prospectively) with, but only with, the
written consent of the Borrowers and the Majority Banks,
provided, however, that without the written consent of Banks
holding 100% of the Total Commitment, or if the Total
Commitment shall have been terminated, 100% of the
outstanding Advances,
(a) no reduction in the principal amount of, interest
rate on, or Facility Fees relating to, the Advances shall be
made; and
(b) no extension or postponement of the stated time of
payment of the principal amount of, interest on, or Facility
Fees relating to, the Advances shall be made;
(c) no increase in the amount, or extension of the
term, of the Commitments or the Advances beyond those
provided for hereunder shall be made; and
(d) no modification of, or amendment to, or waiver of
compliance with, the definition of Majority Banks, or the
aggregate Commitment Percentage or number of Banks required
for the Banks or any of them to take any action under this
Agreement, or the provisions of Sections 10, 11(a), (b), (g), (h)
or (i), 14.5 or 15.9 hereof shall be made,
and provided further, that (i) this Agreement shall not be
amended so as to require any Bank to make any Advance or
take any participation interest in any outstanding Advance
after the Total Commitment shall have been terminated
(pursuant to the terms of Section 11 hereof or otherwise), without
the consent of 100% of the Banks, (ii) the amount or time
for payment of the Agent's Fee and the provisions of Section 13 may
not be amended or waived without the written consent of the
Agent, and (iii) the provisions of the Fee Letter Agreement
may only be amended or waived with the written consent of
each of the parties thereto. No modification or waiver of
any provision of this Agreement, and no consent to departure
by any Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the
required percentage of the Banks, and then such waiver or
consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on
any Borrower in any case shall entitle any such Borrower or
any other Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of
the Banks' right to take any other or further action in any
circumstances without notice or demand. No failure or delay
on the Agent's or the Banks' part in exercising any right
hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right.
No right, power or remedy conferred hereby upon Agent or the
Banks shall be exclusive of any other right, power or remedy
referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.
14.6. Benefit; Assignments; Participations. The
rights of any Borrower under this Agreement shall not be
assignable by the Borrower without the prior written consent
of the Banks. Any Bank may assign or grant participations
in all or a part of its rights under this Agreement pursuant
to and in accordance with the provisions of Section 15 hereof.
This Agreement shall be binding upon the respective
successors and assigns of the Borrowers and, except as
otherwise provided in Section 14.10, shall inure to the benefit of
and be binding upon each Bank and its successors and
assigns.
14.7. Governing Law. This Agreement shall be governed
by the laws of the Commonwealth of Massachusetts and is
intended to take effect as a sealed instrument.
14.8. Counterparts. This Agreement may be executed in
one or more counterparts each of which shall constitute an
original but which taken together shall constitute but one
agreement. In proving this Agreement it shall not be
necessary to produce or account for more than one such
counterpart.
14.9. Consent To Jurisdiction; Waiver of Jury Trial.
(a) The Company and each Borrowing Subsidiary hereby
irrevocably submits to the jurisdiction of any Massachusetts
state or federal court sitting in Boston over any action or
proceeding arising out of or relating to this Agreement, and
the Company and each Borrowing Subsidiary hereby irrevocably
agrees that all claims in respect of such action or
proceeding may be heard and determined in such Massachusetts
state or federal court. Each Borrowing Subsidiary hereby
appoints the Company as its process agent (the "Process
Agent"), and the Company hereby agrees to act as such agent
at its principal office at 55 Cambridge Parkway, Cambridge,
Massachusetts 02142, Attention: General Counsel, to receive
on its behalf and with respect to its property service of
copies of the summons and complaint and any other process
which may be served in any such action or proceeding. Such
service may be made to any Borrowing Subsidiary by mailing
or delivering a copy of such process to such Borrowing
Subsidiary in care of the Process Agent at the Process
Agent's address set forth above, and each Borrowing
Subsidiary hereby irrevocably authorizes and directs the
Process Agent to accept such service on its behalf. As an
alternative method of service, each Borrowing Subsidiary
also irrevocably consents to the service of any and all
process in any such action or proceeding by the hand
delivery or mailing of copies of such process to such
Borrowing Subsidiary at its address specified in its
election to become a Borrowing Subsidiary. Each Borrowing
Subsidiary agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law. A copy of any process served
hereunder shall be sent to the immediate aforesaid address
of the Company.
(b) Each Borrowing Subsidiary may change its Process
Agent hereunder by substituting and appointing as its
Process Agent another entity resident in the Commonwealth of
Massachusetts and otherwise reasonably approved by the
Agent, such substitution and appointment to be made pursuant
to a written instrument executed by such Borrowing
Subsidiary and such entity in form and substance approved by
the Agent, which approval will not be unreasonably withheld;
provided, however, that each Borrowing Subsidiary shall have
a Process Agent at all times.
(c) Nothing in this Section 14.9 shall affect the right of
the Banks to serve legal process in any other manner
permitted by law or affect the right of the Banks to bring
any action or proceeding against any Borrowing Subsidiary or
its property in the courts of any other jurisdiction.
(d) Each of the parties hereto irrevocably waives its
right to a jury trial with respect to any action or claim
arising out of any dispute in connection with this Agreement
or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of
such rights and obligations.
14.10. Exempt Character of Transaction. This
Agreement is made with the Banks in reliance upon their
several representations to the Company, which by their
execution of this Agreement they hereby confirm, that each
Bank for itself and not for any other Bank has no present
intention of selling or otherwise disposing of any interest
in the Loan Accounts (or the Notes, if any) other than
assignments and participations to banking institutions or
other financial institutions of the type permitted by Section 15.
Each Bank agrees that it will not, directly or indirectly,
sell or offer, or attempt to offer to dispose of, any
interest in the Loan Accounts (of the Notes, if any) to, or
solicit any offers to buy any interest therein from, or
otherwise approach or negotiate with respect thereto with,
any entity whatsoever so as to bring the execution and
delivery of either this Agreement within the provisions of
Section 5 of the Securities Act of 1933, as now in effect or
as later amended.
14.11. Indemnity for Use of Proceeds. The Company
agrees to indemnify the Agent and each Bank and their
respective directors, officers, employees and agents
against, and to hold each such entity harmless from, any and
all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses,
incurred by or asserted against any such Person and arising
out of, in connection with, or as a result of, the use of
any of the proceeds of the Advances to purchase voting
securities of any entity; provided that such indemnity shall
not apply to any such losses, claims, damages, liabilities
or related expenses arising from (i) any unexcused breach by
such indemnified Person of any of its obligations under this
Agreement or (ii) the gross negligence or willful misconduct
of such Person. In litigation, or the preparation therefor,
the Banks and the Agent shall be entitled to select their
own counsel and, in addition to the foregoing indemnity,
subject to the limitations of the foregoing proviso, the
Company agrees to pay promptly the reasonable fees and
expenses of such counsel (including those of outside counsel
or the allocated costs of in-house counsel of each Bank, but
not both with respect to any particular Bank). If, and to
the extent that the obligations of the Company under this
Section 14.11 are unenforceable for any reason, the Company hereby
agrees, subject to the limitations of the foregoing proviso
clause, to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under
applicable law. The covenants contained in this Section 14.11
shall survive payment or satisfaction in full of all other
amounts owing under this Agreement.
14.12. Exchange Rate. If, for the purpose of
obtaining judgment in any court or obtaining an order
enforcing a judgment, it becomes necessary to convert any
amount due under this Agreement in Dollars or in any other
currency (hereinafter in this Section 14.12 called the "first
currency") into any other currency (hereinafter in this
Section 14.12 called the "second currency"), then the conversion
shall be made at the Agent's spot rate of exchange for
buying the first currency with the second currency
prevailing at the Agent's close of business on the Business
Day next preceding the day on which the judgment is given or
(as the case may be) the order is made. In the event that
there is a difference between the rate of exchange on the
basis of which the amount of such judgment or order is
determined and the rate of exchange prevailing on the date
of payment, then the rate of exchange prevailing on the date
of payment shall govern the amount owing hereunder, and each
Borrower and each Bank (solely with respect to any such
judgment against such Bank) hereby agrees to pay such amount
as may be necessary to ensure that the amount paid on such
date in the second currency is the amount in such second
currency which, when converted at the Agent's spot rate of
exchange for buying the first currency with the second
currency prevailing at the Agent's opening of business on
the date of payment, is the amount which was due under this
Agreement in the first currency before such judgment was
obtained or made. Any amount due from any Borrower to the
Banks under the second sentence of this Section 14.12 will be due
as a separate debt of such Borrower to the Banks and shall
not be affected by judgment or order being obtained for any
other sum due under or in respect of this Agreement. The
covenant contained in this Section 14.12 shall survive the payment
in full of all of the other obligations of the Borrowers
under this Agreement.
Section 15. ASSIGNMENT AND PARTICIPATION.
15.1. Conditions to Assignment by Banks. Except as
provided herein, each Bank may assign to one or more
Eligible Assignees all or a portion of its interests, rights
and obligations under this Agreement (including all or a
portion of its Commitment Percentage and Commitment and the
same portion of the Advances at the time owing to it, and
any Notes held by it); provided that (a) each of the Agent
and the Company shall have given its prior written consent
to such assignment, which consent, in either case, will not
be unreasonably withheld (except that an assignment by a
Bank to its Bank Affiliates may be made without the consent
of any party), (b) each such assignment shall be a constant,
and not a varying, percentage of all the assigning Bank's
rights and obligations under this Agreement, (c) each
assignment shall be in a minimum amount of $5,000,000 or any
whole multiple of $1,000,000 in excess of $5,000,000, (d)
the parties to such assignment shall execute and deliver to
the Agent, for recording in the Bank List (as hereinafter
defined), an Assignment and Acceptance, substantially in the
form of Exhibit B hereto (an "Assignment and Acceptance"),
together with any outstanding Notes subject to such
assignment, and (e) except where the Company has consented
in writing to such assignment, any Borrower shall not be
under any obligation to pay to or for the account of any
assignee in respect of any assigned rights any greater
amount than it would have been obliged to pay to or for the
account of the Bank originally entitled to such assigned
rights. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in
each Assignment and Acceptance, which effective date shall
be at least five (5) Business Days after the execution
thereof, (i) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Bank
hereunder, and (ii) the assigning Bank shall, to the extent
provided in such assignment, and upon payment (either by the
assigning Bank or the assignee) to the Agent of the
registration fee referred to in Section 15.3 be released from its
obligations under this Agreement.
15.2 Certain Representations and Warranties;
Limitation; Covenants. By executing and delivering an
Assignment and Acceptance, the parties to the assignment
thereunder confirm to and agree with each other and the
other parties hereto as follows: (a) other than the
representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes
no responsibility with respect to any statements, warranties
or representations made in or in connection with this
Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value or this
Agreement, the other Loan Documents or any other instrument
or document furnished pursuant hereto or any applicable
collateral security arrangement; (b) the assigning Bank
makes no representation or warranty and assumes no
responsibility with respect to the financial condition of
the Company and its Subsidiaries or any other Person
primarily or secondarily liable in respect of any of the
obligations owing under this Agreement, or the performance
or observance by the Company and its Subsidiaries or any
other Person primarily or secondarily liable in respect of
any of their obligations under this Agreement or any of the
other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (c) such assignee
confirms that it has received a copy of this Agreement,
together with copies of the most recent financial statements
referred to in Section 7.1.6 and Section 8.7 and such other documents and
information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment
and Acceptance; (d) such assignee will, independently and
without reliance upon the assigning Bank, the Agent or any
other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement; (e) such assignee represents and warrants that it
is an Eligible Assignee; (f) such assignee appointments and
authorizes the Agent to take such action as agent on its
behalf and to exercise such power under this Agreement and
the other Loan Documents as are delegated to the Agent by
the terms hereof or thereof, together with such powers as
are reasonably incidental thereto; (g) such assignee agrees
that it will perform in accordance with their terms all of
the obligations that by the terms of this Agreement are
required to be performed by it as a Bank; and (h) such
assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.
15.3. Bank List. The Agent shall maintain a copy of
each Assignment and Acceptance delivered to it and a
register or similar list (the "Bank List") for the
recordation together with the Loan Accounts of the names and
addresses of the Banks and the respective Commitments and
Commitment Percentages of, and the principal amount of the
respective Advances held by, the Banks from time to time.
The entries in the Bank List shall be conclusive, in the
absence of manifest error, and the Borrowers, the Agent and
the Banks may treat each Person whose name is recorded in
the Bank List as a Bank hereunder for all purposes of this
Agreement. The Bank List shall be available for inspection
by the Borrowers and the Banks at any reasonable time and
from time to time upon reasonable prior notice. Upon each
such recordation, the assigning Bank or the assignee, as
agreed between such assigning Bank and such assignee, shall
pay to the Agent a registration fee in the sum of $1,000.
15.4 Exchange of Notes. Upon its receipt of an
Assignment and Acceptance executed by the parties to such
assignment, together with any Note subject to such
assignment, the Agent shall (a) record the information
contained therein in the Bank List, and (b) give prompt
notice thereof to the Company and the Banks (other than the
assigning Bank). Within five (5) Business Days after
receipt of such notice, the applicable Borrower, at its own
expense, shall execute and deliver to the Agent, in exchange
for each (if any) surrendered Note, a new Note payable to
the order of such Eligible Assignee in an amount equal to
the amount assumed by such Eligible Assignee pursuant to
such Assignment and Acceptance and, if the assigning Bank
held a Note and has retained some portion of its obligations
hereunder, a new Note payable to the order of the assigning
Bank in an amount equal to the amount retained by it
hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an
aggregate principal amount equal to the aggregate principal
amount of the surrendered Notes, shall be dated the
effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned
Notes. Within five (5) days after issuance of any new Notes
pursuant to this Section 15.4, the applicable Borrower shall
deliver an opinion of counsel, addressed to the Banks and
the Agent, relating to the due authorization, execution and
delivery of such new Notes and the legality, validity and
binding effect thereof, in form and substance satisfactory
to the Banks. The surrendered Notes shall be canceled and
returned to the applicable Borrower.
15.5. Participations. Each Bank may sell
participations to one or more banks or other entities in all
or a portion of such Bank's rights and obligations under
this Agreement and the other Loan Documents; provided that
(a) each such participation shall be in an amount of not
less than $5,000,000, (b) any such sale or participation
shall not affect the rights and obligations of the selling
Bank hereunder to the Borrowers and such Bank shall remain
solely responsible to the other parties hereto for the
performance of such obligations, (c) the participants shall
be entitled to the benefit of the cost protection provisions
contained in this Agreement (provided that a Borrower shall
not be under any obligation to pay to or for the account of
any such participant in respect of such provisions any
greater amount than such Borrower would have been obliged to
pay to or for the account of the Bank originally entitled to
the benefit of such provisions), (d) any Borrower, the
Agent, and the other Banks, as the case may be, shall
continue to deal solely and directly with the Bank selling
such participation, in connection with such Bank's rights
and obligations under this Agreement, and the Borrowers
shall not be obligated to communicate directly or indirectly
with any holder of a participation, and (d) the only rights
permitted to be granted to the participant pursuant to such
participation arrangements with respect to waivers,
amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications
that would reduce the principal of or the interest rate on
any Advances, extend the term or increase the amount of the
Commitment of such Bank as it relates to such participant,
reduce the amount of any Facility Fees to which such
participant is entitled, or extend any regularly scheduled
payment date for principal, interest, or Facility Fees.
15.6. Disclosure. The Borrowers agree that in
addition to disclosures made in accordance with Section 8.8 hereof,
any Bank may disclose information obtained by such Bank
pursuant to this Agreement to assignees or participants and
potential assignees or participants hereunder; provided that
such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such
information unless such information otherwise becomes public
knowledge, (b) not to disclose such information to any third
party, except as required by law or legal process and (c)
not to make use of such information for purposes of
transactions unrelated to such contemplated assignment or
participation.
15.7. Assignee or Participant Affiliated with any
Borrower.
If any assignee Bank is an Affiliate of any Borrower,
then any such assignee Bank shall have no right to vote as a
Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the
Loan Documents or for purposes of making requests to the
Agent pursuant to Section 11, and the determination of the Majority
Banks shall for all purposes of this Agreement and the other
Loan Documents be made without regard to such assignee
Bank's interest in any of the Advances. If any Bank sells a
participating interest in any of the Advances to a
participant, and such participant is a Borrower or an
Affiliate of any Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation.
A transferor Bank shall have no right to vote as a Bank
hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan
Documents or for purposes of making requests to the Agent
pursuant to Section 11 to the extent that such participation is
beneficially owned by a Borrower or any Affiliate of any
Borrower, and the determination of the Majority Banks shall
for all purposes of this Agreement and the other Loan
Documents be made without regard to the interest of such
transferor Bank in the Advances to the extent of such
participation.
15.8. Miscellaneous Assignment Provisions.
Any assigning Bank shall retain its rights to be
indemnified pursuant to Section 14 with respect to any claims or
actions arising prior to the date of such assignment. If
any assignee Bank is not incorporated under the laws of the
United States of America or any state thereof, it shall,
prior to the date on which any interest or fees are payable
hereunder for its account, deliver to the Company and the
Agent proper certification as to its exemption from
deduction or withholding of any United States federal income
taxes. If any Reference Bank transfers all of its interest,
rights and obligations under this Agreement, the Agent
shall, in consultation with the Company and with the consent
of the Company and the Majority Banks, appoint another Bank
to act as a Reference Bank hereunder. Anything contained in
this Section 15 to the contrary notwithstanding, any Bank may at
any time pledge all or any portion of its interest and
rights under this Agreement (including all or any portion of
any Notes it may hold) to any of the twelve Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341. No such pledge or the enforcement thereof
shall release the pledgor Bank from its obligations
hereunder or under any of the other Loan Documents.
15.9. Assignment by Borrower.
The Borrowers shall not assign or transfer any of their
rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, this Agreement has been executed by
on behalf of the parties hereto on the day first above
written by their respective officers or agents thereunto
duly authorized.
LOTUS DEVELOPMENT CORPORATION
[Seal]
By: /s/Frederick H. Phillips
------------------------
Name: Frederick H. Phillips
Title: Assistant Treasurer
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/Tena C. Lindenauer
---------------------
Name: Tena C. Lindenauer
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/Deborah A. Brodheim
----------------------
Name: Deborah A. Brodheim
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/Kevin McMahon
----------------
Name: Kevin McMahon
Title: Vice President
CREDIT SUISSE
By: /s/Demian M. Gage /s/Juerg Johner
----------------- ---------------
Name: Demian M. Gage Juerg Johner
Title: Associate Associate
THE BANK OF TOKYO TRUST COMPANY
By: /s/Michael J. Cronin
--------------------
Name: Michael J. Cronin
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES
By: /s/Jeffrey N. Wieser
--------------------
Name: Jeffrey N. Wieser
Title: Director
By: /s/Gregory M. Hill
------------------
Name: Gregory M. Hill
Title: Vice President
THE FUJI BANK, LIMITED,
NEW YORK BRANCH
By: /s/Yoshihiko Shiotsugu
----------------------
Name: Yoshihiko Shiotsugu
Title: Vice President and Manager
SHAWMUT BANK, N.A.
By: /s/John B. Desmond
------------------
Name: John B. Desmond
Title: Vice President
SOCIETE GENERALE
By: /s/Jan Wertlieb
----------------
Name: Jan Wertlieb
Title: Vice President
______________________________________________________________________________
Exhibit 10(a)
LOTUS DEVELOPMENT CORPORATION
1986 STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of the Lotus Development Corporation Stock
Option Plan for Non-Employee Directors (the "Plan") is to attract
and retain the services of experienced and knowledgeable
independent directors of Lotus Development Corporation (the
"Corporation") for the benefit of the Corporation and its
stockholders and to provide additional incentive for such
directors to continue to work for the best interests of the
Corporation and its stockholders through continuing ownership of
its common stock.
2. Shares Subject to the Plan
The total number of shares of common stock, par value $.01
per share ("Shares"), of the Corporation for which options may be
granted under the Plan shall not exceed 500,000 in the aggregate,
subject to adjustment in accordance with Section 12 hereof.
Within the foregoing limitations, Shares for which options have
been granted pursuant to the Plan but which options have lapsed
or otherwise terminated shall become available for the grant of
additional options. There will initially be reserved for
issuance or transfer from the Corporation's treasury upon the
exercise of options granted under the Plan 300,000 Shares,
subject to adjustment in accordance with Section 12 hereof.
3. Administration of Plan
The Plan shall be administered by the Board of Directors of
the Corporation (the "Board"). The Board shall have the power to
construe the Plan, to determine all questions arising thereunder,
and to adopt and amend such rules and regulations for the
administration of the Plan as it may seem desirable.
4. Eligibility; Grant of Option
Each director of the Corporation who is not, and has not
during the immediately preceding 12 month period been, an
employee of the Corporation or any subsidiary of the Corporation
(a "Participant") shall automatically be a participant in the
Plan. Each Participant who is in office on November 15 of any
year (commencing with November 15, 1986) shall, on the
immediately succeeding January 1, automatically be granted an
option to acquire 10,000 Shares under the Plan. In addition, any
Participant who is elected to the Board of Directors on or
between January 1, 1994 and June 30, 1994 or during any seven and
one-half month period beginning November 16 and ending June 30
thereafter shall automatically be granted an option to acquire
10,000 Shares on the later to occur of (i) March 24, 1994 or (ii)
the date of the first meeting of the Board following the election
of such Participant as a director.
5. Option Agreement
Each option granted under the Plan shall be evidenced by an
option agreement (the "Agreement") duly executed on behalf of the
Corporation and by the Participant to whom such option is
granted, which Agreements may but need not be identical and which
shall (i) comply with and be subject to the terms and conditions
of the Plan and (ii) provide that the Participant agrees to
continue to serve as a director of the Corporation during the
term for which he or she was elected. Any Agreement may contain
such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Board. No option shall be
deemed granted within the meaning of the Plan and no purported
grant of any option shall be effective, until such Agreement
shall have been duly executed on behalf of the Corporation and
the Participant to whom the option is to be granted.
6. Option Exercise Price
The option exercise price for an option granted under the
Plan on or prior to January 1, 1988, shall be the fair market
value of the Shares covered by the option on the November 15, or,
if such November 15 is not a day on which Shares are traded, on
the next succeeding trading day, immediately preceding the date
on which the option is granted. The option exercise price for an
option granted under the Plan on or after January 1, 1989, shall
be the fair market value of the Shares covered by the option on
the date of grant, or if such date is not a day on which Shares
are traded, on the next succeeding trading day, immediately
preceding the date on which the option is granted. The date on
which the fair market value is determined in accordance with the
two immediately preceding sentences is referred to herein as the
"Pricing Date". For purposes hereof, the fair market value of
the Shares covered by an option shall be the average of the high
and low sales prices of the Shares on the applicable date as
reported in the National Market List of the National Association
of Securities Dealers Inc. Automated Quotation System or on the
principal national securities exchange on which the Shares are
then listed for trading.
7. Time and Manner of Exercise of Option
(a) Options granted under the Plan shall become exercisable
in installments of 25 percent upon each anniversary of
the date of grant.
(b) To the extent that the right to exercise an option has
accrued and is in effect, the option may be exercised
from time to time, by giving written notice, signed by
the person or persons exercising the option, to the
Corporation, stating the number of shares with respect
to which the option is being exercised, accompanied by
payment in full for such Shares, which payment may be
in whole or in part in shares of the common stock of
the Corporation already owned by the person or persons
exercising the option, valued at fair market value on
the date of payment (as determined pursuant to Section
6 hereof).
(c) Upon exercise of the option, delivery of a certificate
for fully paid and non-assessable Shares shall be made
at the principal office of the Corporation in the
Commonwealth of Massachusetts to the person or persons
exercising the option as soon as practicable (but in no
event more than 30 days) after the date of receipt of
the notice of exercise by the Corporation, or at such
time, place and manner as may be agreed upon by the
Corporation and the person or persons exercising the
option.
8. Term of Options
Each option, shall expire ten years from the date of the
granting thereof, but shall be subject to earlier termination as
follows:
(a) In the event of the death of a Participant, the option
granted to such Participant may be exercised, to the
extent exercisable on the date of death pursuant to
Section 7(a), by the estate of such Participant, or by
any person or persons who acquired the right to
exercise such option by will or by the laws of descent
and distribution. Such option may be exercised at any
time within 180 days after the date of death of such
Participant or prior to the date on which the option
expires by its terms, whichever is earlier.
(b) In the event that a Participant ceases to be a director
of the Corporation, other than by reason of his or her
death, the option granted to such Participant may be
exercised, to the extent exercisable on the date the
Participant ceases to be a director, for a period of 30
days after such date, or prior to the date on which the
option expires by its terms, whichever is earlier.
9. Merger, Consolidation, Sale of Assets, etc., Resulting in a
Change of Control
(a) In the event of a Change in Control (as hereinafter
defined), notwithstanding the provisions of Sections
7(a) and 8, an option granted to a Participant shall
become fully exercisable if, within one year of such
Change in Control, such Participant shall cease for any
reason to be a member of the Board. For purposes
hereof, a Change in Control of the Corporation shall be
deemed to have occurred if (i) there shall be
consummated (x) any consolidation or merger of the
Corporation in which the Corporation is not the
continuing or surviving Corporation or pursuant to
which shares of the common stock of the Corporation
would be converted into cash, securities or other
property, other than a merger of the Corporation in
which the holders of the common stock of the
Corporation immediately prior to the merger have the
same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or
(y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of
all, or substantially all, of the assets of the
Corporation; or (ii) the stockholders of the
Corporation approve any plan or proposal for the
liquidation or dissolution of the Corporation; or (iii)
any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange
Act) of 30% or more of the Corporation's outstanding
common stock; or (iv) during any period of two
consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors
shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for
election by the Corporation's stockholders, of each new
director was approved by a vote of at least two-thirds
of the directors then still in office who were
directors at the beginning of the period.
(b) Any exercise of an option permitted pursuant to Section
9(a) shall be made within 180 days of the related
Participant's termination as a director of the
Corporation.
10. Options Not Transferable
The right of any Participant to exercise an option granted
to him or her under the Plan shall not be assignable or
transferable by such Participant otherwise than by will or the
laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such Participant only by him
or her.
11. No Rights as Stockholder until Exercise
Neither the recipient of an option under the Plan nor his
successors in interest shall have any rights as a stockholder of
the Corporation with respect to any Shares subject to an option
granted to such person until such person becomes a holder of
record of such Shares.
12. Adjustments Upon Changes in Capitalization
In the event that the outstanding shares of the common stock
of the Corporation are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation
or of another corporation, by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares or dividend payable in capital
stock, appropriate adjustment shall be made in the number and
kind of shares subject to and reserved for issuance or transfer
under the Plan and as to which outstanding options (or portions
thereof then unexercised) shall be exercisable, to the end that
the proportionate interest of Participants and prospective
Participants, with respect to options theretofore granted and to
be granted, shall be maintained as before the occurrence of such
event. Such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised
portion of such options, but with a corresponding adjustment in
the option price per share.
13. Restrictions on Issue of Shares
Anything in this Plan to the contrary notwithstanding, the
Corporation may delay the issuance of Shares covered by the
exercise of any option and the delivery of a certificate for such
Shares until one of the following conditions shall be satisfied:
(1)the Shares with respect to which an option has been
exercised are at the time of the issue or transfer of
such Shares effectively registered under applicable
federal securities laws now in force or hereafter
amended; or
(2)counsel for the Corporation shall have given an opinion,
which opinion shall not be unreasonably conditioned or
withheld, that such Shares are exempt from the
registration under applicable federal securities laws now
in force or hereafter amended.
It is intended that all exercises of options shall be effective.
Accordingly, the Corporation shall use its best efforts to bring
about compliance with the above conditions within a reasonable
time, except that the Corporation shall be under no obligation to
cause a registration statement or a post-effective amendment to
any registration statement to be prepared at its expense solely
for the purpose of covering the issuance or transfer from the
Corporation's treasury of Shares in respect of which any option
may be exercised.
14. Purchase for Investment
Unless the Shares to be issued upon exercise of an option
granted under the Plan have been effectively registered under the
Securities Act of 1933 as now in force or hereafter amended, the
Corporation shall be under no obligation to issue or transfer any
Shares covered by any option unless the person or persons who
exercise such option, in whole or in part, shall give a written
representation and undertaking to the Corporation, which is
satisfactory in form and scope to counsel to the Corporation and
upon which, in the opinion of such counsel, the Corporation may
reasonably rely, that he or she is acquiring the Shares issued or
transferred to him or her pursuant to such exercise of the option
for his or her own account as an investment and not with a view
to, or for sale in connection with, the distribution for any such
Shares, and that he or she will make no transfer of the same
except in compliance with any rules and regulations in force at
the time of such transfer under the Securities Act of 1933, or
any other applicable law, and that if Shares are issued or
transferred without such registration a legend to this effect may
be endorsed upon the certificates representing the Shares.
15. Effective Date
The effective date (the "Effective Date") of this Plan shall
be the date which is the later of (i) the date of which the Plan
is approved by stockholders of the Corporation and (ii) the date
on which the Corporation receives an interpretive letter from the
Securities and Exchange Commission to the effect that
participants in the Plan are disinterested persons within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934 for
the purpose of administering certain other compensation plans for
the Corporation.
16. Expenses of the Plan
All costs and expenses of the adoption and administration of
the Plan shall be borne by the Corporation and none of such
expenses shall be charged to any Participant.
17. Termination and Amendment of Plan
Unless sooner terminated as herein provided, the Plan shall
terminate ten years from the Effective Date. The Board may at
any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that,
except as provided in Section 12, the Board may not, without the
approval of the stockholders of the Corporation increase the
maximum aggregate number of shares for which options may be
granted under the Plan or the number of Shares for which an
option may be granted to any Participant. Termination or any
modification or amendment of the Plan shall not, without the
consent of a Participant, affect his or her rights under an
option previously granted to him or her.
______________________________________________________________________________
Exhibit 10(c)
Lotus Development Building
55 Cambridge Parkway
Cambridge, Massachusetts
LEASE dated as of May 1, 1994
ARTICLE I
Reference Data
1.1 Subjects Referred To. Each reference in this Lease to
any of the following subjects shall be construed to incorporate
the data stated for that subject in this Article:
LANDLORD: John A. Pirovano, as Trustee of CC&F
Cambridge Parkway Trust under Declaration of Trust dated May 26,
1982 and recorded with Middlesex South Registry of Deeds in Book
14637, Page 527.
LANDLORD'S ORIGINAL c/o Cabot, Cabot & Forbes
ADDRESS: 99 Summer Street
Boston, MA 02110
TENANT: Lotus Development Corporation
TENANT'S 55 Cambridge Parkway
ADDRESS: Cambridge, Massachusetts 02142
COMMENCEMENT DATE: May 1, 1994
TENANT'S SPACE: The portions of the Building shown on Exhibit
B hereto, consisting of 261,222 net rentable square feet.
BUILDING: As defined in Section 2.1.
PREMISES: As defined in Section 2.1.
TERM: A period commencing on the Commencement Date
and terminating at midnight on April 30, 2005, as such term may
be extended pursuant to Section 2.9, and subject to the Early
Expiration Option set forth in Section 2.12.
LEASE YEAR: Each period of time from May 1 until the
following April 30.
ANNUAL FIXED RENT: Lease Year 1: $8,899,570.00
Lease Year 2: $5,319,884.00
Lease Year 3: $5,434,232.00
Lease Year 4: $5,948,901.00
Lease Year 5: $6,363,936.00
Lease Year 6: $6,379,384.00
Lease Year 7: $6,917,643.00
Lease Year 8: $6,933,825.00
Lease Year 9: $6,950,465.00
Lease Year 10: $6,967,471.00
Lease Year 11: $6,984,936.00
TOTAL RENTABLE
FLOOR AREA OF
THE BUILDING: 268,710 net rentable square feet
PERMITTED USES: Office; technical office for research and
development of computer software and related products and to the
extent permitted by law the ancillary sale, service,
demonstration and storage of computer software and related
products.
PUBLIC LIABILITY
INSURANCE: Combined Single Limit - $2,000,000
MORTGAGE: As defined in Section 9.1.
1.2 Exhibits. These are incorporated as a part of this
Lease:
EXHIBIT A - Description of Lot
EXHIBIT B - Floor Plans showing Premises
EXHIBIT C - Landlord Services
EXHIBIT D - Examples of Items Included in Building
M&R
EXHIBIT E - Agreement Regarding Operating Expenses
and Existing Leases
EXHIBIT F - List of Tenant's Equipment and Trade
Fixtures
EXHIBIT G - Outline of Restructuring of Interest of
Lotus Development Corporation in CC&F Riverside Place Limited
Partnership
1.3 Table of Articles and Sections.
ARTICLE I - Reference Data
1.1 Subjects Referred To 1
1.2 Exhibits 3
1.3 Table of Articles and Sections 3
ARTICLE II - Premises, Term and Rent
2.1 The Premises 7
2.1.1 Parking Garage 7
2.2 Rights to Use Common Facilities 9
2.3 Landlord Reservations 9
2.4 Habendum 10
2.5 Monthly Fixed Rent Payments 10
2.6 Operating Expenses and Adjustments 10
2.7 Real Estate Taxes 21
2.8 Due Date of Additional Payments 24
2.9 Extension Option 25
2.10 Fair Market Net Rent 26
2.11 Agreement Regarding Operating Expenses and
Existing Leases 31
2.12 Early Expiration Option 31
ARTICLE III - Construction
3.1 Current Condition of Premises 31
3.2 Alterations and Additions 33
3.3 General Provisions Applicable to Construction 36
3.4 License for Use of Roof Space 36
ARTICLE IV - Landlord's Covenants; Interruptions and Delays
4.1 Landlord's Covenant's 43
4.1.1 Services Furnished by Landlord 43
4.1.2 Additional Services Available to Tenant 44
4.1.3 Roof, Exterior, Floor Slab and
Common Facility Repairs 44
4.1.4 Signs and Building Name 44
4.1.5 Quiet Enjoyment 45
4.1.6 Payment of Litigation Expenses 45
4.2 Interruptions and Delays in Repairs 45
4.3 Landlord's Insurance 51
ARTICLE V - Tenant's Covenants
5.1 Payments 52
5.2 Repair and Yield Up 52
5.3 Use........... 53
5.4 Obstructions; Items Visible From Exterior;
Rules and Regulations 54
5.5 Safety Appliances; Licenses 55
5.6 Assignment; Sublease 55
5.7 Indemnity; Liability Insurance 57
5.8 Personal Property At Tenant's Risk;
Tenant's Insurance on Personal Property 59
5.9 Right of Entry 60
5.10 Floor Load 60
5.11 Personal Property Taxes 61
5.12 Payment of Enforcement Expenses 61
5.13 Compliance with Insurance Regulations 61
5.14 Tenant's Self-Help. 62
5.15 Hazardous Substances 65
ARTICLE VI - Casualty and Taking
6.1 Termination or Restoration; Rent Adjustment 68
6.2 Eminent Domain Damages 70
6.3 Temporary Taking 70
ARTICLE VII - Default
7.1 Events of Default 71
7.2 Damages 73
ARTICLE VIII - Miscellaneous
8.1 Computation of Rental Floor Areas 74
8.2 Notice of Lease; Consent or Approval; Notices;
Bind and Inure; Trust Estate 75
8.3 Failure to Enforce 76
8.4 Acceptance of Partial Payments of Rent 77
8.5 Cumulative Remedies 77
8.6 Partial Invalidity 78
8.7 Landlord's Self-Help 78
8.8 Tenant's Estoppel Certificate 79
8.9 Waiver of Subrogation 80
8.10 All Agreements Contained 80
8.11 Brokerage 80
8.12 Submission Not an Option 81
8.13 Applicable Law 81
8.14 Waiver of Jury Trial 81
8.15 Holdover 81
8.16 Evidence of Corporate Authority 82
8.17 Americans With Disabilities Act 82
8.18 Riverside Place Limited Partnership 83
ARTICLE IX - Rights of Parties Holding Prior Interests
9.1 Lease Subordinate - Superior 83
9.2 Modification, Termination or Cancellation 85
9.3 Rights of Holder of Mortgage 85
9.4 Implementation of Article IX 86
ARTICLE II
Premises, Term and Rent
2.1 The Premises. Landlord hereby leases to Tenant, and
Tenant hereby hires from Landlord, Tenant's Space in the
Building, excluding exterior faces of exterior walls, floor
slabs, the common stairways and stairwells, elevators and
elevator wells, fan rooms, electric and telephone closets,
janitor closets, fire tower, fire tower court, freight elevator
vestibules, and pipes, ducts, conduits, wires and appurtenant
fixtures serving exclusively or in common other parts of the
Building, but including all tenant special installations, stairs,
special flues, dumbwaiter shafts and special air conditioning
facilities, specially installed or leased telephone or electric
switchboard, and if Tenant's Space includes less than the entire
rentable area of any floor, excluding the common corridors,
elevator lobby and toilets located on such floor. Tenant's Space
with such inclusions and exclusions is hereinafter referred to as
the "Premises". The term "Building" means the building erected
on the Lot by Landlord, including the Parking Garage (as
hereinafter defined), and the term "Lot" means all, and also any
part of, the land described in Exhibit A plus any additions less
any deletions thereto resulting from the change of any abutting
street line. "Property" means the Building and Lot.
2.1.1 Parking Garage. Landlord hereby leases to
Tenant, and Tenant hereby hires from Landlord 382 parking spaces
in the Building's parking garage (the "Parking Garage"), eight
(8) of which parking spaces are currently not used by Tenant for
parking motor vehicles. Tenant agrees that of the 382 parking
spaces available for its use, six (6) parking spaces are required
to be set aside for handicapped use. Tenant shall be solely
responsible for accommodating handicapped parkers from the 382
spaces made available to Tenant for its use.
Tenant shall have the right to sublet parking spaces in the
Parking Garage provided that Tenant first gives Landlord notice
of the identity of the proposed subtenant and Landlord approves
such subtenant, which approval will not be unreasonably withheld.
For each parking space so sublet, Landlord shall be entitled to
receive on a monthly basis one-half of all amounts received by
Tenant in excess of the "monthly parking base" (as defined below)
during the initial Term, and if Tenant exercises the Extension
Option pursuant to Section 2.10, one-half of all amounts received
by Tenant in excess of the monthly portion of the Fair Market
Parking Charge (as defined in Section 2.10) per space during the
Term as so extended, whether such amounts received by Tenant are
characterized as consideration for the sublease, differences in
rent, or otherwise. The monthly parking base shall mean $125.00
during the first Lease Year, $125.00 during the second Lease
Year, $128.13 during the third Lease Year, $131.33 during the
fourth Lease Year, $134.61 during the fifth Lease Year, $137.98
during the sixth Lease Year, $141.43 during the seventh Lease
Year, $144.96 during the eighth Lease Year, $148.59 during the
ninth Lease Year, $152.30 during the tenth Lease Year and $156.11
during the eleventh Lease Year.
2.2 Rights to Use Common Facilities. Tenant shall have, as
appurtenant to the Premises, rights to use in common, subject to
reasonable rules of general applicability to tenants of the
Building from time to time made by Landlord of which Tenant is
given notice and provided such rules do not materially interfere
with Tenant's use of the Premises: (a) the common lobbies,
corridors, stairways, elevators and loading platform of the
Building, and the pipes, ducts, conduits, wires and appurtenant
meters and equipment serving the Premises in common with others,
(b) common walkways and driveways necessary for access to the
Building, and (c) if the Premises include less than the entire
rentable floor area of any floor, the common toilets, corridors
and elevator lobby of such floor.
2.3 Landlord Reservations. Landlord reserves the right
from time to time, without unreasonable interference with
Tenant's use and, except during an emergency, after written
notice given to Tenant: (a) to install, use, maintain, repair,
replace and relocate for service to the Premises and other parts
of the Building, or either, pipes, ducts, conduits, wires and
appurtenant fixtures, wherever located in the Premises or
Building, and (b) to alter or relocate any other common facility,
provided that substitutions are substantially equivalent or
better. Installations, replacements and relocations referred to
in clause (a) above shall be located so far as practicable in the
central core area of the Building, above ceiling surfaces, below
floor surfaces or within perimeter walls of the Premises.
2.4 Habendum. Tenant shall have and hold the Premises for
a period commencing on the Commencement Date and continuing for
the Term unless sooner terminated as expressly provided herein.
The word "Term" refers as of any particular time to the
initial Term set forth in Section 1.1 and also to any extension
thereof with respect to which Tenant has, as of that time,
exercised its Extension Option set forth in Section 2.10.
2.5 Monthly Fixed Rent Payments. Tenant shall pay, without
notice or demand, monthly installments of 1/12 of the Annual
Fixed Rent (sometimes hereinafter referred to as "fixed rent") in
advance for each full calendar month of the Term and the
corresponding fraction of said 1/12 for any fraction of a
calendar month at the beginning or end of the Term. At the
request of Landlord portions of Annual Fixed Rent and additional
rent shall be paid to one or more parties at such addresses as
may be directed by Landlord in writing from time to time.
2.6 Operating Expenses and Adjustments.
(a) The "Operating Expenses for the Property" means the
costs of operation of the Property including, without limitation,
the following: premiums for insurance carried with respect to
the Property (including without limitation insurance against loss
in case of fire or casualty and loss of monthly installments of
fixed and additional rent, liability insurance, and such
insurance as may be required by any management agreement,
mortgage, deed of trust or ground lease); compensation and all
fringe benefits, worker's compensation insurance premiums and
payroll taxes (sometimes referred to herein as "Labor
Expenditures") paid to, for or with respect to all persons
engaged in operating, maintaining, or cleaning the Building or
Lot (excluding such Labor Expenditures paid to or with respect to
any person engaged in investigating, designing or performing
Special Structural Repairs (as defined below) or any Capital
Repairs (as defined below) which are not Cost-Saving Capital
Items or Code-Compliance Capital Items (each as defined below));
steam, water, sewer, electric, gas, oil and telephone charges
(excluding utility charges separately chargeable to tenants for
additional or special services); cost of Building and cleaning
supplies and equipment; cost of Building security; cost of
maintenance, cleaning and repairs including maintenance and
repair of the roof, exterior walls, floor slabs, elevators, and
common areas and facilities other than "Special Structural
Repairs" and "Capital Repairs", as hereinafter defined, provided,
however, there shall be included depreciation for capital
expenditures and Labor Expenditures associated therewith made by
Landlord to reduce operating expenses ("Cost-Saving Capital
Items"), if Landlord shall have reasonably demonstrated to
Tenant, with acknowledgment by Tenant of such demonstration by
Landlord not to be unreasonably withheld by Tenant, that the
annual reduction in operating expenses shall exceed depreciation
therefor, and there shall be included depreciation for capital
expenditures and Labor Expenditures associated therewith made by
Landlord to comply with legal requirements imposed after the date
of this Lease ("Code-Compliance Capital Items") (depreciation in
the case of Cost-Saving Capital Items and Code-Compliance Capital
Items shall equal a level monthly charge which would
theoretically amortize the capital item at an interest rate of 9%
per annum over the useful life of the capital item (and the
useful life shall be reasonably determined by Landlord in
accordance with generally accepted accounting principles in
effect at the time of acquisition of the capital item)); cost of
interior landscaping and pest control; cost of snow removal and
care of non-interior landscaping on the Lot and the adjacent park
(except as set forth below); payments under service contracts
with independent contractors and management fees at reasonable
rates consistent with the type of occupancy, the service rendered
and the size of the Building and subject to the management fee
limitations set forth below; and all other reasonable and
necessary expenses paid in connection with operating, cleaning
and maintaining the Building and Lot; but specifically excluding
the following: (a) costs of special services rendered to tenants
for which a separate charge is made; (b) any costs incurred for
the exclusive benefit of a specific tenant or of space occupied
by Landlord, such as costs for any alteration, renovation,
redecoration or finish of any space occupied by another tenant or
by Landlord; (c) salaries of officers and executives of Landlord
and Landlord's administrative overhead costs; (d) any costs
arising from the negligent acts or omissions or intentional
misconduct of the Landlord, its agents, employees or contractors;
(e) leasing fees or commissions and advertising costs in
connection with the Building; (f) interest, mortgage charges,
financing and refinancing costs, ground rent and taxes (except as
otherwise provided in Section 2.7); (g) any costs of
reconstruction or other work incurred in connection with any fire
or other casualty insured or required to be insured against
hereunder, except with respect to the amount of any deductible
amount under any insurance policy up to $25,000; (h) management
fees paid to Landlord except to the extent Landlord actually
manages the Building, and then subject to the Management Fee Cap
set forth below; (i) attorneys fees incurred in leasing space in
the Building or in enforcing the obligations of other tenants in
the Building; (j) major landscaping of the Lot or the adjacent
park initiated by the Landlord; and (k) capital expenditures and
depreciation (except as otherwise provided herein), including,
without limitation, repairs of a structural nature required under
Section 4.1.3 hereof which are not properly chargeable against
income or reimbursed from contractors under guaranties ("Capital
Repairs"), and any costs of Landlord associated with the
investigation of the status of, and any resulting repair or
replacement required under Section 4.1.3 hereof ("Special
Structural Repairs") of the Building's structural panels
("Special Structural Matters"). For the purposes of
distinguishing between Capital Repairs and repairs which are not
Capital Repairs, the parties agree that it is their intention and
agreement that repairs which do not materially add to the value
of the Building nor appreciably prolong its life, but keep it in
an ordinarily efficient operating condition, are not Capital
Repairs; repairs in the nature of replacement necessitated by
material deterioration, or which appreciably prolong the life of
the asset repaired, shall be considered Capital Repairs.
Operating expenses for the Property shall be reduced by the
amount of insurance, reimbursement, discount or allowance
received by Landlord in connection with such costs.
Further, Operating Expenses for the Property shall not
include in any Lease Year that portion of any management fees,
excluding Labor Expenditures for persons engaged on-site in the
management of the Property, in excess of the "Management Fee Cap"
(as defined below). Such Labor Expenditures shall not be subject
to the Management Fee Cap. The "Management Fee Cap" shall be the
"Fair Market Management Fee" (as defined below) for each calendar
year or portion thereof through the end of the initial Term.
"Fair Market Management Fee" shall, subject to the immediately
preceding sentence, be the fee generally charged for building
management services for buildings in Boston and Cambridge similar
in size and type of occupancy and with similar facilities,
amenities and services as the Building; provided, however, that
commencing in the second Lease Year, the Fair Market Management
Fee shall in no event exceed the product of $110,000 multiplied
by a fraction, the numerator of which is the CPI Index (as
defined below in this Section 2.6) as of January 1 of the year
for which the Fair Market Management fee is to be determined, and
the denominator of which is the CPI Index as of January 1, 1995.
The Landlord and Tenant agree that the management fee for the
first Lease Year shall be $180,000. Prior to May 1, 1995 and
January 1 of each year thereafter through 2005, the parties shall
attempt in good faith to agree on the amount of the Fair Market
Management Fee for that calendar year, but if the parties fail to
so agree, either party may submit such disagreement as to the
amount of the Fair Market Management Fee to mediation
administered by the BOMA Mediation Service in accordance with
applicable BOMA ADR Rules, as the same may be amended from time
to time. The parties will attempt in good faith to resolve such
disagreement through such mediation but if the parties have not
so agreed after 30 days from the time of submission to mediation,
then the parties shall submit the disagreement to arbitration by
the BOMA Arbitration Service in accordance with said BOMA ADR
Rules. Each party shall pay its own counsel fees and expenses,
if any, in connection with any mediation and, if needed,
arbitration. The parties shall share equally the fees and
expenses of the mediator, any arbitrator and any fees due BOMA.
To the extent that Landlord is at any time obligated
hereunder to provide any services hereunder, such services may be
performed by subsidiaries or affiliates of CC&F Investment
Company Limited Partnership or of Landlord, provided that the
contracts for the performance of such services shall be
competitive with similar contracts and transactions with
unaffiliated entities for the performance of such services in
comparable buildings in the Cambridge area. Landlord agrees that
it will hire a reputable management company qualified and
experienced in management of similar first-class office buildings
to perform the general management of the Building. In addition,
Landlord agrees that, in order to ensure that qualified
subcontractors are providing subcontracted services at
competitive prices, Tenant shall have the right to approve the
award by Landlord's general management company of subcontracts
relating to cleaning, window-washing, rubbish-removal, and other
similar major subcontracts, if any, but excluding any
subcontracts that relate to structural elements of the Building
or to Building M&R (as defined below); provided, however, that
(i) when Tenant is notified of the material terms of a proposed
major subcontract Tenant shall notify Landlord within fifteen
(15) days of its approval or disapproval of the proposed
subcontract and if Tenant fails to do so Tenant shall be deemed
to have approved of said subcontract, and (ii) Tenant shall not
unreasonably withhold its approval of a proposed subcontract.
Tenant shall have the right to select the subcontractor to
provide security services for the Building. With respect to
subcontractors for maintenance and repair of elevators and
heating, ventilation and air conditioning equipment, the Landlord
will in good faith consider input from the Tenant regarding the
selection thereof.
Notwithstanding the foregoing provisions of this Section
2.6(a), Landlord agrees that during the initial Term (but not
during any extension thereof), the portion of Operating Expenses
for the Property attributable to "Building M&R" (as defined
below) chargeable to Tenant as one of the Operating Expenses
Allocable to the Premises (as defined below) will not exceed the
"Building M&R Cap" (as defined below). "Building M&R" shall mean
maintenance, repairs and replacements on or to the roof, exterior
walls, building systems (plumbing, HVAC, mechanical and
electrical), floor slabs, elevators or other structural elements
which would not constitute a Capital Repair, Special Structural
Repair, or a repair or replacement which would give rise to a
Code-Compliance Capital Item (a "Code-Compliance Capital Repair")
or Cost-Saving Capital Item (a "Cost-Saving Capital Repair"), as
more fully described in Exhibit D.
"Building M&R Cap" shall mean $235,000 per calendar year for
1994 through 2005 (adjusted to reflect partial calendar years
occurring at the beginning and end of Term); provided, however,
that, to reflect cost-of-living increases after the Commencement
Date, the amounts listed above for each calendar year commencing
with 1996 through and including 2005 (but applied only through
April 30, 2005) shall be increased on an annual basis by the same
percentage, if any, by which the Consumer Price Index for All
Urban Consumers for Boston (1982-84=100) (the "CPI Index") as of
January 1 of the year in which the Building M&R Cap is to be
determined exceeds the CPI Index as of January 1, 1995. In
addition, in the 1994 calendar year the Landlord shall perform
deferred Building M&R on the Parking Garage, having a budget cost
of $70,300 (the "Deferred Parking Garage M&R"). The entire
amount of the Deferred Parking Garage M&R shall be permitted
Operating Expense for the Property. $46,867 of the Deferred
Parking Garage M&R shall not be subject to the Building M&R Cap
and $26,633 of the Deferred Parking Garage M&R shall be subject
to the Building M&R Cap. In addition, in the event Tenant
requests Landlord to paint the Parking Garage, the cost of such
painting shall an Operating Expense for the Property which is not
subject to the Building M&R Cap.
Landlord shall have the right, but not the obligation, to
amortize the cost of any individual item of Building M&R, the
cost of which (including the labor costs associated therewith)
exceeds $12,000, by including in Operating Expenses a level
monthly charge which would theoretically amortize the item at an
interest rate of 9% per annum over the useful life of such item,
as determined in accordance with generally accepted accounting
principles in effect at the time the cost is incurred, provided
that the portion of such cost charged to Tenant in each year
shall be included in the costs which are subject to the Building
M&R Cap.
(b) "Operating Expenses Allocable to the Premises" means
the same proportion of the Operating Expenses for the Property as
rentable floor area of Tenant's Space from time to time bears to
the Total Rentable Floor Area of the Building.
(c) "Tax Expenses Allocable to the Premises" and
"Landlord's Tax Expenses" shall have the meanings assigned in
Section 2.7.
(d) "Premises Expenses" shall mean the sum of the Operating
Expenses Allocable to the Premises and the Tax Expenses Allocable
to the Premises.
(e) Tenant shall pay to Landlord, as additional rent,
Premises Expenses in excess of $9.00 per annum per net rentable
square foot prorated in the case of the first and last Lease
Years (the "Premises Expense Base"); provided, however, that if
Tenant has exercised the Extension Option, the Premises Expense
Base for the Term as so extended shall be the Premises Expenses
for calendar year 2004.
(f) Not later than ninety (90) days after the end of the
first calendar year, or fraction thereof ending December 31, and
of each succeeding calendar year during the Term, or fraction
thereof at the end of the Term, Landlord shall render Tenant a
statement in reasonable detail and according to sound accounting
practices certified by a representative of Landlord, showing for
the preceding calendar year or fraction thereof, as the case may
be, the Premises Expenses. Said statement to be rendered to
Tenant shall also show for the preceding year or fraction
thereof, as the case may be, the amounts of Premises Expenses
already paid by Tenant as additional rent, and the amount of
Premises Expenses remaining due as additional rent from, or
overpaid by, Tenant for the year or other period covered by the
statement. Provided Tenant is not in default hereunder, any
amounts so overpaid shall be applied against future payment
thereafter becoming due under this Section 2.6. Within 30 days
after the date of delivery of such statement, Tenant shall pay to
Landlord as additional rent the balance of the amounts, if any,
required to be paid pursuant to the provisions hereof with
respect to the preceding year or fraction thereof. Tenant shall
have the right at its own cost and expense, upon not less than
ten (10) business days' notice, to inspect during usual business
hours those portions of the books and records kept by Landlord
relating to the Premises Expenses.
In addition, Landlord shall prepare and deliver to Tenant,
together with the statement of expenses for the prior calendar
year of the Term (or fraction thereof), a budget for the
then-current calendar year based on the statement of expenses for
the prior year and projected increases or decreases in Premises
Expenses reasonably anticipated by Landlord. Commencing with the
first day of the first month following the delivery to Tenant of
each budget referred to above and on the first day of each month
thereafter until delivery to Tenant of the next such budget,
Tenant shall pay to Landlord as additional rent, on account
toward Tenant's share of increases in Premises Expenses
anticipated for the then-current year, one-twelfth of the total
annualized amount by which Premises Expenses for the then-current
year exceed the Premises Expense Base, as shown on the budget for
such year.
2.7 Real Estate Taxes.
Terms used herein are defined as follows:
(i) "Tax Year" means the twelve-month period beginning
July 1 each year during the Term or if the appropriate
governmental tax fiscal period shall begin on any date other than
July 1, such other date.
(ii) "Landlord's Tax Expenses" with respect to any Tax
Year means the aggregate real estate taxes on the Property with
respect to that Tax Year, reduced by any abatement receipts with
respect to that Tax Year.
(iii) "Tax Expenses Allocable to the Premises" means the
same proportion of Landlord's Tax Expenses as the rentable floor
area of Tenant's Space from time to time bears to the Total
Rentable Floor Area of the Building.
(iv) "Real Estate Taxes" means all taxes and special
assessments of every kind and nature assessed by any governmental
authority on the Lot or the Building or the Property which the
Landlord shall become obligated to pay because of or in
connection with the ownership, leasing and operation of the Lot,
the Building and the Property, and reasonable expenses incurred
by Landlord for any proceedings for abatement of taxes. The
amount of special taxes or special assessments to be included
shall be limited to the amount of the installment (plus any
interest, other than penalty interest, payable thereon) of such
special tax or special assessment required to be paid during the
year in respect of which such taxes are being determined. Except
as otherwise required by the holder of any mortgage on the
Property, Landlord shall pay such special taxes or special
assessments over the longest period of time permitted by law.
There shall be excluded from such taxes all income, estate,
succession, inheritance and transfer taxes; provided, however,
that if at any time during the Term the present system of ad
valorem taxation of real property shall be changed so that in
lieu of the whole or any part of the ad valorem tax on real
property, there shall be assessed on Landlord a capital levy or
other tax on the gross rents received with respect to the Lot or
Building or Property, or a federal, state, county, municipal, or
other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect in the
jurisdiction in which the Property is located) measured by or
based, in whole or in part, upon any such gross rents, then any
and all of such taxes, assessments, levies or charges, to the
extent so measured or based, shall be deemed to be included
within the term "Real Estate Taxes" but only to the extent that
the same would be payable if the Lot, Building and Property were
the only property of Landlord.
After the Commencement Date, if Tenant shall deem itself
aggrieved by the amount of any such Real Estate Taxes it may seek
an abatement of such taxes by the commencement and diligent
prosecution of appropriate proceedings. To the extent required
by law, such proceeding may be maintained in the name of
Landlord, and to the extent so required Landlord agrees to
execute such applications and other documents as may reasonably
be required to effectuate the foregoing. Landlord may
participate in any proceedings initiated by Tenant, and Tenant
shall not discontinue or settle any abatement proceedings begun
by it without first giving Landlord prior notice of its intent so
to do and in the case of any proposed settlement, receiving
Landlord's consent, which consent shall not be unreasonably
withheld, and in the case of Tenant's proposed discontinuance,
affording Landlord reasonable opportunity to be substituted in
such proceedings. Tenant shall reimburse Landlord for, and
indemnify and hold Landlord harmless from and against all loss,
cost or expenses arising in connection with such abatement
proceedings, including, without limitation, administrative costs
and expenses and any increase in taxes on the Lot and Building
subject to the abatement proceeding for the tax period to which
such proceeding related, but excluding expenses incurred by
Landlord as a result of Landlord's voluntary participation in
proceedings initiated by Tenant. Nothing contained herein shall
prohibit Landlord at any time from initiating a tax abatement
proceeding in its sole discretion. The reasonable cost of any
tax abatement proceeding initiated by Landlord shall be an
Operating Expense provided that the initiation of the proceeding
has been approved in writing by Tenant, which approval may be
given or withheld in Tenant's sole discretion.
2.8 Due Date of Additional Payments. Except as otherwise
specifically provided herein, any sum, amount, item or charge
designated or considered as additional rent in this Lease shall
be paid by Tenant to Landlord on the first day of the month
following the date on which Landlord notifies Tenant of the
amount payable or on the thirtieth day after the giving of such
notice, whichever shall be later. Any such notice shall specify
in reasonable detail the basis of such additional rent. Except
as expressly set forth herein, fixed rent and additional rent
shall be paid by Tenant to Landlord without offset or deduction.
2.9 Extension Option. Provided that at the time of
exercise of the option and the commencement of the extended Term
(i) Tenant has not assigned this Lease or sublet more than
100,000 square feet of the Premises, except pursuant to the last
paragraph of Section 5.6, (ii) there is no Event of Default then
existing under this Lease, (iii) the Lease has not been
otherwise terminated, and (iv) Tenant or its sublessees or
assignees pursuant to the last paragraph of Section 5.6 are in
physical occupancy of the Premises, then Tenant shall have the
option to extend the Term for one (1) period of five (5) years
(the "Extension Option"). If Tenant chooses to exercise the
Extension Option, Tenant shall do so by written notice to
Landlord given no less than twelve (12) months prior to the
expiration of the then current Term (the "Extension Exercise
Date"). Failure of Tenant to exercise such option in a timely
manner shall terminate Tenant's right to lease and occupy the
Premises beyond the then current Term, and shall terminate all
further rights under the Extension Option set forth in this
Section 2.9. The terms and conditions of this Lease during such
extension shall be the same as contained herein, except that (i)
the Annual Fixed Rent for the Premises shall be the sum of (w)
the greater of (i) 95% of the Fair Market Net Rent (as defined
below) for the Premises and (ii) $3,918,330, plus (x) the
Premises Expenses in calendar year 2004, plus (y) the greater of
(i) 95% of the Fair Market Parking Charge (as defined below) and
(ii) $715,608; and (ii) Tenant shall have no additional options
to extend the Term.
2.10 Fair Market Net Rent. If the Tenant wishes to
determine the Annual Fixed Rent which would be payable if Tenant
were to exercise the Extension Option, Tenant shall, at least
four (4) months prior to the Extension Exercise Date, notify
Landlord (the "Tenant's Request Notice") that Tenant requests
Landlord to propose a fair market net rent for the Premises and
fair market charge for the parking spaces in the parking garage
for the extension period. After Landlord has received Tenant's
Request Notice, then no later than the later to occur of (i) four
months prior to the Extension Exercise Date, or (ii) fifteen (15)
days from the date of Tenant's Request Notice (the "Landlord's
Response Date"), Landlord shall propose a fair market net rent
for the Premises (the "Landlord's Proposed Fair Market Net Rent")
and a fair market charge for the parking spaces (the "Landlord's
Proposed Fair Market Parking Charge") and give written notice
thereof to Tenant. "Fair Market Net Rent" for purposes of this
Lease shall mean the rental income, net of the Premises Expenses
in calendar year 2004 which will be included in the Annual Fixed
Rent during the Extension Term, that the demised premises would
most probably command on the open market as indicated by current
rentals being paid for comparable space (as of the time such
rental will become effective), giving due consideration to all
matters as are customarily and appropriately considered by
landlords and tenants engaged in leasing similar space in the
vicinity of the demised premises as of the time of such
determination. "Fair Market Parking Charge" for purposes of this
Lease shall mean the amount that could be charged for the parking
spaces on the open market as indicated by current charges being
paid for comparable parking spaces (as of the time such charges
will become effective), giving due consideration to all matters
as are customarily and appropriately considered by landlords and
tenants for similar parking spaces in the vicinity of the
Building as of the time of such determination.
The Landlord's Proposed Fair Market Net Rent shall be the
"Fair Market Net Rent" and Landlord's Proposed Fair Market
Parking Charge shall be the "Fair Market Parking Charge" unless
Tenant notifies Landlord, within fifteen (15) days of the date of
Landlord's notice containing Landlord's Proposed Fair Market Net
Rent and Landlord's Proposed Fair Market Parking Charge proposal,
that Landlord's Proposed Fair Market Net Rent, or Landlord's
Proposed Fair Market Parking Charge, or both, is not satisfactory
to Tenant (a "Tenant's Appraisal Notice"), in which event the
Fair Market Net Rent, or the Fair Market Parking Charge, or both,
shall be determined by the following appraisal procedure. In
addition, if Tenant has delivered a Tenant's Request Notice to
Landlord and Landlord fails to respond within the time period
required, Tenant may within 15 days after the Landlord's Response
Date deliver notice to Landlord that the Fair Market Net Rent or
Fair Market Parking Charge, or both, as the case may be, are to
be determined by the following appraisal procedure.
Within fifteen (15) days of the date of Tenant's Appraisal
Notice, Landlord and Tenant shall each appoint an appraiser who
is a reputable independent commercial real estate consultant,
professional appraiser or broker, each of whom shall have at
least ten (10) years of experience in the Cambridge office
rental market and each of whom is hereinafter referred to as an
"appraiser". Within forty-five (45) days of the date of Tenant's
Appraisal Notice, Landlord and Tenant shall each notify the other
of its respective appraiser's determination of the Fair Market
Net Rent or Fair Market Parking Charge, or both, as the case may
be. If the appraisers' determinations of either the Fair Market
Net Rent or Fair Market Parking Charge, or both, are the same,
the appraisers' determinations of the Fair Market Net Rent or
Fair Market Parking Charge, or both, as the case may be, will be
the "Fair Market Net Rent" or "Fair Market Parking Charge," or
both, respectively. If the appraisers' determinations of the
Fair Market Net Rent or Fair Market Parking Charge differ by an
amount less than or equal to ten (10%) percent of the lower value
in either case, the Fair Market Net Rent or Fair Market Parking
Charge, or both, as the case may be, shall each be the average of
the two corresponding determinations. If the appraisers'
determinations of the Fair Market Net Rent or Fair Market Parking
Charge, or both, differ by more than ten (10%) percent of the
lower value in either case, the two appraisers shall, within ten
(10) days of the date of the later of the two determinations,
appoint a third appraiser. If the appraisers cannot agree on the
identity of a third appraiser, then either party on behalf of
both may apply to the President of the New England Chapter of the
American Institute of Real Estate Appraisers, or on its failure
or inability to commence an appraisal within ten (10) days of
the application to that person to act, to a court of competent
jurisdiction, for the appointment of an appraiser to serve as the
third appraiser. The third appraiser shall within fifteen (15)
days of his or her appointment make his or her determination of
the Fair Market Net Rent or Fair Market Parking Charge, or both,
as the case may be.
The "Fair Market Net Rent" or the "Fair Market Parking
Charge", or both, shall be deemed to be the average of (i) the
determination of the third appraiser of the Fair Market Net Rent
or Fair Market Parking Charge, or both, as the case may be, and
(ii) the prior corresponding determination of an appraiser which
is closest in amount thereto. The Fair Market Net Rent of the
subject space and the Fair Market Parking Charge for the parking
spaces in the Parking Garage, each determined in accordance with
the provisions of this section, shall be binding and conclusive
on Tenant and Landlord.
The cost and expense of each appraiser appointed separately
by Tenant and Landlord shall be borne by the party who appointed
the appraiser, and the cost and expense of the third appraiser
shall be shared equally by Tenant and Landlord.
Notwithstanding the foregoing, if either party shall fail to
appoint its appraiser within the period specified above (such
party referred to hereinafter as the "failing party"), the other
party may serve notice on the failing party requiring the failing
party to appoint its appraiser within ten (10) days of the
giving of such notice and if the failing party shall not respond
by appointment of its appraiser within said ten (10) day period,
then the appraiser appointed by the other party shall be the sole
appraiser whose determination of the Fair Market Net Rent and
Fair Market Parking Charge shall be binding and conclusive upon
Tenant and Landlord. In no event shall the date by which Tenant
must exercise the Extension Option pursuant to Section 2.9 be
extended for purposes of this Section 2.10, provided that so long
as Tenant's Request Notice has been given at least four (4)
months prior to the Extension Exercise Date, if, through no fault
of Tenant, the appraisers' determination has not been made at
least fifteen (15) days prior the Extension Exercise Date, the
Extension Exercise Date shall be deemed to have been extended
until the first to occur of (x) fifteen (15) days after the
appraisers' determination has been made and (y) ten (10) months
prior to the expiration of the then current Term. Time is of the
essence with respect to the Extension Option.
2.11 Agreement Regarding Operating Expenses and Existing
Leases. Reference is made to certain "Existing Leases" (as
defined in Exhibit E) between Landlord and Tenant relating to
portions of the Building. Simultaneously with the execution
hereof, Landlord and Tenant shall execute and deliver to each
other the Agreement regarding Operating Expenses and Existing
Leases in the form of Exhibit E hereof.
2.12 Early Expiration Option.
Tenant shall have the option (the "Early Expiration
Option"), exercisable by written notice to Landlord given no
later than April 30, 2001 (the "Early Expiration Notice") to
cause the Term of this Lease to come to an end at Midnight on
April 30, 2002 (the "Early Expiration Date"), as if this Lease
had originally provided that such date would be the scheduled
expiration of the Term. Time is of the essence with respect to
the Early Expiration Option, and if Tenant fails to timely
exercise it, it shall be deemed to have been irrevocably waived.
ARTICLE III
Condition of the Premises
3.1 Current Condition of Premises; Allowance. Tenant
acknowledges that the Premises and the Parking Garage are in
satisfactory condition. Tenant shall accept the Premises in
their "as is" condition as of the Commencement Date. Except as
otherwise provided in this Lease, Landlord has no obligation to
Tenant to make any additions or alterations to the Premises, the
Building or the Lot.
If Tenant undertakes alterations and additions to the
Premises prior to the end of the second Lease Year and provided
that (i) Landlord and the holders of any Mortgage (as defined in
Section 9.1) are reasonably satisfied (by inspection, if
required) that such alterations and additions have been completed
on a lien-free basis in accordance with applicable law, (ii) no
Event of Default has occurred hereunder and is continuing, and
(iii) Tenant has delivered to Landlord an Estoppel Certificate
(as defined in Section 8.8), at Tenant's option and request,
Landlord shall reimburse Tenant in the manner hereinafter set
forth the lesser of (x) its out-of-pocket costs of design and
construction of such alterations and additions, as evidenced by
paid invoices and receipts or other evidence reasonably
satisfactory to Lessor, and (y) $1,000,000 (the "Allowance").
The Tenant may draw the Allowance in two (2) requisitions. The
first requisition shall be paid to Tenant on the first
anniversary of the Commencement Date and the second requisition
shall be paid to Tenant on the second anniversary of the
Commencement Date. Commencing on the date of each such payment
of the Allowance, Tenant shall pay to Landlord, as additional
rent, on the first day of each calendar month through and
including the month ending on April 30, 2002, that portion of the
Allowance paid to Tenant in such requisition which will fully
amortize the amount of such requisition by April 30, 2002,
including interest on the unamortized portion thereof at an
interest rate of 9% per annum. By way of example, if the first
requisition is for $600,000, then commencing on May 1, 1995 and
ending on April 30, 2002, the Tenant shall pay Landlord
additional rent in the amount of $9,581.58 per month. If an
additional $350,000 is requisitioned on May 1, 1996, then
commencing on May 1, 1996 and ending on April 30, 2002, the
Tenant shall pay Landlord additional rent for the second
requisition in the amount of $6,261.97 per month.
3.2 Alterations and Additions. Except as set forth below,
Tenant shall not make alterations and additions to Tenant's
Space, except in accordance with plans and specifications first
approved by Landlord, which approval shall not be unreasonably
withheld. Landlord shall not be deemed unreasonable for
withholding approval of any alterations or additions which do not
satisfy the "Alteration Conditions", which means they will not
(a) involve or affect any structural or exterior element of the
Building (including, without limitation, Building systems), any
area or element outside of the Premises, or any facility serving
any area of the Building outside of the Premises (including,
without limitation, any other tenant), or (b) require unusual
expense to readapt the Premises to normal office use on Lease
termination, unless in the case of (b) Tenant first gives
assurance reasonably acceptable to Landlord that such
readaptation will be made prior to such termination without
expense to Landlord. Notwithstanding the foregoing, Tenant shall
be entitled to undertake alterations and additions the cost of
which in the aggregate for all alterations and additions which
are reasonably related to each other are less than $100,000,
provided that the alterations and additions satisfy the
Alteration Conditions, and Tenant gives notice of such
alterations and additions prior to the time they are made.
Tenant shall provide to Landlord within a reasonable time of
completion of all alterations or additions, regardless of the
cost thereof, complete as-built plans and specifications for such
alterations and additions. All alterations and additions shall
at Landlord's option become a part of the Building, which option
must be exercised at the time Landlord consents to such
alterations or additions, or, if consent is not necessary, within
15 days of Landlord's receipt of the notice required by the
preceding sentence. All of Tenant's alterations and additions
and installation of furnishings shall be coordinated with any
work being performed by Landlord and in such manner as to
maintain harmonious labor relations and not to damage the
Building or Lot or interfere with Building operation and, except
for installation of furnishings, shall be performed by
contractors or workmen first approved by Landlord (such approval
not to be unreasonably withheld). Tenant before its work is
started shall: secure all licenses and permits necessary
therefor; deliver to Landlord a statement of the names of all its
contractors and subcontractors and the estimated cost of all
labor and material to be furnished by them, and in the event that
the cost in the aggregate for all alterations and additions which
are reasonably related to each other as part of such work exceeds
$100,000, security satisfactory to Landlord protecting Landlord
against liens arising out of the furnishing of such labor and
material; and cause each contractor to carry workmen's
compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and commercial general
liability insurance with such limits as Landlord may reasonably
require, but in no event less than a combined single limit of
$1,000,000 or such lesser amount as may be approved by Landlord
in writing (all such insurance to be written in companies
reasonably approved by Landlord and insuring Landlord and Tenant
as well as the contractors), and to deliver to Landlord
certificates of all such insurance. Tenant agrees to pay
promptly when due the entire cost of any work done on the
Premises by Tenant, its agents, employees, or independent
contractors, and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to
attach to the Premises and immediately to discharge any such
liens which may so attach, which discharge may be by Tenant's
posting a bond in the amount of such lien provided that such bond
shall name in addition to Owner the holder from time to time of
any Mortgage and the ground lessor under the Ground Lease.
Nothing in this Section shall preclude Tenant from contesting any
claim by any contractor or materialman provided that any lien in
connection therewith is discharged as aforesaid.
3.3 General Provisions Applicable to Construction. All
construction work required or permitted by this Lease shall be
done in a good and workmanlike manner and in compliance with all
applicable laws and all lawful ordinances, regulations and orders
of governmental authority and insurers of the Building. Each
party may inspect the work of the other at reasonable times and
shall promptly give notice of observed defects.
3.4 License for Use of Roof Space. Subject to the
conditions and provisions of this Section 3.4, Landlord hereby
grants to Tenant a license to utilize for the purposes described
below and from time to time during the Term hereof, and at
Tenant's sole risk and expense, portions of the roof of the
Building (the "Roof Space"). The conditions under which Landlord
grants said license to Tenant are as follows:
A. Tenant may install, use and maintain
communications microwave dishes, antennas, related control
equipment and requisite cables (the "Equipment") on the Roof
Space, and Tenant may install, use and maintain cables (the
"Cables") between the Roof Space and the Tenant's premises in the
Building, provided that Landlord in all cases shall have first
approved in writing the locations of the Equipment and Cables,
which approval shall not be unreasonably withheld or delayed.
The installation of the Equipment and the Cables shall be
performed by a contractor acceptable to Landlord and shall be in
accordance with plans and specifications approved in writing in
advance by Landlord. The installation, use and maintenance of
the Equipment and Cables shall in no way interfere with
Landlord's operation of the Building or with the quiet enjoyment
of the other tenants of the Building. If at any time Landlord
shall reasonably deem it necessary or desirable to modify the
plans and/or specifications pursuant to which the Equipment and
Cables were installed for reasons of safety, Tenant shall perform
such modifications promptly upon request by Landlord. Tenant
and/or its contractor shall exercise a high standard of care in
all of its activities in, on and about the Building and shall
ensure that no mechanics' or materialmen's liens are placed on
the Roof Space or the Building and will promptly remove any such
liens so placed.
B. Tenant shall bear all expenses in connection
with the installation, use and maintenance of the Equipment and
the Cables and the removal thereof.
C. The Equipment and the Cables shall remain the
property of the Tenant or its contractor. Tenant shall, at its
expense, (1) remove the Equipment and the Cables on the
expiration or sooner termination of this Lease and (2) upon
removal of such equipment, restore Landlord's affected facilities
to the condition they were in at the commencement of Tenant's
occupancy of the Building, reasonable wear and tear excepted.
D. Tenant shall maintain the Equipment and the
Cables at all times in a state of good repair and good and safe
condition at its sole cost and expense and shall not permit the
Equipment or the Cables to decay, wear out or have an unsightly
appearance; nor shall Tenant permit the Equipment or the Cables
to deteriorate such that they may threaten to damage the
Building, any portion thereof, or any occupants therein.
Landlord may, at its option, from time to time and at Tenant's
expense, have testing and analysis performed to determine
whether the Equipment and/or Cables will affect the integrity of
the Building, and if such testing or analysis disclose any
harmful effects, Tenant shall cure the same promptly upon request
by Landlord. Tenant shall paint (and repaint when necessary) in
a brick red color approved by Landlord such portions of the
Equipment and Cables as are visible from the street level of
surrounding properties.
E. Without limiting the provisions of Section
5.7 hereof, Tenant shall indemnify and hold Landlord harmless
from and against any liability for injury, loss, accident or
damage to any person or property, and from and against any
claims, actions, proceedings, costs and expenses, including
attorneys' fees, arising from Tenant's installation, use and
maintenance of the Equipment and/or the Cables and the removal
thereof, or resulting from the failure of Tenant to perform and
discharge its covenants under this Section 3.4; provided,
however, that Tenant shall not indemnify Landlord for any injury,
loss accident or damage or any claims, actions, proceedings,
costs or expenses which arise as a result of the negligence or
willful misconduct of Landlord or its employees or contractors.
Further, Landlord shall not be liable for any loss or damage due
to imperfect or unsatisfactory communications experienced by
Tenant for any reason whatsoever.
F. The insurance maintained by Tenant pursuant
to Section 5.7 hereof shall extend to and cover the Roof Space as
well as those areas described in said Section 5.7. Tenant shall
furnish Landlord with certificates of insurance evidencing such
coverage prior to Tenant's exercise of its rights under this
Section 3.4.
G. Tenant shall not do or allow any act or thing
in, upon or about the Building in connection with the rights
granted to Tenant under this Section 3.4 which will invalidate or
conflict with fire insurance policies or public liability
insurance policies covering the Building and fixtures and
property therein.
H. Tenant and its contractors shall comply with
all applicable federal, state and municipal laws, ordinances and
regulations, including, without implied limitation, local zoning
and building codes and Federal Aviation Authority or Federal
Communications Commission regulations and approvals, in
connection with the installation, use and maintenance of the
Equipment and the Cables. Landlord makes no representation
whatsoever that Tenant is likely to obtain said permits and
approvals to install, use and maintain the Equipment and the
Cables and Landlord assumes no responsibility whatsoever for
obtaining said permits and approvals.
I. Landlord agrees to permit Tenant reasonable
access, during normal business hours, to the Roof Space and such
other areas of the Building designated by Landlord as are
necessary to facilitate the installation, use and maintenance of
the Equipment and the Cables and the removal thereof. Tenant
shall notify Landlord prior to Tenant's entry of the Building to
install or place the Equipment or the Cables, and Landlord shall
inform Tenant as to a time for entry acceptable to it, the means
of ingress and egress to be used by Tenant and any special
preparation required of Tenant by Landlord in connection with the
entrance and installation.
Tenant and/or its contractor entering the Building to
exercise the rights granted by this Section 3.4 shall at all
times be subject to the direction and supervision of Landlord's
building managerial staff, if any (and Landlord's security
personnel, if any), or to the Manager, who shall have the right
to (a) deny admittance to those persons who fail to show proper
identification as agents or employees of Tenant and/or its
contractor or (b) eject any such employees or agents who fail to
follow such direction.
J. In the event that any tax or assessment is
made with respect to the Building on account of the Equipment or
Cables by any federal, state or local governmental authority
(whether assessed against Landlord, Tenant, the Roof Space, the
Equipment and/or Cables), Tenant shall pay the same in a timely
manner before any lien or penalty is assessed thereon.
K. Tenant warrants that the installation and
operation of the Equipment and the Cables will not cause material
television, radio, or other interference, or any material amount
of noise or annoyance, to tenants of the Building or occupants of
neighboring properties, and that if it should occur, Tenant
will, as soon as practicable, cease use of the Equipment until it
has eliminated such interference, noise or annoyance.
L. The rights granted to Tenant pursuant to this
Section 3.4 are intended to be a license only and shall not be
construed to give to Tenant any of the rights and privileges
ordinarily associated with a leasehold or term of years.
Anything herein to the contrary notwithstanding, in the event
Tenant breaches any of the covenants and conditions contained in
this Section 3.4 and such breach continues for twenty (20) days
after written notice of such breach is delivered by Landlord to
Tenant, Landlord may terminate this license and the rights
granted to Tenant pursuant to this Section 3.4.
M. The license granted herein is expressly
limited to the Equipment and the Cables described herein and
shall not extend to any other use of the Roof Space by Tenant.
N. If at any time in the future or during the
course of renovation, alteration of improvements of the Building
it becomes necessary to remove the Equipment or the Cables,
Landlord, in cooperation with Tenant, may so remove the Equipment
or the Cables so long as they are replaced or restored in such a
way that Tenant is given equivalent service, provided that such
removal, replacement or restoration shall be done at Landlord's
expense if undertaken in connection with renovation, alteration
or improvements of the Building. Said restoration or replacement
shall commence as soon as reasonably possible and any
interruption in service shall be limited to that extent
reasonably necessary to do such work.
O. The rights granted to Tenant pursuant to this
Section 3.4 are subject to all recorded easements, encroachments,
liens, mortgages and other matters of record and this license
shall be subject and subordinate to any Mortgage and any recorded
easement, recorded lien or agreement now or hereafter on the
Building.
P. The rights granted by this Section 3.4 are
for the exclusive benefit of Tenant only and Tenant may not
assign, lease, sell or otherwise transfer any of its rights
hereunder (whether legal or equitable) without the express
written consent of Landlord, which consent shall not be
unreasonably withheld.
Q. Landlord hereby approves and agrees that
Tenant may keep, use and maintain, subject to all of the
provisions of this Section 3.4, the Equipment and Cables
installed on the Roof Space as of the date hereof (the "Existing
Equipment and Cables"). In this regard, Landlord specifically
approves the present locations of the Existing Equipment and
Cables and agrees that Tenant shall not be required to seek from
Landlord any additional approval of the Existing Equipment and
Cables pursuant to the requirements of Section 3.4A above.
Tenant expressly agrees, however, that the Existing Equipment and
Cables shall in all other respects be governed by the provisions
of this Section 3.4.
ARTICLE IV
Landlord's Covenants; Interruptions and Delays
4.1 Landlord's Covenants. Landlord covenants during the
Term:
4.1.1 Services Furnished by Landlord. To furnish
services, utilities, facilities and supplies set forth in Exhibit
C, and a lobby directory, equal in quality to those customarily
provided by landlords in high quality buildings in Cambridge, the
expense of which shall be charged in accordance with Section 2.6.
4.1.2 Additional Services Available to Tenant. To
furnish, at Tenant's expense, reasonable additional building
operation services which are usual and customary in similar
office buildings in Cambridge upon reasonable advance request of
Tenant at reasonable and equitable rates from time to time
established by Landlord.
4.1.3 Roof, Exterior, Floor Slab and Common Facility
Repairs. Except as otherwise provided in Article VI to make such
repairs and replacements (including without limitation Capital
Repairs and Special Structural Repairs) to all structural
portions of the Building, including but not limited to, the roof,
exterior walls, floor slabs, and common areas and facilities, as
may be necessary to keep them in serviceable condition, the
expense of which shall be charged in accordance with Section 2.6.
4.1.4 Signs and Building Names. To provide and
install, at Tenant's expense, letters or numerals on doors in the
Premises to identify Tenant's official name and Building address,
all such letters and numerals being in the building standard.
The signs on the exterior of the Building existing as of the date
hereof may remain thereon and Tenant shall be permitted to modify
such signs provided that prior to any such modification (i)
Tenant has received Landlord's approval, which shall not be
unreasonably withheld or delayed, and (ii) Tenant has obtained
any approvals, permits, and licenses required under applicable
laws, codes, ordinances, and regulations. Tenant shall remove
all such signs and any modifications thereto prior to such time
as Tenant vacates the Building, and upon such removal Tenant
shall restore any portion of the Building damaged by such removal
to good order, repair and condition.
4.1.5 Quiet Enjoyment. That Tenant on paying the
rent and performing the tenant obligations in this Lease shall
peacefully and quietly have, hold and enjoy the Premises, subject
to all of the terms and provisions hereof.
4.1.6 Payment of Litigation Expenses. To pay all
reasonable costs, counsel and other fees incurred by Tenant in
connection with the successful enforcement by Tenant of any
obligation of Landlord under this Lease.
4.2 Interruptions and Delays in Repairs. Landlord shall
not be liable to Tenant for any compensation or reduction of rent
by reason of inconvenience or annoyance or for loss of business
arising from the necessity of Landlord or its agents entering the
Premises for any of the purposes in this Lease authorized, or for
repairing the Premises or any portion of the Building however the
necessity may occur. In case Landlord fails to make any repairs
or to perform any other duty or covenant to be performed on
Landlord's part for reasons not due to Landlord's negligence, or
is prevented or delayed from making any repairs or performing any
other covenant or duty to be performed on Landlord's part by
reason of any cause reasonably beyond Landlord's control,
including without limitation, fire, unusual delays in
transportation, delays in adjusting insurance awards, adverse
weather conditions, casualties, governmental regulations,
inability to obtain governmental approvals, unusual scarcity of
labor or materials, and labor difficulties, (a "Force Majeure
Event"), Landlord shall not be liable to Tenant therefor, for any
consequential damages arising therefrom, nor, except as expressly
otherwise provided in this Section 4.2 or in Section 6.1, shall
Tenant be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim in
Tenant's favor that such failure constitutes actual or
constructive, total or partial, eviction from the Premises.
Notwithstanding the foregoing provision of this Section 4.2,
if for more than five (5) continuous days the use and occupancy
of a material portion of the Premises for the Permitted Uses is
impracticable due to any reason (which reason may include a Force
Majeure Event) not attributable in whole or material part to any
act or inaction of Tenant, its agents, servants, employees or
contractors including, without limitation, any default of Tenant
hereunder (an "Abatement Event"), and provided that Tenant gives
at least 3 days advance notice of Tenant's intention to rely on
this subparagraph (which notice may be given at any time after
the occurrence of the circumstance which, with the passage of
time, causes the occurrence of the Abatement Event) to Landlord
and the holder of any Mortgage, a just proportion of the fixed
rent and additional rent, according to the nature and extent of
the injury, shall be abated (with due consideration being given
to whether Tenant has actually removed any employees or personal
property from any portion of the Premises) from 3 days after such
notice has been given until the Abatement Event no longer exists;
provided that such abatement shall be permitted only if and to
the extent that rental value insurance is payable to Landlord in
the amount abated; and provided further that all fixed rent and
additional rent which is so abated shall be placed in a separate,
interest-bearing escrow account with an escrow agent reasonably
satisfactory to Landlord and Tenant, which escrow agent may be
the holder of the GECC Mortgage (as defined below), pending final
agreement between the parties or a final determination pursuant
to Section 5.14, if applicable, or otherwise, of whether such
abatement is allowed hereunder, with interest to be paid to the
party entitled to the amounts abated hereunder. In the event
that rent is placed in escrow as aforesaid, and rental value
insurance proceeds are thereafter paid to Landlord in lieu of the
rent abatement claimed by Tenant, an amount in escrow equal to
the amount of insurance proceeds paid to Landlord shall
immediately be released by the escrow agent to Tenant.
Further, in the event that an Abatement Event shall continue
for more than 60 days after notice thereof from Tenant to
Landlord and the holder of any Mortgage which notice makes
reference to this Section 4.2 (such time being extended by the
number of days, not to exceed 120 in the aggregate, of delays in
curing an Abatement Event attributable to the occurrence of a
Force Majeure Event), or if the Dispute Resolution Procedure is
applicable under e 5.14, and any party has invoked the Dispute
Resolution Procedure and the determination of the arbitrator in
the Dispute Resolution Procedure is that the condition giving
rise to the impracticability of the use and occupancy of the
material portion of the Premises in question is not attributable
in material part to the failure of the Tenant to perform its
obligations under this Lease, Tenant may terminate this Lease by
written notice delivered to Landlord within the later to occur of
(i) ten (10) days after the expiration of said 60 day period (as
so extended), or (ii) if the Dispute Resolution Procedure (as
defined below) is invoked at any time prior to the effective date
of termination, ten (10) days after the determination by the
arbitrator that such condition as aforesaid is not attributable
in material part to the failure of Tenant to perform its
obligations under this Lease, the termination date of this Lease
in either case to be thirty (30) days after the date of Tenant's
notice of termination, unless a cure of such Abatement Event is
commenced within said thirty (30) days and the cure is diligently
pursued to completion and is completed within sixty (60) days
after the date of Tenant's notice (such 60-day period to be
extended for the number of days, not to exceed one hundred twenty
(120) days in the aggregate of delays attributable to a Force
Majeure Event), in which event such notice of termination shall
not be effective.
Any amount abated and in escrow attributable to any period
of time during which it is agreed or determined that an Abatement
Event did not exist shall be paid to Landlord, together with any
interest on such amount. Any amount abated and in escrow
attributable to any period of time during which it is agreed or
determined that an Abatement Event did exist shall be paid to
Tenant, together with any interest on such amount.
Notwithstanding anything to the contrary contained herein,
the abatement and termination provisions of this Section 4.2
shall not apply to any casualty or taking for which provision is
made in Section 6.1.
In addition, as of the date of this Lease and as of the date
that this Lease is released from escrow pursuant to an escrow
agreement executed contemporaneously herewith (each, an "Estoppel
Date"), Tenant acknowledges and agrees, based upon its best
knowledge on each Estoppel Date of the condition of the
Building's structural panels, Parking Garage, building systems,
and roof, that (i) no Abatement Event exists, and (ii) no basis
exists on which Tenant may exercise its rights pursuant to
Section 5.14 to make a repair which it believes is a Capital
Repair or Special Structural Repair. The foregoing
acknowledgment and agreement is based upon Tenant's best
knowledge regarding the condition of the Building's structural
panels, Parking Garage, building systems, and roof as of each
Estoppel Date, and the impact of such condition upon Tenant's use
of the Premises as of each Estoppel Date, and shall not prohibit
Tenant from claiming that an Abatement Event or the right to
self-help under Section 5.14 exists due to any material change in
the condition of the Building's structural panels, Parking
Garage, building systems or roof after the date this Lease is
released from escrow, or any material change in the impact of
such condition on Tenant's use of the Premises.
Landlord reserves the right to stop any service or utility
system, when necessary by reason of accident or emergency, or
until necessary repairs have been completed; provided, however,
that in each instance of stoppage, Landlord shall exercise
reasonable diligence to eliminate the cause thereof and permit
Tenant to use the Premises without interruption. Except in case
of emergency repairs Landlord will give Tenant reasonable advance
notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason
thereof.
During normal business hours, Tenant, its employees, agents
and business invitees shall have the free and uninterrupted right
of access in common with others entitled thereto to the Premises
and all common areas of the Property. Subject to reasonable
security measures, Tenant and its employees shall have at all
other times the free and uninterrupted right of access in common
with others entitled thereto to the Premises and all common
areas.
4.3 Landlord's Insurance. Landlord shall at all times
during the term of this Lease, maintain in effect fire and
extended coverage insurance covering the Building, at its full
replacement cost, the expense of which shall be charged in
accordance with Section 2.6.
Landlord shall save Tenant harmless and indemnified from and
against all injury, loss, claim or damage to any person or
property while on or within the common areas (unless caused by
the act, negligence or default of Tenant, its employees, agents
licensees or contractors) occasioned by the negligence or
misconduct of Landlord. Landlord shall maintain commercial
general liability and property damage insurance in amounts not
less than $2,000,000 combined single limit for bodily injury and
property damage. Such insurance shall be with companies
qualified to do business in Massachusetts, insuring Landlord
against injury to persons or damage to property as herein
provided. Landlord shall deposit with Tenant certificates of
insurance that it is required to maintain under this Lease, at or
prior to the Commencement Date, and thereafter, within ten (10)
days prior to the expiration of each such policy. Such policies
shall, to the extent obtainable, provide that the policies may
not be materially changed or canceled without at least twenty
(20) days' prior written notice to Tenant. Such insurance may be
maintained by Landlord under a blanket policy or policies
so-called.
ARTICLE V
Tenant's Covenants
Tenant covenants during the Term and such further time as
Tenant occupies any part of the Premises:
5.1 Payments. To pay when due all fixed rent and
additional rent and all charges for utility services rendered to
the Premises (except as otherwise provided in Exhibit C), and, as
further additional rent, all charges for additional services
rendered pursuant to Section 4.1.2. All amounts required to be
paid hereunder by Tenant other than fixed rent, however
characterized, shall be additional rent.
5.2 Repair and Yield Up. Except as otherwise provided in
Article VI and Section 4.1.1, to keep the Premises in good order,
repair and condition, reasonable wear and tear and damage by fire
or other insured casualty only excepted, and all glass in windows
(except glass in exterior walls unless any damage thereto is
attributable to Tenant's negligence or misuse) and doors of the
Premises whole and in good condition with glass of the same
quality as that injured or broken, damage by fire or other
insured casualty only excepted. At the expiration or termination
of this Lease, Tenant shall peaceably yield up the Premises, and
all alterations and additions to the Premises that are a part of
the Building pursuant to Section 3.2, excepting, however, all
Tenant's equipment and trade fixtures described on Exhibit F
attached hereto, whether or not affixed to the Premises, in good
order, repair and condition, reasonable wear and tear and damage
by fire or other insured casualty only excepted, first removing
(a) all goods and effects of Tenant (including, without
limitation, the equipment and trade fixtures described in Exhibit
F), and (b) all alterations and additions to the Premises that
are not a part of the Building pursuant to Section 3.2, except
that Tenant may at its option yield up or remove such items of
the preceding clause (b) Landlord may specify in a notice given
to Tenant at least thirty (30) days before such expiration or
termination. Tenant shall repair any damage caused by such
removal, restore the Premises and leave them clean and neat.
5.3 Use. Continuously from the commencement of the Term to
use and occupy the Premises for the Permitted Uses, and
throughout the Term not to injure or deface the Premises,
Building or Lot, nor to permit in the Premises any auction sale,
or inflammable fluids or chemicals, or nuisance, or the emission
from the Premises of any objectionable noise or odor, nor to use
or devote the Premises or any part thereof for any purpose other
than the Permitted Uses, nor any use thereof which is
inconsistent with the maintenance of the Building as an office
building of the first class in the quality of its maintenance,
use and occupancy, or which is contrary to law or ordinance or
liable to invalidate or increase the premiums for any insurance
on the Building or its contents or liable to render necessary any
alteration or addition to the Building.
5.4 Obstructions; Items Visible From Exterior; Rules and
Regulations. Not to obstruct in any manner any portion of the
Building not hereby leased or any portion thereof or of the Lot
used by Tenant in common with others; not without prior consent
of Landlord (which consent shall not be unreasonably withheld) to
permit the painting or placing or any signs, awnings, aerials or
flagpoles or the like, visible from outside the Premises except
as provided in Section 4.1.4 herein; not to hang or install
drapes, blinds or shades visible from the outside of the Premises
without the prior written consent of Landlord which will not be
unreasonably withheld, except Landlord shall be presumed to be
reasonable if it believes that Tenant's proposed drapes, blinds
or shades are not consistent with the overall exterior appearance
of the Building; and to comply with all reasonable Rules and
Regulations now or hereafter made by Landlord, of which Tenant
has been given notice, for the care and use of the Building and
Lot and their facilities and approaches; Landlord shall not be
liable to Tenant for the failure of other occupants of the
Building to conform to such Rules and Regulations, provided
however, that when Landlord enforces such Rules and Regulations,
it shall enforce them uniformly against all tenants.
5.5 Safety Appliances; Licenses. To keep the Premises
equipped with all safety appliances required by law or ordinance
or any other regulation of any public authority because of any
use made by Tenant other than normal office use, and to procure
all licenses and permits so required because of such use and, if
requested by Landlord, to do any work so required because of such
use, it being understood that the foregoing provisions shall not
be construed to broaden in any way Tenant's Permitted Uses.
5.6 Assignment; Sublease. Tenant shall not without prior
written consent of Landlord, directly or indirectly assign,
mortgage, pledge or otherwise transfer this Lease, make any
sublease, or permit occupancy of the Premises or any part thereof
by anyone other than Tenant except as provided in this Section
5.6. As additional rent, Tenant shall reimburse Landlord
promptly for reasonable legal and other expenses incurred by
Landlord in connection with any request by Tenant for consent to
assignment or subletting, excluding, however, legal and other
expenses incurred which are not attributable to any unusual,
repetitive, or unduly complex requests for consent.
Landlord shall not unreasonably withhold its consent to the
requested assignment or subletting, provided that (i) the terms
and provisions of such assignment or subletting shall
specifically make applicable to the assignee or sublessee all of
the provisions of this Section 5.6 so that Landlord shall have
against the assignee or sublessee all rights with respect to any
further assignment and subletting which are set forth herein;
(ii) the character of the proposed assignee or subtenant must be
consistent with the character of the Building as a first-class
office building; (iii) no assignment or subletting shall affect
the continuing primary liability of Tenant (which, following
assignment shall be joint and several with the assignee); (iv) no
consent to any of the foregoing in a specific instance shall
operate as a waiver in any subsequent instance; (v) no assignment
shall be binding upon Landlord or any of Landlord's mortgagees,
unless Tenant shall deliver to Landlord an instrument in
recordable form which contains a covenant of assumption by the
assignee running to Landlord and all persons claiming by, through
or under Landlord, but the failure or refusal of the assignee to
execute such instrument of assumption shall not release or
discharge assignee from its liability as Tenant hereunder; and
(vi) any assignee shall be acceptable to Landlord's mortgagees
and such approval shall not be unreasonably withheld. Landlord
shall be entitled to receive one-half of all amounts received by
Tenant in excess of the Annual Fixed Rent and additional rent
reserved in this Lease applicable to the space being so assigned
or sublet (after first deducting, by amortizing over the Term of
the said Lease, all reasonable out-of-pocket expenses incurred in
the subleasing or assignment, including but not limited to such
brokerage expenses, attorneys' fees, and costs of alterations and
repairs necessary to sublease or assign such space as are
incurred by Tenant and free rent granted by Tenant, to the extent
all of which are consistent with then current marketplace
practices in Cambridge), whether such amounts received by Tenant
are characterized as consideration for the assignment or
sublease, differences in rent, or otherwise.
Notwithstanding the foregoing, Landlord's consent shall not
be required (i) for a sublease or assignment to any entity
controlled by Tenant, or (ii) for an assignment to any entity
which is a successor to Tenant by virtue of the acquisition of
all or substantially all of the assets or voting shares of
Tenant, provided that in either case no assignment or subletting
shall affect the continuing primary liability of Tenant (which,
following assignment shall be joint and several with the
assignee), and provided further that Tenant's right of assignment
under clause (ii) above shall be conditioned upon Landlord's
written acknowledgment, which it shall not unreasonably withhold,
that it has received from Tenant, at least 15 days prior to any
proposed assignment pursuant to clause (ii), evidence
satisfactory to Landlord that the net worth of the successor is
and will be immediately after such assignment equal to or
greater than the net worth of Tenant as of the date of such
notice.
5.7 Indemnity; Liability Insurance. To defend with counsel
selected by Tenant after consultation with Landlord, save
harmless, and indemnify Landlord from any liability for injury,
loss, accident or damage to any person or property, and from any
claims, actions, proceedings and expenses and costs in connection
therewith (including without limitation reasonable counsel fees),
(i) arising from (a) the omission, fault, willful act, negligence
or other misconduct of Tenant or (b) from any use made or thing
done or occurring on the Premises not due to the omission, fault,
willful act, negligence or other misconduct of Landlord, or (ii)
resulting from the failure of Tenant to perform and discharge its
covenants and obligations under this Lease.
To maintain in responsible companies qualified to do
business, and in good standing, in Massachusetts commercial
general liability insurance covering the Premises insuring
Landlord as well as Tenant with limits which shall, at the
commencement of the Term, be at least equal to those stated in
Section 1.1 and from time to time during the Term shall be for
such higher limits, if any, as are customarily carried in
Cambridge with respect to similar properties, and workmen's
compensation insurance with statutory limits covering all of
Tenant's employees working in the Premises, and to deposit
promptly with Landlord certificates for such insurance, and all
renewals thereof, bearing the endorsement that the policies will
not be materially changed or canceled without 20 days prior
written notice to Landlord. Landlord and the holder of any
Mortgage shall be additional insureds under such commercial
general liability insurance policies. Such insurance may be
maintained by Tenant under a blanket policy or policies.
5.8 Personal Property at Tenant's Risk; Tenant's Insurance
on Personal Property. That all of the furnishings, fixtures,
equipment, effects and property of every kind, nature and
description of Tenant and of all persons claiming by, through or
under Tenant which, during the continuance of this Lease or any
occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises or elsewhere in the Building or on
the Lot, shall be at the sole risk and hazard of Tenant, and if
the whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other
cause, no part of said loss or damage is to be charged to or
borne by Landlord, except that Landlord shall in no event be
indemnified or held harmless or exonerated from any liability to
Tenant or to any other person, for any injury, loss, damage or
liability to the extent such indemnity, hold harmless or
exoneration is prohibited by law.
Tenant shall maintain property insurance including standard
fire and extended coverage insurance, vandalism and malicious
mischief endorsement, and "all-risks" coverage upon all property
owned by Tenant and located in the Building or on the Lot.
Tenant shall deposit promptly with Landlord certificates for such
insurance and all renewals thereof, bearing the endorsement that
the policies will not be materially changed or cancelled without
20 days prior written notice to Landlord. In addition, Tenant
shall maintain business interruption insurance in an amount
sufficient to reimburse Tenant for loss of income attributable to
Tenant's inability to gain access or conduct business at the
Premises as a result of direct damage to the Premises from a
covered peril.
5.9 Right of Entry. To permit Landlord and its agents: to
examine the Premises at reasonable times and, if Landlord shall
so elect, to make any repairs or replacements Landlord may deem
necessary; to remove, at Tenant's expense, any alterations,
additions, signs, curtains, blinds, shades, awnings, aerials,
flagpoles or the like not consented to in writing or permitted
hereunder; and to show the Premises to prospective tenants during
the eighteen (18) months preceding expiration of the Term and to
prospective purchasers and mortgagees at all reasonable times,
provided that Landlord observes and respects all of Tenant's
reasonable security requirements and, except in cases of
emergency, provides Tenant with reasonable advance notice of the
exercise of rights under this Section.
5.10 Floor Load. Not to place a load upon the Premises
exceeding an average rate of 70 pounds of live load per square
foot of floor area (partitions shall be considered as part of the
live load); and not to move any safe, vault or other heavy
equipment into, about or out of the Premises except in such
manner and at such time as Landlord shall in each instance
authorize; Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the
Building structure or to any other space in the Building shall be
so installed, maintained and used by Tenant as to eliminate such
vibration or noise. Landlord acknowledges, without having
undertaken any investigation of the matter, that it is not aware
as of the date of this Lease of any violation of covenants set
forth in this Section.
5.11 Personal Property Taxes. To pay promptly when due all
taxes which may be imposed upon personal property (including,
without limitation, fixtures and equipment) in the Premises to
whomever assessed.
5.12 Payment of Enforcement Expenses. As additional rent,
to pay all reasonable costs, counsel and other fees incurred by
Landlord in connection with the successful enforcement by
Landlord of any obligation of Tenant under this Lease after an
Event of Default has occurred.
5.13 Compliance with Insurance Regulations. Not to do or
permit to be done any act or thing upon the Premises which will
invalidate or be in conflict with the terms of the Massachusetts
standard form of fire, boiler, sprinkler, water damage or other
insurance policies covering the Building and the fixtures and
property therein; Tenant shall, at its own expense, comply with
all rules, regulations, and requirements of the National Board of
Fire Underwriters or any state or other similar body having
jurisdiction, and shall not knowingly do or permit anything to be
done in or upon the Premises in a manner which increases the rate
of fire insurance upon the Building or on any property or
equipment located therein.
5.14 Tenant's Self-Help; Arbitration of Certain Matters.
It is possible that Landlord and Tenant may disagree from
time to time as to whether any failure in the provision of a
service or utility or the failure of the structural portions of
the Building to be in serviceable condition is attributable to
Landlord's failure to make a repair (including without limitation
a Capital Repair or Special Structural Repair) required
hereunder. For purposes of this Section 5.14, completion of the
Dispute Resolution Procedure (as defined below) in a
determination by the arbitrator that a failure in the provision
of a service or utility or the failure of the structural portions
of the Building to be in serviceable condition is attributable to
a failure by Landlord to make such a repair shall be referred to
as "completion of the Dispute Resolution Procedure in favor of
Tenant". In the event Landlord and Tenant disagree as aforesaid,
Tenant may, but shall not be obligated to, make such repair,
provided that (i) Tenant has given written notice to Landlord and
the holder of any Mortgage of its belief that Landlord has failed
to make such a repair and Landlord shall not have made such
repair or commenced to have made such repair within 90 days after
such notice and thereafter diligently prosecuted such repair to
completion, and (ii) the "Dispute Resolution Procedure", as
hereinafter defined, shall have been completed in favor of
Tenant. In such event, (i) Tenant may deduct any reasonable
costs and expenses incurred in making such repair from any
portion of fixed rent thereafter coming due, provided that in the
aggregate such deductions shall not exceed $4,000,000.00 during
the initial Term and $2,000,000.00 during any extension of the
Term; and (ii) any work done pursuant to this Section shall be
subject to the second paragraph of Section 3.2 and to Section 3.3
hereof.
Notwithstanding the foregoing, if such event is an emergency
such that there is an imminent threat to health or safety, Tenant
may, but shall not be obligated to, make any such repair prior to
the passage of ninety (90) days and the completion of the Dispute
Resolution Procedure as aforesaid, the cost of which repair does
not exceed $100,000, provided that (i) Tenant has given prior
written notice to Landlord and the holder of any Mortgage; (ii)
Tenant shall not be entitled to deduct any costs and expenses
incurred in making such repair unless and until completion of the
Dispute Resolution Procedure in favor of Tenant; (iii) any work
done pursuant to this Section shall be subject to the second
paragraph of Section 3.2 and to Section 3.3 hereof; and (iv) the
$100,000 limitation shall not apply to any cure of an emergency
which is required prior to the time that the Dispute Resolution
Procedure can be completed by an order of the Cambridge Building
Inspector or other governmental authority.
In the event of a disagreement as aforesaid, either party
may submit such disagreement to arbitration, in accordance with
the following procedure and the Commercial Arbitration Rules of
the American Arbitration Association, as the same may be amended
from time to time, to the extent not inconsistent with the
provisions of this Lease (the "Dispute Resolution Procedure"):
(i) The party seeking arbitration shall (A) notify the other
party of its intention to arbitrate, (B) identify with
specificity the issue(s) to be arbitrated, and (C) nominate at
least three individuals who are impartial, qualified experts in
the area(s) to be arbitrated; (ii) the other party shall, within
ten (10) business days of its receipt of such notice, respond in
writing setting forth (X) any additional issues which it desires
to arbitrate, and (Y) the names of at least three individuals who
are qualified experts in the area(s) to be arbitrated (one or
more of whom may have also been on the initiating party's list);
(iii) the parties shall attempt to select a mutually acceptable
arbitrator from the lists circulated, but if the parties are
unable to agree, then either party may submit the two lists to a
court of competent jurisdiction and request that said court
choose one name from either of the lists to serve as the
arbitrator hereunder, such choice to be made on the basis of the
most qualified impartial person with respect to the subject
matter at issue; (iv) each party shall immediately submit to the
arbitrator so selected a detailed written statement setting forth
(A) the issue(s) in dispute and (B) the reasons for the party's
position on each such issue. The arbitrator shall conduct such
hearings, investigations and discovery as may be appropriate with
access provided to all parties and shall, as expeditiously as
possible and in any event within 90 days after the date of
submission of the dispute for his/her determination, render
his/her decision. Each party shall pay its own counsel fees and
expenses, if any, in connection with any arbitration. The
parties shall share equally the fees and expenses of the
arbitrator. The determination rendered by such arbitrator shall
be final and binding on Landlord and Tenant, shall have the same
force and effect as a judgment made in a court of competent
jurisdiction, and either party shall be entitled to have a
judgment entered thereon in a court of competent jurisdiction.
5.15 Hazardous Substances. Tenant shall not cause, suffer
or allow any hazardous or toxic wastes, hazardous or toxic
substances or hazardous or toxic materials (collectively,
"Hazardous Materials") to be used, generated or stored on, under
or about, the Premises, or any portion of the Building or the Lot
(collectively, "Hazardous Materials Activities") without first
receiving Landlord's written consent, which consent shall not be
unreasonably withheld if the use, storage or generation of such
Hazardous Materials is necessary for the conduct of Tenant's
business in accordance with the Permitted use and provided that
Landlord receives such assurances as it shall reasonably require
against any loss or damage arising out of the use, storage or
generation of any Hazardous Materials. If Landlord consents to
any Hazardous Materials Activities, Tenant shall conduct them in
strict compliance at Tenant's expense with all applicable
Regulations, as hereinafter defined, and using all necessary and
appropriate precautions. Landlord shall not be liable to Tenant
for any Hazardous Materials Activities by Tenant, Tenant's
employees, agents, contractors, licensees or invitees, whether or
not consented to by Landlord. Tenant shall indemnify, defend
with counsel reasonably acceptable to Landlord and hold Landlord
harmless from and against any claims, damages, costs and
liabilities arising out of Tenant's Hazardous Materials
Activities, whether or not approved by Landlord and any breach by
Tenant of any covenant under this Section. Tenant shall not
dispose of hazardous substances except in compliance with all
applicable Regulations.
For the purposes hereof, Hazardous Materials shall include
substances defined as "hazardous substances", "toxic substances",
or "hazardous wastes" in the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; the
federal Hazardous Materials Transportation Act, as amended; and
the federal Resource Conservation and Recovery Act, as amended
("RCRA"); those substances defined as "hazardous wastes" in the
Massachusetts Hazardous Waste Facility Siting Act, as amended
(Massachusetts General Laws Chapter 21D); those substances
defined as "hazardous materials" or "oil" in Massachusetts
General Laws Chapter 21E, as amended; and as such substances are
defined in any regulations adopted and publications promulgated
pursuant to said laws (collectively, "Regulations").
Prior to using, storing or maintaining any Hazardous
Materials on or about the Premises other than those commonly used
in normal office operation, Tenant shall provide to Landlord a
plan regarding Hazardous Waste management (a "Hazardous Materials
Management Plan") which shall include a list of the types and
quantities of any Hazardous Materials to be used, stored or
maintained on or about the Premises, a description of the precise
location where such Hazardous Materials will be used, stored or
maintained, and a description of the steps Tenant shall take to
inspect for, detect, minimize, respond to and mitigate any
release of Hazardous Materials. The Hazardous Materials
Management Plan shall be updated annually by Tenant, or more
frequently if necessary. Tenant shall at all times strictly
comply with the Hazardous Materials Management Plan. Tenant
shall also provide Landlord a copy of any Hazardous Materials
inventory statement required by any applicable Regulations and
any update filed in accordance with any applicable regulations.
If Tenant's activities violate or create a risk of violation of
any Regulations or the Hazardous Materials Management Plan,
Tenant shall cease such activities immediately.
Tenant shall immediately notify Landlord both by telephone
and in writing of any spill or unauthorized discharge of
Hazardous Materials or of any condition constituting an "imminent
hazard" under any Regulations. Landlord, and Landlord's
representatives and employees, may enter the Premises at any time
during the Term to inspect Tenant's compliance herewith, and may
disclose any violation of any Regulations to any governmental
agency with jurisdiction.
At the expiration or termination of this Lease, Tenant shall
yield up the Premises free of all Hazardous Materials and illegal
contaminants of any kind resulting from Tenant's use of the
Premises.
ARTICLE VI
Casualty and Taking
6.1 Termination or Restoration; Rent Adjustment. In case
during the Term fifty percent (50%) or more of the total rentable
floor area of the Premises or the Building are damaged by fire or
other casualty or by action of public or other authority in
consequence thereof, or the Building is damaged to such an extent
that Landlord determines that the Building should be demolished
("Substantial Damage"), or twenty percent (20%) or more of the
Building or the Lot are taken by eminent domain or Landlord
receives compensable damage by reason of anything lawfully done
pursuant to public or other authority, or the Building is taken
to such an extent that Landlord determines that the Building
should be demolished (a "Taking"), this Lease shall terminate at
Landlord's or Tenant's election, which may be made
notwithstanding Landlord's entire interest may have been
divested, by notice given to the other within 90 days after the
election to terminate arises specifying the effective date of
termination. The effective date of termination specified shall
not be less than 15 nor more than 30 days after the date of
notice of such termination. Unless terminated pursuant to the
foregoing provisions, this Lease shall remain in full force and
effect following any damage or taking, subject, however, to the
following provisions. If in any such case the Premises (or a
portion thereof) are rendered unfit for use and occupation and
this Lease is not so terminated, Landlord shall use due diligence
(following the expiration of the period, if any, in which either
party may terminate this Lease pursuant to the foregoing
provisions of this Section 6.1) to put the Premises, or in case
of a taking what may remain thereof (excluding in case of both
damage and taking any items installed or paid for by Tenant which
Tenant may be required to remove pursuant to Section 5.2), into
proper condition for use and occupation. A just proportion of
the fixed rent and additional rent according to the nature and
extent of the injury shall be abated from the time of the damage
or taking until the Premises or such remainder shall have been
put by Landlord into proper condition for use and occupation or
until termination of this Lease; and in case of a taking which
permanently reduces the area of the Premises, a just proportion
of the fixed rent and additional rent shall be abated for the
remainder of the Term. If Landlord has not put the Premises into
proper condition for use and occupation within one (1) year after
its election to terminate arises, Tenant shall have the right to
terminate this Lease by notice to Landlord given within sixty
(60) days after such one (1) year period expires specifying the
effective date of termination.
6.2 Eminent Domain Damages. Any awards made for damages to
the Premises and Building and Lot and the leasehold hereby
created, or any one or more of them, accruing by reason of
exercise of eminent domain or by reason of anything lawfully done
in pursuance of public or other authority shall be paid to the
extent of their respective interests first to the ground lessor
under the Ground Lease, and second to the holders of any
Mortgages in order of priority of said Mortgages, and any
remainder shall be allocated on an equitable basis between
Landlord and Tenant in accordance with their respective
interests. Nothing contained herein shall be deemed to preclude
Tenant from obtaining, or to give Landlord any interest in, any
separate award to Tenant for loss or damage to Tenant's
removable personal property or Tenant's relocation costs.
6.3 Temporary Taking. In the event of any taking of the
Premises or any part thereof for temporary use (a "Temporary
Taking"), provided that Tenant gives at least three (3) days,
advance notice of its intention to rely on this Section to
Landlord and the holder of any Mortgage (which notice may be
given at any time after the Temporary Taking), a just proportion
of the fixed rent and additional rent (with due consideration
being given to whether Tenant has actually removed any employees
or personal property from any portion of the Premises) shall be
abated for the period from three (3) days after such notice has
been given until the Temporary Taking has ended, but in no event
shall such abatement exceed the amount of the award made on
account of the Temporary Taking. In the event that rent is so
abated, (i) Tenant waives any and all of Tenant's rights to any
award on account of a Temporary Taking, and (ii) Tenant hereby
releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to deliver such further assignments and
assurances thereof as Landlord may from time to time reasonably
request.
ARTICLE VII
Default
7.1 Events of Default. If any default by Tenant continues
after written notice, in case of fixed rent or additional rent
for more than ten (10) days, or in any other case for more than
thirty (30) days and such additional time, if any, as is
reasonably necessary to cure the default if the default is of
such a nature that it cannot reasonably be cured in thirty (30)
days; or if Tenant becomes insolvent or fails to pay its debts as
they fall due; or if Tenant makes any trust mortgage or
assignment for the benefit of creditors; or if Tenant proposes
any composition, arrangement, reorganization or recapitalization
with creditors; or if Tenant's leasehold hereunder or any
substantial part of the property of Tenant is taken on execution
or other process of law or is attached or subjected to any other
voluntary encumbrance; or if a receiver, trustee, custodian,
guardian, liquidator or similar agent is appointed with respect
to Tenant, or if any such person or a mortgagee, secured party or
other creditor takes possession of the Premises or of any
substantial part of the property of Tenant, and, in either case,
if such appointment or taking of possession is not terminated
within 60 days after it first occurs; or if a petition is filed
by or with the consent of Tenant, or is filed against Tenant
under any chapter of the U.S. Bankruptcy Code, 11 U.S.C. e101 et
seq. or any similar petition under any law of any jurisdiction
concerning insolvency, reorganization, arrangement, or relief
from creditors; (and in the case of a petition filed against
Tenant, such petition is not stayed or dismissed within 60 days),
or if Tenant dissolves or is dissolved or liquidated or adopts
any plan or commences any proceeding, the result of which is
intended to include dissolution or liquidation; then in any such
case (each an "Event of Default"), whether or not the Term shall
have begun, Landlord may immediately, or at any time while such
Event of Default exists and without further notice, terminate
this Lease by notice to Tenant, specifying a date not less than
ten days after the giving of such notice on which this Lease
shall terminate and this Lease shall come to an end on the date
specified therein as fully and completely as if such date were
the date herein originally fixed for the expiration of the Term,
and Tenant will then quit and surrender the Premises to Landlord,
but Tenant shall remain liable as hereinafter provided.
7.2 Damages. In the event that this Lease is terminated
under any of the provisions contained in Section 7.1, Tenant
covenants to pay forthwith to Landlord, as compensation, the
excess, if any, of the total rent reserved for the residue of the
Term over the rental value of the Premises for said residue of
the Term. In calculating the rent reserved there shall be
included, in addition to the fixed rent and all additional rent,
the value of all other considerations agreed to be paid or
performed by Tenant for said residue. Tenant further covenants
as an additional and cumulative obligation after any such ending
to pay punctually to Landlord all the sums and perform all the
obligations which Tenant covenants in this Lease to pay and to
perform in the same manner and to the same extent and at the same
time as if this Lease had not been terminated. In calculating
the amounts to be paid by Tenant under the next foregoing
covenant Tenant shall be credited with any amount paid to
Landlord as compensation as in this Section 7.2 provided and also
with the net proceeds of any rent obtained by Landlord by
reletting the Premises after deducting all Landlord's expenses in
connection with such reletting, including, without limitation,
all commercially reasonable repossession costs, brokerage
commissions, fees for legal services and expenses of preparing
the Premises for such reletting, it being agreed by Tenant that
Landlord may (i) relet the Premises or any part or parts thereof,
for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have
constituted the balance of the Lease Term and may grant such
concessions and free rent as Landlord in its sole judgment
considers advisable or necessary to relet the same and (ii) make
such alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable or necessary to
relet the same, and no action of Landlord in accordance with the
foregoing or failure to relet or to collect rent under reletting
shall operate or be construed to release or reduce Tenant's
liability as aforesaid.
Nothing contained in this Lease shall limit or prejudice the
right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or
not the amount be greater, equal to, or less than the amount of
the loss or damages referred to above.
ARTICLE VIII
Miscellaneous
8.1 Computation of Rental Floor Areas. The parties agree
that the computations of rentable floor areas set forth in this
Lease shall be conclusive, and there shall be no remeasurement of
the same for any purposes hereunder.
8.2 Notice of Lease; Consent or Approval; Notices; Bind and
Inure, Trust Estate. The titles of the Articles are for
convenience only and are not to be considered in construing this
Lease. Tenant agrees not to record this Lease, but upon request
of either party both parties shall execute and deliver a notice
of this Lease in form appropriate for recording or registration,
and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
Whenever any notice, approval, consent, request or election is
given or made pursuant to this Lease it shall be in writing.
Communications and payments shall be addressed if to Landlord at
Landlord's Original Address or at such other address as may have
been specified by prior notice to Tenant, and if to Tenant, at
Tenant's Original Address or at such other place as may have been
specified by prior notice to Landlord. Any communication so
addressed shall be deemed duly served upon receipt or refusal of
delivery if mailed by registered or certified mail, return
receipt requested, or if delivered by hand. If Landlord by
notice to Tenant at any time designates some other person to
receive payments or notices, all payments or notices thereafter
by Tenant shall be paid or given to the agent designated until
notice to the contrary is received by Tenant from Landlord. The
obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that
only the original Landlord named herein shall be liable for
obligations accruing before the beginning of the Term. No
trustee, partner, partner of such partner, director, officer,
shareholder or beneficiary of Landlord or any constituent partner
of any beneficiary of Landlord shall have any personal liability
hereunder, it being expressly agreed that all liability of
Landlord shall be limited to Landlord's interest in the Property
and any proceeds of any insurance required to be kept by
Landlord, and that Tenant shall not seek recourse against any
trustee, partner, partner of such partner, director, officer,
shareholder or beneficiary of Landlord or any constituent partner
of any beneficiary of Landlord, or any of their personal assets
for satisfaction of any liability with respect to this Lease.
Nothing contained herein shall be deemed to limit any rights
which Tenant may otherwise have to obtain injunctive relief or
specific performance against Landlord.
8.3 Failure to Enforce. The failure of Landlord or of
Tenant to seek redress for violation of, or to insist upon strict
performance of, any covenant or condition of this Lease, or, with
respect to such failure of Landlord, any of the Rules and
Regulations referred to in Section 5.4, whether heretofore or
hereafter adopted by Landlord, shall not be deemed a waiver of
such violation nor prevent a subsequent act, which would have
originally constituted a violation, from having all the force and
effect of an original violation, nor shall the failure of
Landlord to enforce any of said Rules and Regulations against any
other tenant of the Building be deemed a waiver of any such Rules
or Regulations. The receipt by Landlord of fixed rent or
additional rent with knowledge of the breach of any covenant of
this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived by
Landlord, or by Tenant, unless such waiver be in writing signed
by the party to be charged. No consent or waiver, express or
implied, by Landlord or Tenant to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or
of any other breach of the same or any other agreement or duty.
8.4 Acceptance of Partial Payments. No acceptance by
Landlord of a lesser sum than the fixed rent and additional rent
then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement
or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided. The delivery of
keys to any employee of Landlord or to Landlord's agent or any
employee thereof shall not operate as a termination of this Lease
or a surrender of the Premises.
8.5 Cumulative Remedies. The specific remedies to which
Landlord may resort under the terms of this Lease are cumulative
and are not intended to be exclusive of any other remedies or
means of redress to which it may be lawfully entitled in case of
any breach or threatened breach by Tenant of any provisions of
this Lease. In addition to the other remedies provided in this
Lease, Landlord shall be entitled to the restraint by injunction
of the violation or attempted or threatened violation of any of
the covenants, conditions or provisions of this Lease or to a
decree compelling specific performance of any such covenants,
conditions or provisions.
8.6 Partial Invalidity. If any term of this Lease, or the
application thereof to any person or circumstances, shall to any
extent be invalid or unenforceable, the remainder of this Lease,
or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not
be affected thereby, and each term of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
8.7 Landlord's Self-Help. If Tenant shall at any time
default in the performance of any obligation under this Lease,
and (except in cases of emergency) such default continues beyond
the notice and grace periods herein and therein provided,
Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provision for such
substituted performance by Landlord is made in this Lease with
respect to such default. In performing such obligation, Landlord
may make any payment of money or perform any other act. All sums
so paid by Landlord (together with interest at the rate of 2 1/2
percentage points over the prevailing prime rate in Boston as set
by The Bank of Boston from time to time, but not in excess of the
maximum rate allowable by law) and all necessary incidental costs
and expenses in connection with the performance of any such act
by Landlord, shall be deemed to be additional rent under this
Lease and shall be payable to Landlord immediately on demand.
Landlord may exercise the foregoing rights without waiving any
other of its rights or releasing Tenant from any of its
obligations under this Lease.
8.8 Tenant's Estoppel Certificate. Tenant agrees from time
to time, upon not less than fifteen days prior written request by
Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing certifying as of the date of such statement
that this Lease is unmodified and in full force and effect and
that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the fixed rent and additional rent and to
perform its other covenants under this Lease and that there are
no uncured defaults of Landlord or Tenant under this Lease (or,
if there have been any modifications that the same is in full
force and effect as modified and stating the modifications and,
if there are any defenses, offsets, counterclaims, or defaults,
setting them forth in reasonable detail), and the dates to which
the fixed rent, additional rent and other charges have been paid
(an "Estoppel Certificate"). Any such statement delivered
pursuant to this Section 8.8 may be relied upon by any
prospective purchaser or mortgagee of the Premises or any
prospective assignee of any mortgagee of the Premises.
8.9 Waiver of Subrogation. Any insurance carried by either
party with respect to the Premises or property therein or
occurrences thereon shall include a clause or endorsement denying
to the insurer rights of subrogation against the other party to
the extent rights have been waived by the insured prior to
occurrence of injury or loss. Each party, notwithstanding any
provisions of this Lease to the contrary, hereby waives any
rights of recovery against the other for injury or loss due to
hazards covered by such insurance to the extent of the
indemnification received thereunder.
8.10 All Agreements Contained. This Lease contains all of
the agreements of the parties with respect to the subject matter
hereof and supersedes all prior dealings between them with
respect to such subject matter.
8.11 Brokerage. Each of Landlord and Tenant warrants that
it has had no dealings with any broker, consultant or agent in
connection with this Lease other than Avalon Partners, Inc.
("Avalon"). Landlord and Tenant each covenant to defend with
counsel approved by the other party, hold harmless and indemnify
each other from and against any and all cost, expense or
liability for any compensation, commissions and charges claimed
by any broker or agent with respect to the dealings of Tenant or
Landlord, as applicable, in connection with this Lease or the
negotiation thereof, other than Avalon. Landlord shall be
responsible for all compensation, commissions and charges due to
Avalon.
8.12 Submission Not an Option. The submission of this Lease
or a summary of some or all of its provisions for examination
does not constitute a reservation of or option for the Premises
or an offer to lease, it being understood and agreed that neither
Landlord nor Tenant shall be legally bound with respect to the
leasing of the Premises unless and until this Lease has been
executed and delivered by both Landlord and Tenant.
8.13 Applicable Law. This Lease, and the rights and
obligations of the parties hereto, shall be construed and
enforced in accordance with the laws of the Commonwealth of
Massachusetts.
8.14 Waiver of Jury Trial. Landlord and Tenant hereby waive
trial by jury in any action, proceeding or counterclaim brought
by either of the parties hereto against the other, on or in
respect to any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and
Tenant hereunder, Tenant's use or occupancy of the Premises,
and/or claim of injury or damages.
8.15 Holdover. Should Tenant holdover in occupancy of the
Premises after the expiration of the Term of this Lease, it shall
be liable to Landlord for rent equal to (i) for the first 60 days
after the expiration of the Term of this Lease, 125% of the
Annual Fixed Rent rate in effect at the end of the Term, and all
additional rent due hereunder, and (ii) thereafter twice the
Annual Fixed Rent rate in effect at the end of the Term, all
additional rent due hereunder, and also for all damages sustained
by Landlord on account of such holding over. The provisions of
this Section shall not operate as a waiver of any right of
reentry provided in this Lease.
8.16 Evidence of Corporate Authority. Tenant shall deliver
to Landlord a secretary's or assistant secretary's certificate of
vote or other evidence satisfactory to Landlord, as to the
authority of the persons executing this Lease on behalf of Tenant
to enter into, execute, deliver and bind Tenant to this Lease.
8.17 Americans With Disabilities Act. Landlord shall be
responsible, at its sole cost and expense, for causing (i) the
exterior pedestrian entrances, (ii) the Building's first floor
lobby, and (iii) the second floor mezzanine (to the extent any
work is required with respect thereto in Landlord's reasonable
judgment) to comply with the provisions of the Americans With
Disabilities Act, 42 U.S.C. e 12,101 et seq. (the "ADA") as in
effect on the date hereof. Tenant shall be responsible, at its
sole cost and expense, for causing the Premises to comply with
the ADA. In the event of any modification to the ADA after the
date hereof which requires further changes to the exterior
pedestrian entrances, the Building's first floor lobby or the
second floor mezzanine, or if changes to other portions of the
Building which are not a part of the Premises are required by the
ADA as now or hereafter in effect, the cost of such changes shall
be treated as a Code-Compliance Capital Item.
8.18 Riverside Place Limited Partnership. Landlord and
Tenant shall enter into such documentation as shall be reasonably
necessary to effectuate a restructuring of Tenant's interests as
a limited partner in CC&F Riverside Place Limited Partnership, a
Massachusetts limited partnership created by Limited Partnership
Agreement dated as of October 20, 1983, as outlined in Exhibit G
hereof.
ARTICLE IX
Rights of Parties Holding Prior Interests
9.1 Lease Subordinate-Superior. This Lease shall be
subject and subordinate to any mortgage on the Property from time
to time, including without limitation, a Leasehold Mortgage and
Security Agreement and Fixture Filing dated October 31, 1985 by
Ferdinand Colloredo-Mansfeld, John M. Hines and James V. Young as
Trustees of CC&F Cambridge Parkway Trust under Declaration of
Trust dated May 26, 1982, recorded with Middlesex South Registry
of Deeds in Book 14637, Page 527 to General Electric Credit
Corporation, recorded with the Middlesex South Registry of Deeds
in Book 16541, Page 500, as now or hereafter amended (the "GECC
Mortgage"), now or hereinafter placed on Property, or any portion
or portions thereof (each of which is referred to herein as a
"Mortgage") and to each advance made or hereafter to be made
under any Mortgage, and to all renewals, modifications,
consolidations, replacements and extensions thereof and all
substitutions therefor, provided that the holder of any Mortgage
shall enter into an agreement with Tenant by the terms of which
such holder will agree to recognize the rights of the Tenant
under this Lease and to accept Tenant as tenant of the Premises
under the terms and conditions of this Lease in the event of
acquisition of title by such holder through foreclosure
proceedings or otherwise and Tenant will agree to recognize the
holder of any such Mortgage as Landlord in such event, which
agreement shall be made expressly to bind and inure to the
benefit of the successors and assigns of Tenant and of the holder
of such Mortgage and upon anyone purchasing the Premises at any
foreclosure sale. Notwithstanding the foregoing any such holder
may at its election subordinate its mortgage to this Lease
without the consent or approval of Tenant. Tenant and Landlord
agree to execute and deliver simultaneously with the execution of
this Lease any appropriate instruments necessary to carry out the
nondisturbance and subordination agreements contained in this
Section 9.1.
This Lease shall be subject and subordinate to a Ground
Lease dated as of November 12, 1982 from George Howland, et al.,
as Trustees of Real Estate Investment Trust of America under
Declaration of Trust dated November 1, 1955, recorded with
Middlesex South Registry of Deeds, Book 8735, Page 367, whose
interest has been succeeded to by John A. Pirovano, as Trustee of
CC&F Cambridge Parkway II Trust, (the "Ground Lease"). Tenant
agrees, and Landlord agrees to cause the holder of the lessor's
interest under the Ground Lease, to execute and deliver a
nondisturbance, recognition and attornment agreement in the form
customarily used by the holder of the Ground Lease.
9.2 Modification, Termination or Cancellation. No
agreement to make or accept any surrender, termination or
cancellation of this Lease and no agreement to modify so as to
reduce the rent, change the Term, or otherwise materially change
the rights of Landlord under this Lease, or to relieve Tenant of
any material obligations or liability under this Lease, shall be
valid unless consented to by Landlord's mortgagees of record, if
any. No fixed rent, additional rent, or any other charge shall
be paid more than thirty days prior to the due date thereof and
payments made in violation of this provision shall (except to
the extent that such payments are actually received by a
mortgagee) be a nullity as against any mortgagee and Tenant shall
be liable for the amount of such payments to such mortgagee.
9.3 Rights of Holder of Mortgage. No act or failure to act
on the part of Landlord which would entitle Tenant under the
terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in
a release or termination of such obligations or a termination of
this Lease unless (i) Tenant shall have first given written
notice of Landlord's act or failure to act to Landlord's
mortgagees of which Tenant has been given written notice, if any,
specifying the act or failure to act on the part of Landlord
which could or would give basis to Tenant's rights; and (ii) such
mortgagees, after receipt of such notice, have failed or refused
to correct or cure the condition complained of within a
reasonable time thereafter; but nothing contained in this Section
9.3 shall be deemed to impose any obligation on any such
mortgagees to correct or cure any condition. Notwithstanding the
foregoing, the provisions of this Section 9.3 shall not derogate
from Tenant's rights pursuant to Sections 4.2 and 5.14 and shall
not operate so as to extend the time periods prescribed in said
Sections 4.2 and 5.14. "Reasonable time" as used above means and
includes a reasonable time to obtain possession of the mortgaged
premises if the mortgagee elects to do so and a reasonable time
to correct or cure the condition if such condition is determined
to exist.
9.4 Implementation of Article IX. Tenant agrees on request
of Landlord to execute and deliver from time to time any
agreement which may reasonably be deemed necessary to implement
the provisions of this Article IX.
EXECUTED as a sealed instrument in two or more counterparts
on the day and year first above written.
LANDLORD
/s/John A. Pirovano
--------------------
John A. Pirovano
As Trustee of CC&F Cambridge Parkway
Trust but not individually
TENANT:
LOTUS DEVELOPMENT CORPORATION
By:/s/Edwin J. Gillis
----------------------
Name: Edwin J. Gillis
Title: Senior Vice President, Chief Financial
Officer Finance and Administration
Hereunto duly authorized
EXHIBIT C
Landlord Services
Attached to and made part of Lease dated Between
Trustees of CC&F Cambridge Parkway Trust, Landlord
and Lotus Development Corporation, Tenant
I. CLEANING
A. Office Area
Daily: (Monday through Friday, inclusive. Holidays
excepted.)
1. Empty and clean all waste receptables and ash
trays and remove waste material from the Premises; wash
receptacles as necessary.
2. Sweep and dust mop all uncarpeted areas using a
dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all
horizontal surfaces including furniture, office equipment, window
sills, door ledges, chair rails, and convector tops, within
normal reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and
telephones and replace same.
7. Wipe clean all brass and other bright work.
8. Hand dust all grill work within normal reach.
9. Upon completion of cleaning, all lights will be
turned off and doors locked, leaving the Premises in an orderly
condition.
Weekly:
1. Dust coat racks, and the like.
2. Remove all finger marks from private entrance
doors, light switches and doorways.
Quarterly:
1. Clean and spray wax vinyl asbestos tile floors in
tenant areas.
2. Render high dusting not reached in daily cleaning
to include:
a. Dusting all pictures, frames, charts, graphs,
and similar wall hangings.
b. Dusting all vertical surfaces, such as walls,
partitions, doors, and ducts.
c. Dusting of all pipes, ducts, and high
moldings.
B. Lavatories
Daily: (Monday through Friday, inclusive, holidays
excepted.)
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and
receptacles, bright work, flushometers, piping, and toilet seat
hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal
receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel
dispensers, vending sanitary dispensers; materials to be
furnished by Landlord.
9. A sanitizing solution will be used in all lavatory
cleaning.
Monthly:
1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
C. Main Lobby, Elevators, Building Exterior and Corridors
Daily: (Monday through Friday, inclusive, holidays
excepted.)
1. Sweep and wash all floors.
2. Wash all rubber mats.
3. Clean elevators, wash or vacuum floors, wipe down
walls and doors.
4. Spot clean any metal work inside lobby.
5. Spot clean any metal work surrounding Building
Entrance doors.
Monthly: All resilient tile floors in public areas to
be treated equivalent to spray buffing.
D. Window Cleaning
Windows of exterior walls will be washed quarterly.
E. Tenant requiring services in excess of those described
above shall request same through Landlord, at Tenant's expense.
II. HEATING, VENTILATING, AIR CONDITIONING
A. Landlord shall furnish space heating and cooling as
normal seasonal changes may require to provide reasonably
comfortable space temperature and ventilation for occupants of
the Premises under normal business operation, daily from 8:00
a.m. to 6:00 p.m. (Saturdays to 1:00 p.m.), Sundays and holidays
excepted.
If Tenant shall require air conditioning or heating or
ventilation outside the hours and days above specified, Landlord
shall furnish such service at Tenant's expense.
B. The air conditioning system is based upon an occupancy
of not more than one person per 150 square feet of usable area,
and upon a combined lighting and standard electrical load not to
exceed 2.4 watts per square foot of usable area. In the event
Tenant exceeds this condition or introduces onto the Premises
equipment which overloads the system, and/or in any other way
causes the system not adequately to perform their proper
functions, supplementary systems may at Landlord's option be
provided by Landlord at Tenant's expense.
III. WATER
A. Cold water at temperatures supplied by the City of
Cambridge water mains for drinking, lavatory, kitchen, restaurant
and toilet purposes and hot water for lavatory purposes only from
regular building supply at prevailing temperatures; provided,
however, that Landlord may, at its expense, install a meter or
meters to measure the water supplied to any kitchen (including
dishwashing) and restaurant areas in the Premises, in which case
Tenant shall upon Landlord's request reimburse Landlord for the
cost of the water (including heating thereof) consumed in such
areas and the sewer use charges resulting therefrom.
IV. ELEVATORS
A. The passenger elevator system shall be in automatic
operation and available to Tenant at all times. The use of the
service elevator will have to be scheduled with the Landlord and
coordinated with the needs of the other tenants.
B. At Tenant's request, Landlord will exercise reasonable
efforts to arrange for the passenger elevator to be locked off
from one or more of Tenant's floors, at Tenant's expense and
subject to other governmental requirements.
V. ELECTRICAL SERVICE
A. Landlord shall, at Tenant's expense, provide electric
power for up to 2.25 watts per square foot of usable area for
lighting plus 3.75 watts per square foot of usable area for
special equipment and office machines through standard
receptacles for the typical office space.
B. Landlord, at its option, may require separate metering
and billing to Tenant for the electric power required for any
special equipment (such as computers and reproduction equipment)
that require either 3-phase electric power or any voltage other
than 120. Landlord will furnish and install at Tenant's expense
all replacement lighting tubes, lamps, and ballasts required by
Tenant. Landlord will clean lighting fixtures on a regularly
scheduled basis at Tenant's expense.
EXHIBIT F
TENANT'S EQUIPMENT AND TRADE FIXTURES
* Telephone Switch & Equipment
* Data Communications Equipment (Not including wiring)
* Electrical Power Distribution Modules - Lotus installed
* Supplemental HVAC Units (installed by Tenant)
* Computer Room Liebert HVAC and Power Distribution Units
* Computer Room Furniture - including but not limited to
built-in consoles
* AV Equipment - Free standing or installed, to include
rear screen projection screens
* Kitchen Equipment which is not permanently installed
including, but not limited to:
-- refrigerators
-- deli counters
-- serving counters
-- preparation tables
But specifically excluding:
-- stoves, ovens, walk-in-freezer
______________________________________________________________________________
Exhibit 10(c)(1)
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE dated as of May 1, 1994, by and
between John A. Pirovano, as Trustee of CC&F Cambridge Parkway
Trust under Declaration of Trust dated May 26, 1982, and recorded
with Middlesex South Registry of Deeds in Book 14637, Page 527,
and not individually, ("Landlord") and Lotus Development
Corporation ("Tenant").
WHEREAS Landlord and Tenant have entered into a lease of
premises located at 55 Cambridge Parkway, Cambridge,
Massachusetts dated as of May 1, 1994 (the "Lease"); and
WHEREAS Landlord and Tenant wish to amend the Lease for the
purposes of clarifying certain matters intended to be included
inthe Lease, all on the terms set forth herein.
NOW THEREFORE, Landlord and Tenant hereby amend the Lease as
follows:
1. In the definition of "Annual Fixed Rent" in Section 1.1
of the Lease, the following is added after the description of
Annual Fixed Rent for Lease Year 11: "Landlord and Tenant
acknowledge and agree that included within the Annual Fixed Rent
for each Lease Year is (i) a charge attributable to the 382
parking spaces leased to Tenant pursuant to Section 2.1.1, at a
monthly rate per parking space during each Lease year as
described in the last sentence of said Section 2.1.1, and (ii) a
charge attributable to Premises Expenses (as defined in Section
2.6(d)) on account of additional rent of $9.00 per annum per net
rentable square foot (pro rated in the case of the first and last
Lease Years), all as described in Section 2.6(e)."
2. Section 2.6(e) is amended by adding the following,
after the phrase "(the 'Premises Expense Base')" in line 4
thereof: "and Tenant shall receive from Landlord a credit, as
more particularly described in section 2.6(f) below, to the
extent that Premises Expenses are less than $9.00 per annum per
net rentable square foot, pro rated in the case of the first and
last Lease Year".
3. Section 2.6(f) is amended by changing the period at the
end of the third sentence thereof to a comma (after the words
"this Section 2.6"), and adding the following: "Or, if the then
applicable budget for the ten-current calendar year assumes that
no payment will become due under this Section 2.6 in that calndar
year, any amount so overpaid shall be applied against future
payment of Annual Fixed Rent thereafter becoming due under this
Lease."
In all other respects, the Lease is hereby ratified and
confirmed.
Executed as a sealed instrument in two or omore counterparts
as of the day and year first written above.
LANDLORD:
/s/John A. Pirovano
----------------------------
John A. Pirovano, as Trustee
of CC&F Cambridge Parkway Trust,
but no individually
TENANT:
LOTUS DEVELOPMENT CORPORATION
By: /s/Edwin J. Gillis
--------------------
Edwin J. Gillis,
Senior Vice President,
Chief Financial Officer,
Finance and Operations,
Hereunto duly authorized
______________________________________________________________________________
Exhibit 10(f)
LOTUS DEVELOPMENT CORPORATION
Certificate of Assistant Secretary
The undersigned, Larry J. Braverman, does hereby certify
that he is the Assistant Secretary of Lotus Development
Corporation, a Delaware corporation (the "Company"), and that he
has been duly elected or appointed to such office in accordance
with the By-laws of the Company and DOES HEREBY CERTIFY that the
following resolution is a true, complete and correct copy of a
resolution duly adopted at a meeting of the Board of Directors of
the Company on December 15, 1994, such resolution is in full
force and effect on the date hereof in the form in which it was
adopted and no other resolution has been adopted by the Board of
Directors of the Company or any committee thereof relating to the
transaction referred to in such resolution.
RESOLVED: That the compensation for the Corporation's
non-employee Directors for 1995 shall be the sum of $24,000.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and the seal of the Company on this 20th day of March, 1995.
/s/Larry J. Braverman
----------------------
Larry J. Braverman
Assistant Secretary
______________________________________________________________________________
Exhibit 11
LOTUS DEVELOPMENT CORPORATION
Computation of Primary and Fully Diluted
Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Net income (loss).................................................... ($20,879) $55,535 $80,403
========= ======== ========
Weighted average shares outstanding during the year ................. 47,013 43,089 42,306
Common equivalent shares ............................................ -- 1,632 688
--------- -------- --------
Common and common equivalent shares outstanding for
purpose of calculating primary net income (loss) per share ....... 47,013 44,721 42,994
Incremental shares to reflect full dilution ......................... -- 924 --
--------- -------- --------
Total shares for purpose of calculating
fully diluted net income (loss) per share ........................ 47,013 45,645 42,994
========= ======== ========
Primary net income (loss) per share ................................. ($0.44) $1.24 $1.87
========= ======== ========
Fully diluted net income (loss) per share ........................... ($0.44) $1.22 $1.87
========= ======== ========
</TABLE>
______________________________________________________________________________
Exhibit 13
LOTUS DEVELOPMENT CORPORATION
1994 REPORT TO SHAREHOLDERS
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
---------------------------------------------------------------------------------------------
(In thousands,
except per share data) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales ................. $970,723 $981,168 $900,149 $828,895 $692,242
Net income (loss) ......... (20,879) (1) 55,535 (2) 80,403 (3) 33,116 (4) 23,254 (5)
Net income (loss) per share (0.44) (1) 1.24 (2) 1.87 (3) 0.75 (4) 0.54 (5)
Total assets .............. 904,079 905,345 763,444 725,537 656,807
Stockholders' equity ...... 554,130 528,391 399,438 323,113 309,439
=============================================================================================
Notes: (1) 1994 amounts include a non-tax deductible charge to operations of
$67.9 million, or $1.40 per share, for purchased research and
development related to the acquisitions of Soft*Switch, Inc. and
Edge Research, Inc. 1994 amounts also include a restructuring charge
of $9 million on a pre-tax basis and $5.8 million, or $0.12 per
share, on an after-tax basis.
(2) 1993 amounts include a non-tax deductible charge to operations of
$19.9 million, or $0.45 per share, for purchased research and
development related to the acquisition of Approach Software
Corporation.
(3) 1992 amounts include gains on the sale of the Company's investment
in Sybase, Inc., of $49.7 million on a pre-tax basis and $33.3
million, or $0.77 per share, on an after-tax basis. 1992 amounts also
include a restructuring charge of $15 million on a pre-tax basis and
$10.1 million, or $0.23 per share, on an after-tax basis.
(4) 1991 amounts include a restructuring charge of $23 million on a
pre-tax basis and $18.6 million, or $0.42 per share, on an after-tax
basis.
(5) 1990 amounts include a non-tax deductible charge to operations of
$53 million, or $1.23 per share, for purchased research and
development related to the acquisition of Samna Corporation.
</TABLE>
<PAGE>
PRESIDENT'S LETTER
1994 was the year of the information superhighway - in the media, countless
conference speeches, and almost anything associated with information technology.
We've been unable to escape from the metaphor. So we've made it the theme for
this year's annual report.
But we've got our own take on it. For us, it's as much a continuing journey
as an ultimate destination. Last year I vowed to never again mention the word
"transition," but in retrospect, that was unrealistic. Transition is another
word for change, and in our business, change is inevitable. In fact, our company
is all about creating and exploiting change.
Lotus began an important journey back in 1985 with the start of development
for Notes. Back then, all the focus was on the individual desktop, which was
perhaps not inappropriate for the flood tide of the PC Revolution. The idea of
personal computers that would reach beyond the individual desktop and allow
people to communicate and share information had fewer adherents.
With Notes, we soon blazed a rather substantial road. Today, we have more
than 5,000 customers and 1.35 million users. An entire industry has built up
around Notes, with more than 8,000 business partners offering new products and
services. cc:Mail, the industry's leading mail product, now has 6.5 million
users.
For Lotus, the information superhighway is not something on the drawing
boards, or under construction. We have ten years of development experience and
five years of in-market experience with our communications products, and people
are using it to get places. In early 1994, IDC announced the results of a study
showing that companies deploying Notes are realizing returns on investment
averaging 179 percent.
This past year, we've been joined by several partners in broadening the
scope of Notes in the marketplace, including AT&T, Hewlett-Packard, and IBM.
Our communications strategy has clearly given us a fast lane for growth - with
revenues increasing 94 percent this past year. In the fourth quarter,
communications revenues exceeded desktop revenues for the first time.
We now have three major businesses. The first two, communications and
desktop applications, are well established. As the transition toward
communications continues, the desktop business remains substantial, generating
revenues and profits that enable us to invest in growth. Our third business,
public networks and inter-enterprise computing, is just getting started and
has vast potential.
Our commitment to the desktop remains strong. We continued to move ahead
with our desktop applications in 1994, with 1-2-3 Release 5, a new SmartSuite,
and new releases of Approach, Organizer, Freelance Graphics and Ami Pro. But
this is no longer an easy business. There are factors, such as the maturity
of the business and the unrelenting competition, that have changed this business
forever. We also made our own mistakes - a series of product slips at mid-year
and poor performance in Europe - but we've taken steps to correct them.
The pace of growth for each of our businesses is clearly quite different.
The desktop business has become mature, with marginal growth. Renewed growth
will depend on our ability to reinvent it through team computing. Our
communications business, on the other hand, has established considerable
momentum. And our public network inter-enterprise business is a classic
start-up, with no profits now, but enormous growth potential.
Given this mix and range in our businesses, it is not surprising that our
stock price was volatile this past year. The market had a wide range of
views on the size and timing of future profits. For our part, we are quite
happy with our mix. It provides a good balance of steady revenues and
substantial growth opportunities.
The question we must always ask is: Are we there yet?
Part of the answer, obviously, is yes. We have built a great road. We are
out in front with Notes. No competitor has anything like it. Our customers are
reaching destinations in terms of return on investment and achieving business
goals.
But in another sense, we are still on our way. Our customers continue to
face difficult technology and investment choices, and no one is going to get
there all at once. Our job is to help them manage the journey. As Jack Kerouac
said in On the Road: "There's always more, a little further - it never ends."
That's fine with us. There are many opportunities still ahead - for Lotus, our
shareholders, and our customers.
/s/ Jim Manzi
Jim Manzi
President and CEO
<PAGE>
Figure 1 - photo of Jim Manzi, President and CEO Lotus Development Corporation.
<PAGE>
Figure 2 - graphic text reads across the top of all pages of the story.
Figure 3 - photo of a portion of a yellow line in road.
Figure 4 - the words STARTING OUT appear in vertical text format
along left side of page.
There is such a thing as vision in the world of business. It is never as
dramatic or far-reaching as what happened to Saul on the road to Damascus, but
it does occur, and when it does, it can have a major impact on a company and
its customers, even on the way that all companies do business.
The vision that now guides Lotus began back in 1985, when Ray Ozzie and a
small team of developers started work on the software that became Lotus Notes.
It began with an idea that was different - at the time.
In 1985, the PC Revolution was in full flower, and all the attention was
on the possibilities of individual empowerment and, it was assumed, individual
productivity.
The different view - or vision - of the Notes developers was that
personal computers were more interesting, and quite possibly more valuable, if
people could use them, not just to work in isolation, but to communicate and
share information with other people. Work in any organization is, after all, as
much collaborative as personal. In fact, work always involves other people, and
in business, products are rarely developed or sold, and revenues are rarely
generated, by people acting alone.
Figure 5 - photo of a "Pedestrians Crossing" street sign.
The insight seems obvious today, when everyone is clamoring to engineer
their way onto the information superhighway. But back in 1985, developing Notes
was an errand into the wilderness, an errand that took five years of
development, followed by five years of in-market and further development to
reach what it's become today. But our foresight has paid off with annual growth
rates of nearly 100 percent for Lotus communications products, and we are ahead
of the rush to the highway. We have been on it, with our customers, for some
time. As Old Bull Lee says in On the Road: "Only damn fools pay no attention
to visions."
Figure 6 - photo of a pair of binoculars in the lower right corner of page.
<PAGE>
Figure 7 - photo of tire tread marks in road.
Figure 8 - the words ROADS PRECEDE MAPS appear in vertical text format
along left side of page.
If you are making a map, it helps if you've been there. Otherwise you are
like those mapmakers before Columbus who drew wild beasts at the edge of the
world. Or those real estate boosters in early 19th century America who created
maps of imaginary roads to imaginary cities in order to sell land on the
frontier.
For Lotus, there is nothing new about groupware, communications software,
or helping people use computer networks to share information and achieve
organizational goals. We've been exploring this territory with our customers for
some time.
Roads have been built, and people are using them to get where they want to
go. There are now 1.35 million users of Notes, and 6.5 million users of cc:Mail,
and thousands more are being added every month. Lotus has more than 5,000
customers and 8,000 business partners developing applications for Notes and
cc:Mail.
<PAGE>
Figure 9 - photo of bridge overpass.
Other substantial roads built by Lotus preceded these newer ones. They are
our desktop applications. One of them, 1-2-3, pretty much blazed the way for
a whole new industry. When we began building communications software, at first
it appeared to diverge from traditional desktop applications. But we always
believed that all of our products are more useful if they work together, if
you can readily get from one to the other, if the roads converge.
Today, many customers use our desktop suite because it works so well with
our communications applications, and vice versa.
In discussions of computer systems and software, you often hear the term
"architecture." It is like a map, and some say that when you don't have
products in the marketplace, an architecture is the next best thing. But Lotus'
communications architecture is real, something on which real products, tools,
services, and thousands of applications are being built. It is a map being
drawn from ever-widening experience and knowledge.
Figure 10 - photo of a globe in lower right corner.
<PAGE>
Figure 11 - an abstract photo of an interstate highway sign.
Figure 12 - the words ROADS ARE FOR COMMERCE appear in vertical text
format along the left side of page.
The Romans built roads to administer their empire, and one rationale for
the interstate highway system in the United States was civil defense. But
the main purpose of roads has always been commerce: getting goods and
services to market, connecting business with customers, producers with
suppliers.
The same is true of today's electronic highways. The main purpose is not
home entertainment, but work and commerce.
Eventually there may be movies on demand and a marketplace for home
shopping that goes beyond ordering pizza or floral arrangements. But in the
meantime, there's already substantial and rapidly growing traffic that serves
the business (as distinct from the consumer) marketplace. Companies invest in
Notes applications because they can reduce the time and enhance the quality of
such basic business processes as product development and customer service. The
growth of the business market is driven by the tangible returns companies
receive on their investment.
Figure 13 - photo of the side of a truck.
The first electronic links are internal, connecting groups within the
enterprise, but soon reach outward to connect the enterprise with customers and
suppliers. As a result of this electronic web, the structure of business
organizations, and the nature of commerce itself, is changing. Businesses
are able to focus on what they do best, and "outsource" other functions. The
lines between companies, even industries, become blurred, and new
configurations and new opportunities for commerce become possible. One road
leads to another.
Figure 14 - photo of a scale in the lower right corner of page.
<PAGE>
Figure 15 - photo of a 15-minute parking sign.
Figure 16 - the words YOU NEED TO GET THERE FROM HERE appear in vertical
text format along the left side of page.
There is no standing still - we know we can't be complacent.
Lotus' communications strategy rests on the premise that our customers
have little interest in open-ended questions. Companies are more concerned with
achieving specific goals, such as profitability and market share. "Are we there
yet?" is about as general as any business question gets, and it implies a
destination.
Surfing on a sea of information is not a business goal. Nor is the
accumulation of information. Since economic value is based on scarcity, and
since the amount of information in the world is infinite, information has no
value by itself. It is valuable when it is used, when it leads to the
production of goods and services.
<PAGE>
Figure 17 - photo of tire tread marks on the road into the horizon.
The information economy is nothing new. Every economy - from the
hunter-gatherer clans to market economies and even planned economies - depends
on information. What has changed is the velocity of information and the
potential access to it - both the result of today's information and
communications technology. This places a premium on getting the right
information and getting it fast, and on marshalling information in order to
decide and act. Businesses are attempting to transform themselves with
information technology ("reengineering" has become well established in business
parlance).
Lotus' business lies at the heart of a major intersection where technology,
organizational change, and the impact on people at work all converge. Our
purpose is to provide not just great products - Notes, cc:Mail and desktop
applications for team computing - but also the benefit of our experience and
knowledge, so that our customers can get where they want to go.
Figure 18 - photo of a welcome mat in lower right corner of page.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
As an aid to understanding the Company's operating results, the table below
indicates the percentage relationships of income and expense items included in
the Consolidated Statements of Operations for each of the three years ended
December 31, 1994 and the percentage changes in those items for each of the
two years ended December 31, 1994.
<TABLE>
<CAPTION>
Percent changes year to year Items as a percentage of net sales
------------------------------------------------------------------------------------------
1994-93 1993-92 Income and expense items 1994 1993 1992
------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
(1%) 9% Net sales 100.0% 100.0% 100.0%
(15%) 1% Cost of sales 17.8% 20.6% 22.2%
------------------------------------------------------------------------------------------
3% 11% Gross margin 82.2% 79.4% 77.8%
Expenses:
25% 7% Research and development 16.3% 12.9% 13.1%
8% 9% Sales and marketing 51.2% 47.2% 47.1%
(2%) 1% General and administrative 7.1% 7.1% 7.7%
- - Other (income)/expense, net (A) 7.0% 1.8% (3.4%)
------------------------------------------------------------------------------------------
17% 17% Total expenses 81.6% 69.0% 64.5%
------------------------------------------------------------------------------------------
(94%) (15%) Income before provision for
income taxes 0.6% 10.4% 13.3%
(43%) 17% Provision for income taxes 2.7% 4.7% 4.4%
------------------------------------------------------------------------------------------
(138%) (31%) Net income (loss) (2.1%) 5.7% 8.9%
==========================================================================================
(135%) (34%) Net income (loss) per share ($0.44) $1.24 $1.87
==========================================================================================
Note (A): 1994, 1993 and 1992 amounts include significant non-recurring income and expense
items which are set forth in Footnote J to the financial statements.
</TABLE>
<PAGE> 3
RESULTS OF OPERATIONS
1994 compared to 1993
---------------------
Revenue
The Company's revenue is derived from desktop applications products and
communications products and services. Desktop applications products include
SmartSuite (an integrated applications suite), 1-2-3 (spreadsheets), Ami Pro
(word processing), Freelance Graphics (presentation graphics), Lotus Approach
(end-user database) and Lotus Organizer (personal information management).
Communications products and services include Lotus Notes (workgroup computing),
cc:Mail (electronic mail), Soft*Switch (electronic mail switching) and
consulting services.
The Company's worldwide revenue decreased 1% to $971 million in 1994.
Revenue from desktop applications declined by 20%, while revenue from
communications products and services grew by 94%. This performance generally
reflects competition for the Company's products in the maturing desktop
applications market, growing momentum for the Company's products in the
expanding client-server communications market and an initial adverse effect
from the implementation of the Company's Passport program.
Desktop Applications Revenue
Revenue from desktop applications represented 64% of total revenue in 1994, as
compared to 79% in 1993. DOS desktop applications revenue, primarily from 1-2-3
for DOS, declined approximately $135 million in 1994. Windows desktop
applications revenue remained relatively unchanged in 1994, as an increase in
revenue from SmartSuite was offset by a decline in revenue from standalone
applications. SmartSuite represented 46% of Windows desktop applications
revenue in 1994 compared to 30% in 1993.
The 20% decline in desktop applications revenue in 1994 is primarily
attributable to severe competition, as well as downward pricing pressure and the
continuing migration of users from DOS-based to Windows-based applications.
The Company believes that intense competition, particularly from its
largest competitor, Microsoft Corporation ("Microsoft"), resulted in a reduction
in Windows desktop applications revenue and market share. The Company believes
that mid-year delays in the shipment of certain Windows desktop products also
contributed to a decrease in revenue and market share as certain end-users may
have purchased competitive products rather than waiting for the Company's new
product offerings. Windows market share losses were particularly pronounced in
the Company's European business, where weaker-than-expected end-user demand,
higher-than-desired distribution channel inventories in certain markets and
severe competition contributed to the decline in desktop applications revenue.
On a worldwide basis, pricing for Windows desktop applications products
declined in 1994 compared to 1993 due to competitive factors and an increase in
the number of volume sales contracts with large corporate customers. The
Company anticipates that downward pressure on pricing will continue.
The marketplace migration from DOS to Windows adversely affected and will
continue to affect the Company's results, as its current market share for
Windows spreadsheets is lower than that for DOS spreadsheets. However, the
Company believes that the magnitude of the decline in DOS-based revenue in 1995
should not be as dramatic as that experienced in recent years, as DOS-based
revenue continues to represent a smaller share of overall revenue.
Other factors that could affect the Company's desktop applications revenue
over its next fiscal year include the rate of growth of the Windows market, the
market shift from standalone applications to integrated suites, the impact of
"Windows 95", a new operating system that Microsoft has announced it will
release in 1995, and the sales and marketing efforts of Microsoft and Novell,
Inc. ("Novell") relative to those of the Company. See "Issues and Risks".
Significant new desktop products released in the third quarter of 1994
included 1-2-3 for Windows Release 5.0, 1-2-3 for DOS Release 4.0, SmartSuite
for Windows Release 3.0, Ami Pro for Windows Release 3.1, Freelance Graphics for
Windows Release 2.1 and Lotus Approach for Windows Release 3.0. In the fourth
quarter of 1994, the Company released Lotus Organizer for Windows Release 2.0.
<PAGE> 4
Communications Products and Services Revenue
Revenue from communications products and services represented 36% of total
revenue in 1994 as compared to 19% in 1993. The primary component of the
communications revenue growth was a substantial increase in Lotus Notes revenue.
Notes revenue increased more than 100% during the year, and the number of Notes
users more than doubled. As of December 31, 1994, there were approximately
1.35 million users of Notes worldwide.
The Company believes that its Notes revenue performance was driven by
several elements. As the client-server market expands and there is a greater
availability of networked personal computers, demand for networked applications,
such as Notes, has increased. In addition, end-user demand for Notes has grown
dramatically as customers have begun to understand how the product's workgroup
computing capabilities can enable them to become more productive. The Company
has further enhanced the product's value to customers by expanding the number
of third parties, or business partners, who are capable of developing
applications for Notes. As of December 31, 1994, the number of business
partners offering products and services for Notes had increased to more than
8,000. Also contributing to the growth in Notes revenue is the greater
availability of Notes on different operating system platforms. As of December
31, 1994, Notes was available on the Windows, Windows NT, OS/2, Macintosh,
UNIX SCO, UNIX AIX, UNIX HP-UX and Sun Solaris operating system platforms.
The Company announced that it will lower its pricing for Notes in 1995 in an
effort to accelerate growth in the number of end-users. While the Company does
not believe that competition is currently a significant factor in the workgroup
computing market, several competitors with greater resources than those of the
Company have announced their intentions to enter into this market. In
addition, the Company expects that continued growth in this market will
attract other competitors. The latest commercially available version of Notes,
Release 3.2, was last updated in the third quarter of 1994.
Also contributing to the communications revenue growth were increases in
product and service revenue from cc:Mail, consulting services and customer
support. In addition, communications revenue in 1994 included
five months of revenue from newly acquired Soft*Switch, Inc. ("Soft*Switch").
While cc:Mail revenue continues to grow, its rate of growth is lower than that
of the prior year. The Company believes that the decline in the rate of growth
of cc:Mail revenue is attributable to a decline in the growth rate of the
LAN-based electronic mail market and to increased competition. As of December
31, 1994, there were approximately 6.5 million cc:Mail users worldwide. The
Company anticipates that customer support revenue from communications products
will continue to represent a growing component of communications revenue as the
installed base of Notes, cc:Mail and Soft*Switch customers grows.
Passport Program
In May 1994, the Company launched Passport, a new sales program intended to
facilitate and simplify volume purchases by corporate customers on a worldwide
basis. Under the Passport program, the Company's resellers offer discounted
worldwide pricing to end-user customers based on customers' cumulative program
purchases or their non-binding commitments to purchase certain volumes of Lotus
products in the future. Customers can select options that may or may not
require an initial purchase. However, if an initial purchase is not required,
customers can maintain their program pricing by purchasing against their
commitments in a specified period of time and by purchasing a certain
percentage of their total commitment within the first six months. The Company
believes that the transition to Passport resulted in a slower-than-expected
conversion of customer purchase commitments into actual sales in the second and
third quarters of 1994. However, the Company believes that over time Passport
will strengthen its competitive position and will result in increased sales.
International Revenue
Revenue outside the United States declined to 48% of the Company's worldwide
revenue in 1994 from 51% in 1993, primarily due to the decline in desktop
revenue in Europe. This decline was partially offset by sales gains in the Asia
Pacific region, particularly in communications revenue in Japan. The impact of
foreign currency fluctuations on international revenue was insignificant.
<PAGE> 5
Expenses and Profit Margins
Gross margin as a percentage of sales increased to 82% in 1994 compared with 79%
in 1993. The gross margin improvement is primarily attributable to reduced
manufacturing and delivery costs resulting from an increase in the percentage
of sales in the form of non-physical license rights, a corresponding decrease
in the percentage of sales in the form of physical units ("shrinkwrap product")
and material cost reductions. Gross profit margins in the United States were
approximately 85% in 1994 as compared to approximately 80% in 1993.
International gross profit margins were approximately 77% in 1994 as compared to
approximately 78% in 1993. The difference in geographic margins in 1994 was
primarily due to a more rapid shift in the United States of sales from physical
units to non-physical license rights.
The Company continues to make investments in research and development to
maintain a competitive position in the desktop market and to add to and improve
its communications products. Research and development expenses increased 25% to
$159 million in 1994, reflecting a constant level of desktop development
spending year over year and significantly higher spending associated with the
Company's communications products. Additionally, the acquisition of
Soft*Switch and an increase in international product development spending
contributed to higher research and development expenses. Capitalized software
development costs during 1994 were $36 million compared with $25 million for
1993. The increase reflects the growth in research and development spending
on communications products.
Sales and marketing expenses increased 8% to $497 million in 1994. The
increase consists of significantly higher spending for marketing, sales and
support of communications products and a slight decrease in marketing spending
for desktop products. The Company's expansion of its communications support
capability and growth in the consulting services business also drove higher
sales and marketing spending in 1994.
General and administrative expenses decreased 2% to $69 million in 1994 as
the Company continued efforts to control infrastructure and fixed costs.
In May 1994, the Company acquired all of the outstanding shares of Iris
Associates, Inc. ("Iris") in a transaction that was accounted for as a pooling
of interests. The acquisition had an immaterial impact on the results of
operations in 1994.
In July 1994, the Company acquired Soft*Switch, Inc. The purchase price
consisted of approximately $64.3 million of cash consideration, $8 million of
assumed liabilities and $5.2 million of deferred tax liabilities. A significant
portion of the purchase price was allocated to purchased research and
development, resulting in a $62.5 million charge to the Company's 1994
operations. See Note K of Notes to Consolidated Financial Statements. This
charge, which is included in other income and expense, is not deductible for tax
purposes. Subsequent to the acquisition, the Company initiated substantial
development efforts to make Soft*Switch's EMX products more competitive in a
rapidly changing environment. These efforts are focused on the development
of the ultimate standalone EMX product and the integration of the underlying EMX
technology with the Company's other communications products. Development
efforts will be concentrated on improving performance, cross-platform
functionality, usability, connectivity, systems management and communication
protocol layers and are expected to involve extensive rewriting of the code.
The Company expects to invest considerable amounts through 1997 to complete
and continue development of the ultimate technologies using the purchased
research and development.
In September 1994, the Company acquired Edge Research, Inc. ("Edge"). The
purchase price was allocated to purchased research and development resulting in
a $5.4 million non-tax deductible charge to other income and expense in 1994.
See Note K of Notes to Consolidated Financial Statements.
<PAGE> 6
In the third quarter of 1994, the Company recorded a $9 million
restructuring charge to other income and expense related to the Company's
European operations and to the discontinuation of a product. European
restructuring activities include the streamlining of the marketing organization
from a product focus to a market segment focus, the centralization of certain
finance and administration functions and a reduction in desktop applications
support staff. The restructuring activities in 1994 resulted in a reduction
in force of approximately 130 positions, primarily in the United Kingdom and
Germany. The associated charge reflects severance and related costs, of which
$5.8 million was paid in 1994. The charge related to the discontinued product
reflects a $1.1 million non-cash write-off of capitalized software due to the
decision to discontinue further development and marketing. The Company
anticipates that these restructuring activities will be essentially completed
within the next six months and that the likely effects on future operating
results will principally consist of a reduction in compensation and
amortization expenses. The Company expects to save approximately $8 million
annually over the next several years as a result of the restructuring. The
Company does not believe that the restructuring will have a material impact
on future liquidity.
Other income and expense also includes interest income and expense and the
effect of currency transaction gains and losses. Interest income was higher
in 1994 than in 1993 because of higher average cash and short-term investment
balances and higher interest rates. Interest expense declined primarily due to
scheduled debt repayments.
In June 1993, the Company acquired Approach Software Corporation
("Approach"). The purchase price consisted of approximately $23 million of cash
consideration and assumed liabilities. A significant portion of the purchase
price was allocated to purchased research and development, resulting in a $19.9
million charge to the Company's 1993 operations. See Note K of Notes to
Consolidated Financial Statements. This charge, which is included in other
income and expense, is not deductible for tax purposes. Subsequent to the
acquisition, the Company initiated substantial development efforts focused on
improving the user interface, conforming the technology to the Company's
cross-product standards and integrating the technology into the Company's suite
of desktop applications. These efforts are expected to involve extensive
rewriting of the code and the addition of significant new product features.
At the time of the acquisition, the Company expected to invest approximately
$20 million through 1996 to complete and continue the development of the
ultimate technology using the purchased research and development.
Earnings for 1994, excluding the restructuring and purchased research and
development charges, were $52.8 million, or $1.08 per share. Earnings for 1993,
excluding the charge for purchased research and development, were $75.4
million, or $1.69 per share.
The effective tax rate for 1994 of 36%, excluding the effect of non-tax
deductible charges for purchased research and development related to the
acquisitions of Soft*Switch and Edge, compares with 38% for 1993, excluding the
effect of a non-tax deductible charge for purchased research and development
related to the acquisition of Approach. The decrease in the rate reflects
benefits derived from the Company's international manufacturing operations.
<PAGE> 7
Issues and Risks
----------------
There are a number of business factors, which singularly or combined, may affect
the future results of the Company. The following issues and risks, among others,
should be considered when evaluating the future outlook of the Company.
Competition, generally. The applications software business is highly
competitive. The Company's products compete with software products offered by
larger independent software companies, such as Microsoft and Novell. Certain
products offered by the Company are directed at operating environments or
business applications in which one or more companies were early entrants and
enjoy significant product and market share.
Rapid technological change. The personal computer and software industries
are characterized by rapid technological change, such as changes in operating
systems, and uncertainties as to widespread acceptance of new products. The
Company's success in the future will depend in part on its ability to anticipate
and respond to these changes on a timely basis.
Changes in the personal computer industry. The Company believes that demand
for the Company's products is indirectly linked to the demand for new personal
computers for business use, particularly in the case of desktop applications.
Historically, the industry has been characterized by sustained growth in unit
sales of personal computers, but no assurance can be given that this trend will
continue. Accordingly, the level of demand for personal computers for business
use may be viewed by certain investors as potentially predictive of future
demands for the Company's products.
Long-term investment cycle. Developing, manufacturing and licensing software
is expensive and the investment in product development often involves a long
pay-back cycle. The Company's future plans include significant investments in
software research and development, from which significant revenues may not be
realized for a number of years.
Historical significance of desktop revenue. Historically, the Company has
used profits from desktop revenue to make substantial investments in the
Company's communications products. Although revenue from communications
products has grown significantly over the last few years, revenue from desktop
applications is important to the continued funding of the communications
business. There can be no assurance that desktop revenue will continue at
historical levels.
Windows desktop applications competition. The Company believes that its
share of the Windows desktop applications market will be an important factor in
its future success. Although the Company's share of this market fluctuates from
quarter to quarter, management believes that the Company is second in market
share to Microsoft, the developer of the MS-DOS and Microsoft Windows
operating environments, in the spreadsheet and desktop suite product
categories, and third behind Microsoft and WordPerfect, a unit of Novell, in
the word processing product category. Furthermore, the Company believes that
Microsoft has and will continue to use its position in operating systems to
leverage its lead in the Windows desktop applications market.
The market for Windows desktop applications is highly competitive and
attempts by these larger competitors to maintain or increase market share
may lead to product price reductions and increased marketing efforts aimed
at sales of bundled desktop applications sold as suites.
Desktop suites competition. Competition in the Windows applications market
has been intensified by the emergence of desktop "suites", in which software
publishers combine and integrate standalone applications for sale as a unit.
The desktop suite magnifies the effects of competition in the desktop
applications market, since the popularity of one major product in a suite may
drive the sale of the entire suite and may enable the software publisher to
occupy the buyer's entire personal computer "desktop". Generally, the sales
price of a suite is greater than the price of any single application included
in the suite, but is significantly less than the aggregate price of all the
applications included in the suite, if purchased separately. The Company
believes that sales of SmartSuite generate greater revenue per user desktop and
do not significantly reduce gross margins, despite imputed lower sales prices
per application, because users of the suite purchase applications that they
would not otherwise purchase on a standalone basis. The Company expects that
sales of desktop suites will continue to account for a growing percentage of
all Windows desktop sales and will eventually surpass aggregate sales of
individual desktop applications as a percentage of all Windows desktop sales.
<PAGE> 8
The Company, Microsoft and Novell each market applications suites for the
Windows operating environment. The Company believes that SmartSuite revenue
has been driven by growing demand for desktop suites, the Company's highly rated
individual applications, particularly 1-2-3 for Windows, and the high degree of
integration among the products in its suite. However, no assurance can be
given that sales of SmartSuite will grow.
Communications products competition. The Company was an early entrant into
the market for software designed to facilitate workgroup computing and believes
that its offering, Lotus Notes, is the leading product in this category.
Workgroup computing is an emerging technology and, as such, is subject to rapid
changes. There can be no assurance that Notes will continue to gain market
acceptance as increased competition brings new products and new technology
to the marketplace for workgroup computing.
Like the market for desktop applications generally, the market for local
area network-based e-mail products is also highly competitive. The Company's
largest competitor in this market is Microsoft, which has announced its
intention to include certain e-mail functions in future versions of its
operating systems software. There can be no assurance that such development will
not have an adverse effect on the Company's market share for communications
products.
Possibility of new product delays. As is common in the computer software
industry, the Company has from time to time experienced delays in its product
development and "debugging" efforts, and may experience similar delays from
time to time in the future. Significant delays in developing, completing or
shipping new or enhanced products could adversely affect the Company.
Historical patterns of revenue flow. The Company's sales revenue typically
fluctuates from quarter to quarter, with sales being relatively higher in the
fourth quarter and in quarters in which new versions of established products
are introduced. In addition, a high percentage of the Company's revenues are
expected to be realized in the third month of each fiscal quarter and tend to
be concentrated in the latter half of that month. The Company's backlog early
in a quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter. Accordingly, the Company's
quarterly results may be difficult to predict until the end of the quarter,
and a shortfall in shipments or contract orders at the end of any particular
quarter may cause the results of that quarter to fall short of anticipated
levels.
Reserves for sales returns. The Company engages channel partners to sell
products to end-users. Channel partners buy significant quantities of products
from the Company in anticipation of sales of such products. In certain
circumstances, channel partners may be unable to sell their inventories to
end-users and thus may return inventory to the Company. Consequently, the
Company maintains reserves for product returns in accordance with historical
experience and by making judgments about future competitive conditions and
product life cycles. There can be no assurance that historical experience
will be an accurate guide for the future, because the rate of product returns
is primarily a function of the competitive state of the market in the future,
and thus, in large part, is a function of the actions of the Company's
competitors, which the Company cannot anticipate.
Protection of intellectual property and other proprietary rights. The
Company regards its applications as proprietary and attempts to protect its
intellectual property rights by relying on copyrights, trademarks, patents,
and common law safeguards, including trade secret protection, as well as
restrictions on disclosure and transferability in its agreements with other
parties. Although the Company intends to protect its intellectual property
rights vigorously, there can be no assurance that the laws of all jurisdictions
in which the Company's products are or may be developed, manufactured or sold
will afford the same protection to its products and intellectual property, or
will be enforced or enforceable by the Company, to the same extent as under the
laws of the United States.
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. The Company has from
time to time had infringement claims asserted by third parties against it and
its products. There can be no assurance that such third party claims will be
resolved in a satisfactory manner, that third parties will not assert other
claims against the Company with respect to existing or future products or
that licenses will be available on reasonable terms, or at all, with respect
to any third party technology underlying any such claims. In the event of
litigation to determine the validity of any third party claims, such litigation
could result in significant expense to the Company and divert the efforts of
the Company's technical and management personnel, whether or not such
litigation is determined in favor of the Company.
<PAGE> 9
Volatility of the Company's Common Stock. Market prices for securities of
software companies have generally been volatile. In particular, the market price
of the Company's Common Stock has been and may continue to be subject to
significant fluctuations. These fluctuations may be due to factors specific to
the Company (including those described above) or to factors affecting the
computer industry or the securities markets in general.
1993 compared to 1992
---------------------
Worldwide revenue increased 9% in 1993 as compared to 1992. Desktop revenue was
essentially unchanged in 1993, while communications-related revenue grew
approximately 55%.
Revenue from desktop applications was 79% of total revenue in 1993 and 84%
of total revnue in 1992. In 1993, users continued to migrate from DOS-based
applications to Windows-based applications. As a result, Windows revenue more
than doubled as compared to 1992, while DOS-based revenue, particularly
spreadsheets, declined approximately $215 million. Due to the full-fledged
emergence of desktop "suites" in 1993, the Company's suite offering, SmartSuite,
grew to represent approximately one-third of total 1993 Windows desktop
applications revenue. Pricing declined during the first half of 1993, but
remained relatively stable during the second half of 1993.
Significant new Windows desktop products released in 1993 included 1-2-3 for
Windows Release 4.0, Improv for Windows Release 2.0, Freelance Graphics for
Windows Release 2.0, Lotus Organizer for Windows Release 1.1 and SmartSuite for
Windows Release 2.0. Also released in 1993 were 1-2-3 for OS/2 Release 2.0,
Freelance Graphics for OS/2 Release 1.0, Ami Pro for OS/2 Release 3.0 and an
OS/2 SmartSuite.
Communications products and services represented 19% of total revenue in
1993 as compared to 13% in 1992. Notes revenue more than doubled over 1992 and
cc:Mail revenue grew considerably in 1993 as well. Consulting services revenue
also increased significantly, resulting from internal growth and from the
acquisition of several consulting businesses. New versions of Notes 3.0 were
shipped for the Windows, Macintosh and OS/2 operating platforms in May 1993.
Revenue outside the United States grew by 12% during 1993 and accounted for
51% of worldwide revenue in 1993 as compared to 49% in 1992. The impact of
foreign currency fluctuations on international revenue was insignificant in
1993 and in 1992.
Gross margin as a percentage of sales increased to 79% in 1993 compared with
78% in 1992. The rate was favorably affected by the achievement of manufacturing
efficiencies resulting from higher production volumes, the closing of the
Company's Puerto Rican manufacturing plant and material cost reductions.
The increase in operating expenses in 1993 reflected higher spending
associated with the development and enhancement of the communications products
as well as a substantial investment in the sales and marketing of the
communications business and SmartSuite. During 1993, research and development
expenses increased 7% compared with 1992, and sales and marketing expenses
increased 9% compared with 1992. General and administrative expenses increased
only 1% and reflected the Company's continued efforts to control infrastructure
and fixed costs.
Interest income was higher in 1993 than 1992 because of higher average cash
and short-term investment balances. Interest expense declined primarily due to
scheduled repayments of long-term debt obligations.
In June 1993, the Company acquired Approach Software Corporation. The
purchase price consisted of approximately $23 million of cash consideration and
assumed liabilities. A significant portion of the purchase price was allocated
to purchased research and development, resulting in a $19.9 million non-tax
deductible charge to the Company's 1993 operations. Earnings for 1993, excluding
the charge for purchased research and development, were $75.4 million or $1.69
per share.
Other income and expense in 1992 included a pre-tax gain of $49.7 million
from the sale of the Company's investment in Sybase, Inc., offset by a
restructuring charge of $15 million. The restructuring charge related
principally to plans initiated by the Company in the fourth quarter of 1992 to
close its Puerto Rican manufacturing subsidiary and to reorganize and
centralize its North American and European operations related to logistics,
distribution and support. Earnings for 1992, excluding the gain and the
restructuring charge, were $57.2 million or $1.33 per share.
The effective tax rate for 1993 was 38% compared with 33% in 1992. The
increase in the tax rate reflected the effect of the loss of tax benefits
associated with the closing of the Company's Puerto Rican manufacturing plant,
a one percentage point increase in the U.S. federal statutory tax rate, and the
impact of the statutory rate change on deferred taxes in accordance with
FAS 109.
<PAGE> 10
Liquidity and Capital Resources
Cash and short-term investments decreased $40 million to $376 million at
December 31, 1994. The two primary sources of cash flow in 1994 were $97 million
of cash generated by operations and $56 million in proceeds from the issuance
of common stock under the Company's employee stock plans. The primary uses of
cash flow for investing and financing activities were $44 million for the
purchase of property and equipment, $39 million for payments for software and
other intangibles, $66 million for acquisition payments, $28 million for the
scheduled repayment of debt and $13 million to repurchase the Company's common
stock under a previously announced buyback program.
A substantial portion of the Company's cash and short-term investments are
either deposited in financial institutions located in Puerto Rico or held by
subsidiaries outside the United States. These investments can be readily
transferred to the United States as required, subject to income and/or
withholding taxes upon repatriation, for which taxes have been provided.
The Company's financial resources are represented by cash, short-term
investments and unused portions of credit facilities. The Company believes its
financial resources and funds provided by ongoing operations are adequate to
meet future liquidity requirements.
<PAGE> 11
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
-----------------------------------------------------------------------------------------
Years ended December 31,
(In thousands, except per share data) 1994 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $970,723 $981,168 $900,149
Cost of sales 172,325 202,443 200,103
-----------------------------------------------------------------------------------------
Gross margin 798,398 778,725 700,046
Expenses:
Research and development 158,669 126,884 118,308
Sales and marketing 497,396 462,658 423,813
General and administrative 68,520 70,057 69,103
Other (income)/expense, net (Note J) 68,214 17,357 (31,183)
-----------------------------------------------------------------------------------------
Total expenses 792,799 676,956 580,041
-----------------------------------------------------------------------------------------
Income before provision for income taxes 5,599 101,769 120,005
Provision for income taxes (Note H) 26,478 46,234 39,602
-----------------------------------------------------------------------------------------
Net income (loss) ($20,879) $55,535 $80,403
=========================================================================================
Net income (loss) per share ($0.44) $1.24 $1.87
=========================================================================================
Shares used in calculation of net
income (loss) per share 47,013 44,721 42,994
=========================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 12
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
-----------------------------------------------------------------------------------------
December 31,
(In thousands) 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
-----------------------------------------------------------------------------------------
Current assets:
Cash and short-term investments (Note B) $376,218 $416,693
Accounts receivable, net of allowances of
$37,971 and $30,002 230,977 217,336
Inventory (Note C) 20,711 21,220
Other current assets 24,452 20,817
-----------------------------------------------------------------------------------------
Total current assets 652,358 676,066
-----------------------------------------------------------------------------------------
Property and equipment, net of accumulated
depreciation and amortization of $185,286
and $153,768 (Note D) 138,664 127,437
Software and other intangibles, net of accumulated
amortization of $128,140 and $123,016 (Note B) 96,228 88,625
Other assets (Note E) 16,829 13,217
-----------------------------------------------------------------------------------------
Total assets $904,079 $905,345
=========================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE> 13
-----------------------------------------------------------------------------------------
December 31,
(In thousands, except per share data) 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
-----------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt (Note I) $ - $28,480
Accounts payable 44,815 45,914
Accrued compensation and benefits 35,674 36,368
Accrued and deferred income taxes (Note H) 35,219 49,017
Other accrued expenses 74,516 77,648
Deferred revenue 70,130 39,996
-----------------------------------------------------------------------------------------
Total current liabilities 260,354 277,423
-----------------------------------------------------------------------------------------
Deferred income taxes (Note H) 39,595 49,531
Long-term debt (Note I) 50,000 50,000
Commitments and contingencies (Note F)
Stockholders' equity (Note G):
Preferred stock, $1.00 par value, 5,000
shares authorized, none issued - -
Common stock, $.01 par value, 200,000 and
100,000 shares authorized; 63,575 and 62,152
issued; and 47,849 and 44,928 outstanding 636 622
Additional paid-in capital 280,815 251,414
Retained earnings 507,380 526,554
Treasury stock, 15,726 and 17,224 shares at an
average cost of $14.95 and $14.44 per share (235,047) (248,728)
Translation adjustment 346 (1,471)
-----------------------------------------------------------------------------------------
Total stockholders' equity 554,130 528,391
-----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $904,079 $905,345
=========================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 14
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
-----------------------------------------------------------------------------------------
Years ended December 31,
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($20,879) $55,535 $80,403
Gain on sale of investment in Sybase, Inc. - - (49,706)
Charge for purchased research and development 67,944 19,900 -
Depreciation and amortization 87,392 86,973 84,319
Change in assets and liabilities, net of
effects from acquisitions:
(Increase) decrease in accounts receivable 1,031 (42,000) (11,031)
Decrease in inventory 3,237 3,207 7,681
Increase (decrease) in accounts payable
and accrued expenses (24,986) 10,832 (1,295)
Increase (decrease) in accrued and
deferred income taxes (30,075) 11,892 20,620
Increase in deferred revenue 20,263 15,601 521
Net change in other working capital items (6,532) 259 (3,170)
------------------------------------------------------------------------------------------
Net cash provided by operating activities 97,395 162,199 128,342
------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (44,413) (30,587) (34,042)
Payments for software and other intangibles (39,265) (36,771) (39,315)
Proceeds from sale of investment in
Sybase, Inc. - - 77,719
Proceeds from sales (purchases) of
short-term investments, net 84,702 (79,883) (31,551)
Payments for acquisitions, net of
cash received (66,345) (15,455) (8,725)
Other, net (2,449) 2,002 1,364
------------------------------------------------------------------------------------------
Net cash used for investing activities (67,770) (160,694) (34,550)
------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (28,480) (30,260) (30,260)
Purchase of common stock for treasury (12,625) (8,107) (35,876)
Issuance of common stock, including
tax benefit thereon 55,707 81,708 32,244
Decrease in short-term borrowings - (1,130) (23,167)
------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities 14,602 42,211 (57,059)
------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 44,227 43,716 36,733
Cash and cash equivalents, beginning of year 164,849 121,133 84,400
------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 209,076 164,849 121,133
Short-term investments 167,142 251,844 171,961
------------------------------------------------------------------------------------------
Cash and short-term investments $376,218 $416,693 $293,094
==========================================================================================
</TABLE>
<TABLE>
Supplemental Cash Flow Information
<CAPTION>
------------------------------------------------------------------------------------------
(In thousands) 1994 1993 1992
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest received $17,062 $9,971 $10,952
Interest paid $5,765 $8,702 $13,970
Income taxes paid $56,238 $24,698 $18,982
==========================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 15
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1992, 1993, and 1994 Additional
Common Paid-In Retained Treasury Translation
(In thousands) Stock Capital Earnings Stock Adjustment Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $613 $194,710 $390,616 ($261,984) ($842) $323,113
--------------------------------------------------------------------------------------------------------------------
Net income - - 80,403 - - 80,403
Acquisition of 1,968 shares of common stock - - - (35,876) - (35,876)
Issuance of 395 shares of common stock under
employee stock purchase plan - 1,308 - 5,518 - 6,826
Exercise of 1,229 non-qualified stock options 9 20,722 - 4,687 - 25,418
Currency translation effect - - - - (446) (446)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 622 216,740 471,019 (287,655) (1,288) 399,438
--------------------------------------------------------------------------------------------------------------------
Net income - - 55,535 - - 55,535
Acquisition of 250 shares of common stock - - - (8,107) - (8,107)
Issuance of 360 shares of common stock under
employee stock purchase plan - 2,894 - 5,139 - 8,033
Exercise of 2,937 non-qualified stock options - 22,604 - 41,895 - 64,499
Income tax benefit related to exercise of
stock options - 9,176 - - - 9,176
Currency translation effect - - - - (183) (183)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 622 251,414 526,554 (248,728) (1,471) 528,391
--------------------------------------------------------------------------------------------------------------------
Net loss - - (20,879) - - (20,879)
Pooling of interests with Iris Associates,
Inc. (Note K) 14 - 1,705 - - 1,719
Acquisition of 323 shares of common stock - - - (12,625) - (12,625)
Issuance of 286 shares of common stock under
employee stock purchase plan - 6,807 - 4,135 - 10,942
Exercise of 1,535 non-qualified stock options - 13,270 - 22,171 - 35,441
Income tax benefit related to exercise of
stock options - 9,324 - - - 9,324
Currency translation effect - - - - 1,817 1,817
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $636 $280,815 $507,380 ($235,047) $346 $554,130
====================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 16
LOTUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A BUSINESS
The Company and its subsidiaries are engaged in the development, manufacturing,
marketing and support of applications software. The Company sells its products
primarily through distributors and resellers.
B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements comprise those of the Company and its
wholly owned domestic and foreign subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain amounts in the
financial statements of prior years have been reclassified to conform with
the current year presentation.
Revenue Recognition
-------------------
Revenue from the sale of software products to distributors, resellers and
original equipment manufacturers is recognized when the products are shipped.
Revenue is recognized from the sale of software products under installation
agreements with end-users based upon the expected installation period, provided
that payment is due currently. Maintenance, service and subscription revenue
are recognized ratably over the term of the related sales contract or as
services are performed. Allowances for estimated future product returns under
the Company's agreements with its distributors and resellers for stock balancing
and upgrade swaps are provided in the same period as the related revenue.
Allowances for bad debts, which have not been material, are also provided.
At the time the Company recognizes revenue from the sale of software
products, no significant vendor and postcontract support obligations remain, and
the costs of insignificant support obligations are accrued.
Cash and Short-term Investments
-------------------------------
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents, and those with
maturities greater than three months are considered to be short-term
investments. Short-term investments are stated at cost or amortized cost, which
approximates market. Cash equivalents and short-term investments consist
primarily of certificates of deposit, repurchase agreements, commercial paper,
corporate bonds, Eurobonds, collateralized mortgage obligations and other
money market instruments.
In the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"). The Company has the intent and ability to hold
to maturity all securities that mature in less than one year. Accordingly, these
"held-to-maturity" securities have been recorded at amortized cost. The Company
has categorized all other securities as "available-for-sale," since the
Company may liquidate these investments currently. FAS 115 requires that
unrealized gains and losses on available-for-sale securities be excluded from
earnings and reported in a separate component of stockholders' equity. At
December 31, 1994, the unrealized loss was immaterial.
The amortized cost of securities, which approximates fair value, consists of
the following at December 31, 1994:
----------------------------------------------------------------------------
(In thousands) Maturity
Less than One to
Type of security one year five years Total
----------------------------------------------------------------------------
Corporate bonds
and Eurobonds $18,441 $51,058 $69,499
Commercial paper 17,704 199 17,903
Collateralized mortgage
obligations 4,145 12,640 16,785
----------------------------------------------------------------------------
40,290 63,897 104,187
Cash, other cash
equivalents and other
short-term investments 272,031
----------------------------------------------------------------------------
Total cash and short-term
investments $376,218
============================================================================
Inventory
---------
Inventory is stated at cost, using the first-in, first-out (FIFO) method, but
not in excess of net realizable value.
Property, Equipment and Depreciation
------------------------------------
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are computed using the straight-line method over the
estimated useful lives of the assets as follows:
----------------------------------------------------------------------------
Buildings 30 years
Computer equipment 3 - 5 years
Manufacturing and other equipment 3 - 5 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of lease term or life of asset
Building improvements Shorter of 10 years or life of asset
============================================================================
Maintenance and repairs are expensed as incurred. The costs of retired assets
are removed from asset accounts and related depreciation is removed from
accumulated depreciation.
<PAGE> 17
Software and Other Intangibles
------------------------------
Costs related to research, design and development of computer software are
charged to research and development expense as incurred. The Company capitalizes
eligible software costs upon establishing product technological feasibility and
amortizes these costs on a product-by-product basis commencing upon general
release of the products to customers. Capitalized software costs are amortized
on a straight-line basis over the economic life of the product, generally
three years. The straight-line method of amortization generally results in
approximately the same amount of expense as that calculated using the ratio that
current period gross product revenues bear to the total of current and
anticipated future gross product revenues. Internal software costs of $36.0
million, $25.0 million and $26.0 million were capitalized in 1994, 1993 and
1992. Related amortization charges of $29.1 million for 1994, $25.2 million
for 1993 and $22.2 million for 1992 are reflected in cost of sales. The net
amount of capitalized software was $53.6 million and $47.8 million as of
December 31, 1994 and 1993.
Intangible assets of $21.8 million capitalized in 1994 were largely
attributable to the acquisitions of Soft*Switch, Inc. and a consulting services
business. Intangible assets of $15.2 million and $22.1 million capitalized in
1993 and 1992 were primarily related to other acquisitions. These assets are
amortized on a straight-line basis, generally over a three to five year period.
Related amortization charges, the majority of which were reflected in cost of
sales, totaled $20.2 million in 1994, $22.5 million in 1993 and $19.2 million
in 1992.
The Company evaluates the net realizable value of capitalized software and
other intangibles on an ongoing basis relying on a number of factors including
operating results, business plans, budgets and economic projections. In
addition, the Company's evaluation considers non-financial data such as market
trends, product development cycles and changes in management's market emphasis.
Income Taxes
------------
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis carrying amounts of assets and
liabilities using current statutory tax rates. A valuation reserve against
deferred tax assets is recorded if, based upon weighted available evidence,
it is more likely than not that some or all of the deferred tax assets will
not be realized.
U.S. Federal income taxes, net of applicable foreign tax credits, are
provided on the portion of foreign earnings which may be remitted to the
Company's parent corporation in future years. Undistributed earnings of
foreign affiliates reinvested in those operations indefinitely, and for which
no U.S. taxes are provided, aggregated approximately $60 million and $40 million
at December 31, 1994 and 1993.
Net Income (Loss) per Share
---------------------------
Per share amounts are calculated using the weighted average number of common
shares and common share equivalents outstanding during periods of net income.
Common share equivalents are attributable to unexercised stock options and are
computed using the treasury stock method. Per share amounts are calculated using
only the weighted average number of common shares outstanding during periods of
net loss. Fully diluted net income per share is not materially different from
reported primary net income per share.
Foreign Currency Translation
----------------------------
Assets and liabilities of foreign subsidiaries are translated to U.S. dollars at
year-end exchange rates. Income and expense items are translated at average
rates of exchange during the year. Resulting translation adjustments are
accumulated in a separate component of stockholders' equity. The effect of
exchange rate changes on cash and cash equivalents was immaterial in 1994,
1993 and 1992.
In an effort to minimize the effect of exchange rate fluctuations on the
results of its operations and the asset and liability positions of foreign
subsidiaries, the Company hedges certain portions of its foreign currency
exposure through the use of forward exchange contracts and options on foreign
currencies. The Company does not engage in foreign currency speculation. The
cash flows related to the gains and losses on foreign currency hedges are
classified in the statements of cash flows as part of cash flows from operating
activities.
Forward exchange contracts totaling $55 million, primarily to exchange
foreign currencies for U.S. dollars, were outstanding at December 31, 1994.
These contracts are used to hedge asset and liability positions of foreign
subsidiaries. Gains and losses associated with currency rate changes on
these contracts are recorded currently in income, offsetting losses and gains
on the related assets and liabilities. All contracts, which primarily hedge
European currencies and Japanese yen, mature during 1995. Forward exchange
contracts outstanding at December 31, 1993, totaling $50 million, matured
during 1994.
Foreign currency options are used to hedge certain anticipated transactions
denominated primarily in European currencies and Japanese yen. Potential losses
on such contracts are limited to the cost of the options. Gains on such options
are recorded in income only when realized, offsetting foreign exchange losses
of the related transactions. There were no option contracts outstanding at
December 31, 1994, and at December 31, 1993, the amount of option contracts
outstanding was $96 million.
The market risk exposure from currency options is limited to the cost of such
instruments. The market risk exposure from forward contracts is assessed in
light of the underlying currency exposures and is controlled by the initiation
of additional or offsetting foreign currency contracts. Credit risk exposure
from currency options and forward contracts is minimized as these instruments
are contracted with multiple financial institutions.
<PAGE> 18
The fair value of currency options is established by obtaining bids, based
upon a hypothetical sale of the options, from banks that are authorized currency
traders. Forward contracts are revalued monthly by comparing contract rates to
month-end exchange rates. The Company's currency options and forward contracts
are over-the-counter instruments.
Financial Instruments
---------------------
The fair values of financial instruments, including cash equivalents, short-term
investments, marketable securities, debt, options on foreign currencies and
forward exchange contracts, approximated their carrying values at December 31,
1994 and 1993. Fair values have been determined through information obtained
from market sources and management estimates.
Diversification of Credit Risk
------------------------------
The Company's investment portfolio is diversified and consists of cash
equivalents and short-term investments placed with high credit qualified
institutions. At December 31, 1994 and 1993, approximately 40% and 41% of
accounts receivable represented amounts due from ten customers. The credit
risk in the Company's trade accounts receivable is substantially mitigated by
the Company's credit evaluation process, reasonably short collection terms and
the geographical dispersion of sales transactions.
C INVENTORY
Inventory consists of the following:
--------------------------------------------------------------------
December 31,
(In thousands) 1994 1993
--------------------------------------------------------------------
Finished goods $13,041 $13,962
Raw materials 7,670 7,258
--------------------------------------------------------------------
Total $20,711 $21,220
====================================================================
D PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
--------------------------------------------------------------------
December 31,
(In thousands) 1994 1993
--------------------------------------------------------------------
Land $5,800 $7,395
Buildings and building improvements 58,185 55,463
Leasehold improvements 38,891 36,699
Computer equipment 139,964 111,045
Manufacturing and other equipment 49,841 44,191
Furniture and fixtures 31,269 26,412
--------------------------------------------------------------------
323,950 281,205
Less accumulated depreciation
and amortization 185,286 153,768
--------------------------------------------------------------------
Property and equipment, net $138,664 $127,437
====================================================================
E OTHER ASSETS
Other assets consist of the following:
--------------------------------------------------------------------
December 31,
(In thousands) 1994 1993
--------------------------------------------------------------------
Marketable securities $3,004 $3,004
Deposits and other 13,825 10,213
--------------------------------------------------------------------
Total $16,829 $13,217
====================================================================
Marketable securities represent investments in interest bearing securities held
at a custodial institution in Puerto Rico. These securities are carried at cost,
which approximates market.
F COMMITMENTS AND CONTINGENCIES
Lease Commitments
-----------------
The Company leases certain facilities and equipment under various operating
leases. At December 31, 1994, future minimum lease payments under operating
leases with terms in excess of one year were as follows:
--------------------------------------------------------------------
Year (In thousands)
--------------------------------------------------------------------
1995 $37,027
1996 32,171
1997 21,287
1998 17,003
1999 12,931
Future years 42,795
--------------------------------------------------------------------
Total $163,214
====================================================================
Total rental expense was approximately $43.7 million, $41.7 million and $40.2
million for the years ended December 31, 1994, 1993 and 1992.
<PAGE> 19
G STOCK PLANS
Stock Option Plans
------------------
The Company has stock option plans for employees and consultants which provide
for non-qualified and incentive stock options. Options are granted at a price
not less than the fair market value on the date of grant. The options generally
become exercisable over a four-year period and expire over a period not
exceeding ten years. At December 31, 1994, 2.6 million shares were available
for grant.
The Company also has a stock option plan for non-employee directors which
provides that each independent director of the Company be granted annually an
option to acquire 10,000 shares of common stock at a price equal to the fair
market value on the date of grant. The options become exercisable over a four
year period and expire over a period not exceeding ten years. At December 31,
1994, 170,000 shares were available for grant.
Activity in these plans was as follows:
--------------------------------------------------------------------------
Years ended December 31,
(In thousands, except option prices) 1994 1993 1992
--------------------------------------------------------------------------
Shares under option,
beginning of year 5,814 7,154 8,782
Options granted (at option
prices of $30.50 to $64.50
in 1994, $19.63 to $47.38
in 1993, and $17.38 to
$33.88 in 1992) 3,955(B) 2,453 788(A)
Options exercised (1,535) (2,937) (1,229)
Options cancelled (628) (856) (1,187)
--------------------------------------------------------------------------
Shares under option, end of year
(at exercise prices of $16.00
to $64.50 in 1994, $16.00
to $47.38 in 1993, and $6.25
to $37.88 in 1992) 7,606 5,814 7,154
--------------------------------------------------------------------------
Average price of
options exercised $23.09 $22.09 $20.74
--------------------------------------------------------------------------
Shares exercisable 1,936 1,412 2,919
--------------------------------------------------------------------------
Average option price of
shares exercisable $23.16 $23.71 $22.49
==========================================================================
(A) The Company's annual grant to employees, historically made in December,
was moved to January 1993 to more closely link option grants to
performance. In January 1993, the Company granted 1.8 million options at
fair market value on the date of grant.
(B) In January 1994, the Company granted a total of 2.6 million options to
its employees. Of the total grant, 1.6 million options were granted at
fair market value at the date of the grant. The remaining 1.0 million
options were granted at 120% of fair market value on the date of grant.
Employee Stock Purchase Plan
----------------------------
The Employee Stock Purchase Plan authorizes the Company to sell up to 4.1
million shares of common stock to employees through voluntary payroll
withholdings. The stock price to employees is equal to 85% of the market
price on the first or last day of each six-month withholding period, whichever
is lower. Purchases are limited to ten percent of an employee's eligible
compensation, subject to an annual maximum as defined in the plan. Through
December 31, 1994, approximately 2.5 million shares were purchased by employees
pursuant to the plan.
Shares issued to employees during the past three years are summarized in
the table below.
---------------------------------------------------------------------------
Years ended December 31,
(In thousands, except per share data) 1994 1993 1992
---------------------------------------------------------------------------
Number of shares 286 360 395
Proceeds $10,942 $8,033 $6,826
Average price per share $38.21 $22.34 $17.29
===========================================================================
H INCOME TAXES
The components of the provision for income taxes were
as follows:
---------------------------------------------------------------------------
Years ended December 31,
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------
Domestic:
Current $22,450 $18,437 $7,970
Deferred (9,119) 7,581 17,902
---------------------------------------------------------------------------
13,331 26,018 25,872
---------------------------------------------------------------------------
Foreign:
Current 13,862 19,763 9,470
Deferred (2,215) (347) 3,460
---------------------------------------------------------------------------
11,647 19,416 12,930
---------------------------------------------------------------------------
State:
Current 1,500 800 800
Deferred - - -
---------------------------------------------------------------------------
1,500 800 800
---------------------------------------------------------------------------
Total:
Current 37,812 39,000 18,240
Deferred (11,334) 7,234 21,362
---------------------------------------------------------------------------
Total income taxes $26,478 $46,234 $39,602
===========================================================================
Income before provision for income taxes from domestic and foreign operations
was as follows:
---------------------------------------------------------------------------
Years ended December 31,
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------
Domestic $37,080 $37,337 $72,622
Foreign (31,481) 64,432 47,383
---------------------------------------------------------------------------
Total $5,599 $101,769 $120,005
===========================================================================
<PAGE> 20
Provisions for income taxes were at rates other than the U.S. Federal statutory
tax rate for the following reasons:
---------------------------------------------------------------------------
Years ended December 31,
1994 1993 1992
---------------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 34.0%
Foreign operations 1.3 4.4 (0.8)
Research and development credit (5.0) (4.5) (4.0)
Impact of U.S. Federal statutory
rate increase on beginning
deferred taxes - 2.0 -
Tax exempt interest income - (0.6) (0.9)
Non-deductible amortization 2.2 2.0 3.7
State taxes 1.6 0.8 0.7
Other, net 0.9 (1.1) 0.3
---------------------------------------------------------------------------
Subtotal 36.0 38.0 33.0
Non-deductible charges for
purchased research and
development 436.9 7.4 -
---------------------------------------------------------------------------
Effective tax rate 472.9% 45.4% 33.0%
===========================================================================
Consolidated results of operations in 1994 include results of manufacturing
operations in Ireland and Singapore. In 1993 and 1992, net income also included
income from the Company's Puerto Rican manufacturing subsidiary. Income from
the sale and licensing of products manufactured or developed in Ireland is
subject to a 10% tax rate through the year 2010. Income from Singapore
operations is taxed at favorable rates, relative to U.S. statutory rates, until
1997 under a grant issued by the Singapore government. 1993 and 1992 income
from products manufactured in Puerto Rico, which was not subject to U.S.
Federal income tax, was subject to a local tax rate of approximately 5%.
In addition, remitted Puerto Rico earnings may be subject to Puerto Rico
withholding taxes at rates not in excess of 10%. The aggregate dollar and
per share tax benefits from tax holidays were immaterial to the results of
operations in 1994, 1993 and 1992.
For U.S. Federal income tax purposes, at December 31, 1994, the Company has
tax credit carryforwards of approximately $41 million and a net operating loss
carryforward of $16 million, which expire between 1996 and 2009. The net
operating loss carryforward and approximately $1 million of tax credit
carryforwards represent tax benefits resulting from the acquisition of
Soft*Switch, Inc.
The Internal Revenue Service ("IRS") has proposed adjustments to the
Company's U.S. income tax returns for the years 1985 through 1989. The Company
will appeal these adjustments and believes that any sustained adjustments will
not be material to the financial statements. The IRS has commenced its
examination of the Company's U.S. income tax returns for the years 1990 through
1992. The Company believes that sustained adjustments, if any, from the
examination will not be material to the financial statements.
Deferred taxes result from temporary differences in the recognition of revenues
and expenses for tax and financial reporting purposes. The sources of these
temporary differences for 1994, 1993 and 1992, and the effect of each on the
tax provision, were as follows:
---------------------------------------------------------------------------
Years ended December 31,
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------
Unrepatriated foreign
earnings, net ($8,101) $14,110 $11,911
Depreciation (980) (1,130) (1,769)
Compensation (1,048) (1,423) 4,338
Capitalized software costs 566 1,590 557
Charges to (provision for)
reserves (268) (1,654) 2,031
Deferred revenue - (2,171) 3,628
Other, net (1,503) (2,088) 666
---------------------------------------------------------------------------
Total ($11,334) $7,234 $21,362
===========================================================================
The components of the net deferred tax liability are as follows:
--------------------------------------------------------------
December 31,
(In thousands) 1994 1993
--------------------------------------------------------------
Deferred tax assets:
Reserves $13,587 $16,352
Depreciation 5,072 5,871
Tax credits against unrepatriated
foreign earnings 85,045 77,363
Tax return carryforwards 47,131 48,233
Deferred revenue 2,770 2,574
Other 12,458 11,934
--------------------------------------------------------------
Total 166,063 162,327
--------------------------------------------------------------
Valuation allowances (A) 49,162 35,794
--------------------------------------------------------------
Net deferred tax assets 116,901 126,533
--------------------------------------------------------------
Deferred tax liabilities:
Capitalized software costs 10,947 10,381
Unrepatriated foreign earnings 114,832 130,417
Compensation 99 2,972
Other 4,601 6,389
--------------------------------------------------------------
Total 130,479 150,159
--------------------------------------------------------------
Net deferred tax liability $13,578 $23,626
==============================================================
(A) The valuation allowance at December 31, 1994 and 1993 includes $10 million
for foreign tax benefits. During 1994, a $7 million valuation allowance
was established for tax benefits resulting from the acquisition of
Soft*Switch, Inc. due to the limitations imposed by U.S. tax rules on the
use of tax benefits following certain changes in ownership. In addition,
valuation allowances of $32.2 million and $25.8 million at December 31,
1994 and 1993 have been established for tax return carryforwards resulting
from stock option compensation deductions. The tax benefit associated
with the stock option compensation deductions will be credited to equity
when realized.
<PAGE> 21
I DEBT
Long-term Debt
--------------
Long-term debt consists of the following:
------------------------------------------------------------------
December 31,
(In thousands) 1994 1993
------------------------------------------------------------------
Notes payable to banks, bearing
interest at LIBOR plus
0.45% per annum $50,000 $50,000
Notes payable to insurance
companies, bearing interest
at 10.57% per annum - 28,480
------------------------------------------------------------------
Total debt 50,000 78,480
------------------------------------------------------------------
Less current portion - 28,480
------------------------------------------------------------------
Long-term debt $50,000 $50,000
==================================================================
In July 1990, the Company completed a $50 million floating rate financing with
a group of banks collateralized by its office facility in Cambridge,
Massachusetts. Principal payment of the notes is due in 1997.
In May 1989, the Company arranged a $100 million private debt placement
with a group of insurance companies. The final principal payment of $28 million
was paid in June 1994.
The Company renegotiated its revolving credit agreements during 1994 and now
maintains one multi-currency revolving credit agreement with a group of
domestic and international banks. The agreement, which expires June 1997,
commits the participating banks, subject to certain terms and conditions, to
lend an aggregate of $150 million. There were no borrowings under this credit
agreement as of December 31, 1994. Interest rates on borrowings are set under
a number of bid options not exceeding .425% over LIBOR. Commitment fees are
payable on unborrowed amounts at a maximum rate of 1/8% per annum. The Company
is required to maintain a minimum level of net worth as well as a maximum debt
to net worth ratio, among other things specified in the revolving credit
agreement. The Company was in compliance with the covenants of its credit
agreement at December 31, 1994.
Short-term Debt
---------------
The Company occasionally borrows under unsecured credit facilities with several
domestic and international banks in order to meet short-term domestic and
international cash requirements. There were no such borrowings at December 31,
1994 and 1993. As of December 31, 1994, the Company had unused short-term
credit facilities of $29 million.
J OTHER (INCOME)/EXPENSE, NET
Other (income)/expense consists of the following:
---------------------------------------------------------------------------
Years ended December 31,
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------
Charges for purchased
research and development (Note K) $67,944 $19,900 $ -
Restructuring charges 9,000 - 15,000
Gain on sale of investment
in Sybase, Inc. - - (49,706)
Interest income (16,442) (11,890) (10,679)
Interest expense 5,295 8,525 13,547
Other, net 2,417 822 655
---------------------------------------------------------------------------
Total other (income)/
expense, net $68,214 $17,357 ($31,183)
===========================================================================
In the third quarter of 1994, the Company acquired all outstanding shares of
Soft*Switch, Inc. and Edge Research, Inc. A significant portion of the purchase
price of these acquisitions, $67.9 million, was allocated to purchased research
and development. This amount, which is not deductible for tax purposes, was
charged to operations in the third quarter of 1994.
In the third quarter of 1994, the Company recorded a $9 million
restructuring charge related to its European operations and the discontinuation
of a product. European restructuring activities include the streamlining of the
marketing organization from a product focus to a market segment focus, the
centralization of certain finance and administration functions, and a
reduction in desktop applications support staff. The charge related to the
discontinued product reflects a $1.1 million write-off of capitalized software
due to the decision in the third quarter of 1994 to discontinue further
development and marketing.
In June 1993, the Company acquired all outstanding shares of Approach
Software Corporation. A significant portion of the purchase price, $19.9
million, was allocated to purchased research and development. This amount, which
is not deductible for tax purposes, was charged to operations at the acquisition
date.
In December 1992, the Company recorded a restructuring charge of $15 million
for employee separations and related facilities consolidations and equipment
write-downs associated with the closing of its Puerto Rican manufacturing
facility and the restructuring of operations in North America and Europe.
In 1992, the Company sold its investment in Sybase, Inc., for cash
consideration of $77.7 million, resulting in a pre-tax gain of $49.7 million.
The investment of $28.0 million consisted of 2.5 million common shares and was
accounted for at cost.
<PAGE> 22
K ACQUISITIONS AND DISPOSITIONS
Iris Associates, Inc.
---------------------
In May 1994, the Company acquired all outstanding shares of Iris Associates,
Inc. ("Iris"), the privately held developer of Lotus Notes ("Notes"), in
exchange for approximately 1.4 million shares of Lotus common stock. The
transaction was accounted for as a pooling of interests. Acquired net assets of
approximately $1.7 million have been recorded at historical amounts. Prior
periods were not restated due to immateriality, and, accordingly, results of
operations have been included since the date of acquisition. Prior to the
combination, the Company funded the development of Notes and paid royalties to
Iris based upon product sales.
Soft*Switch, Inc.
-----------------
In July 1994, the Company acquired all outstanding shares of Soft*Switch, Inc.
("Soft*Switch"), a privately held developer of electronic mail message switches
that link disparate electronic messaging systems. The two principal products
sold by Soft*Switch at the acquisition date were Soft*Switch Central,
a mainframe-based message switch, and EMX, a LAN-based message switch. The
total purchase price of $77.5 million consisted of approximately $64.3 million
of cash consideration, $8 million of assumed liabilities and $5.2 million of
deferred tax liabilities. The acquisition was accounted for using the purchase
method.
The purchase price was allocated among the identifiable tangible and
intangible assets based on the fair market value of those assets. Purchased
software that had reached technological feasibility, and was principally
represented by the technology comprising the Central product, was valued using
a risk adjusted cash flow model, under which future cash flows were discounted
taking into account risks related to existing and future markets and an
assessment of the life expectancy of the purchased software. This analysis
resulted in an allocation of $15 million to purchased software, which was
capitalized and is being amortized over five years.
Purchased research and development that had not reached technological
feasibility and that had no alternative future use was valued using the same
methodology. Purchased research and development that had not reached
technological feasibility is represented by the EMX technology. Expected future
cash flows associated with in-process research and development were discounted
considering risks and uncertainties related to the viability of and potential
changes in future target markets and to the completion of the products that
will ultimately be marketed by the Company. This analysis resulted in an
allocation of $62.5 million to purchased research and development expense. This
amount, which is not deductible for tax purposes, was charged to operations at
the acquisition date.
Soft*Switch's operating results have been included in the consolidated
financial statements from the date of acquisition. Pro forma statements of
operations would not differ materially from reported results.
Edge Research, Inc.
-------------------
In September 1994, the Company acquired all the outstanding shares of Edge
Research, Inc. ("Edge"), a privately held developer of applications development
tools for Lotus Notes, for approximately $5.4 million of cash consideration.
The acquisition was accounted for using the purchase method. Using methodology
consistent with that used to account for the Soft*Switch acquisition, the
Company identified no tangible or intangible assets, other than research and
development that had not reached technological feasibility and had no
alternative future use. This analysis resulted in the allocation of $5.4
million to purchased research and development expense. This amount, which is
not deductible for tax purposes, was charged to operations at the acquisition
date.
Edge's operating results have been included in the consolidated financial
statements from the date of acquisition. Pro forma statements of operations
would not differ materially from reported results.
Approach Software Corporation
-----------------------------
In June 1993, the Company acquired all outstanding shares of Approach Software
Corporation ("Approach"), a privately held developer of end-user relational
database applications for the Windows environment. The purchase price consisted
of approximately $23 million of cash consideration and assumed liabilities. The
acquisition has been accounted for using the purchase method.
The purchase price was allocated among the identifiable tangible and
intangible assets based on the fair market value of those assets. After
allocating the purchase price to net tangible assets, purchased software that
had reached technological feasibility, and was principally represented by the
technology comprising the database products being sold by Approach at the date
of the acquisition, was valued using a risk adjusted cash flow model, under
which future cash flows were discounted taking into account risks related to
existing and future markets and an assessment of the life expectancy of the
purchased software. This analysis resulted in an allocation of $3.4 million
to purchased software, which was capitalized and is being amortized over
three years.
Purchased research and development that had not reached technological
feasibility and which had no alternative future use was valued using the same
methodology. Expected future cash flows associated with in-process research and
development were discounted considering risks and uncertainties related to the
viability of and potential changes in future target markets and to the
completion of the products that will ultimately be marketed by the Company.
This analysis resulted in an allocation of $19.9 million to purchased research
and development expense. This amount, which is not deductible for tax purposes,
was charged to operations at the acquisition date.
Approach's operating results have been included in the consolidated
financial statements from the date of acquisition. Pro forma statements of
operations would not differ materially from reported results.
<PAGE> 23
One Source
----------
Effective August 28, 1993, the Company sold its One Source business, a developer
and marketer of CD-ROM information products. Total consideration received was
immaterial and no gain or loss was recognized on the sale. The financial
statements reflect the operations of One Source through the effective date.
L EMPLOYEE BENEFIT PLANS
The Company maintains a discretionary, non-contributory profit sharing plan for
its employees. Contributions are based on a percentage of consolidated operating
profit and are allocated among employees on the basis of compensation received
during the plan year. Profit sharing expense was $6.9 million, $11.1 million and
$7.1 million in 1994, 1993 and 1992.
In the U.S., the profit sharing plan was integrated with a pension plan
which provided a minimum guaranteed defined benefit based on the employee's
years of service and final average compensation. In June 1992, the Company
elected to suspend the pension plan with the intent to terminate at a future
date. The curtailment did not have a material impact on the Company's financial
statements, nor will the expected termination. The actuarially determined
pension cost related to the minimum guaranteed retirement benefit under the
pension plan was not significant in 1994, 1993 and 1992.
Additionally, the Company offers a savings plan which allows eligible U.S.
employees to make tax-deferred contributions, a portion of which are matched by
the Company. Company contributions under the savings plan were $4.3 million in
1994, $3.8 million in 1993 and $3.2 million in 1992.
The Company also maintains retirement plans, principally defined
contribution plans, covering substantially all of its international employees.
Costs related to these plans amounted to approximately $4.0 million in 1994,
$3.4 million in 1993 and $3.2 million in 1992.
The Company does not offer postretirement benefits other than those
described above.
M INTERNATIONAL OPERATIONS
Sales and marketing operations outside the United States are conducted
principally through foreign sales subsidiaries and through various
representative and distributorship arrangements.
The Company's international manufacturing operations are located in Ireland
and Singapore. The products of these manufacturing facilities are sold through
the Company's foreign sales subsidiaries and, where the Company has not
established a presence of its own, direct to distributors in those countries.
Other financial information by geographical area is summarized below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
North Asia Europe/
(In thousands) America Pacific Other Eliminations Consolidated
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Net sales $544,486 $173,026 $258,461 ($5,250) $970,723
------------------------------------------------------------------------------------------
Operating income (loss):
By area 55,453 45,162 (24,796) 1,803 77,622
Corporate
expenses (80,753)
Other income/
(expense) 8,730
Income before --------
provision for
income taxes 5,599
------------------------------------------------------------------------------------------
Total assets $526,525 $179,097 $213,670 ($15,213) $904,079
==========================================================================================
1993:
Net sales $531,536 $149,700 $308,938 ($9,006) $981,168
Operating income:
By area 51,151 34,085 46,659 (441) 131,454
Corporate
expenses (32,228)
Other income/
(expense) 2,543
Income before --------
provision for
income taxes 101,769
------------------------------------------------------------------------------------------
Total assets $489,419 $130,869 $299,577 ($14,520) $905,345
==========================================================================================
1992:
Net sales $494,592 $116,199 $300,049 ($10,691) $900,149
Operating income:
By area 34,972 25,066 26,019 (567) 85,490
Corporate
expenses (11,668)
Other income/
(expense) 46,183
Income before --------
provision for
income taxes 120,005
------------------------------------------------------------------------------------------
Total assets $431,487 $78,545 $266,017 ($12,605) $763,444
==========================================================================================
</TABLE>
<PAGE> 24
Sales between geographic areas presented are insignificant. For this
presentation, corporate expenses includes certain expenses incurred at the
Company's corporate offices and charges for purchased research and development.
U.S. research and development expenses were allocated to geographic areas on
the basis of sales. Other income/(expense) includes interest income, interest
expense, other expense, net, and in 1992, the $49.7 million gain on the sale
of investment in Sybase, Inc.
The decrease in operating income in the Europe/Other region in 1994 as
compared to 1993 and 1992 was attributable to a decline in desktop applications
revenue, which resulted from severe competition in Europe. The decrease in
assets in the Europe/Other region in 1994 as compared to 1993 was due to lower
cash and receivable balances, which resulted from the decline in revenue and
the operating loss in Europe. The increase of assets in the Asia Pacific region
is due to the accumulation of unremitted earnings of the region.
Sales to unaffiliated customers outside the United States, including U.S.
export sales, were $470.2 million for 1994, $485.9 million for the year 1993
and $434.9 million for the year 1992. In 1994, one customer accounted for 13%
of worldwide sales. In 1993, one customer accounted for 12% of worldwide sales
and a second customer accounted for 11% of such sales. No one customer accounted
for more than 10% of worldwide sales in 1992.
N SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights plan which grants to holders of record one
stock purchase right per share of common stock upon the occurrence of certain
triggering events. Such events would include the acquisition of Lotus shares
through open market purchases or a tender offer that, in the aggregate, equal
or exceed 15% of outstanding shares.
Should a triggering event occur, holders of such rights would be entitled
to purchase Lotus common stock (or stock of the acquiring entity, as the case
may be) at a 50% discount from its then current market value. Each right
entitles the holder to purchase shares with a market value aggregating $150 for
a price of $75. Such rights do not extend to any holder whose action triggered
the rights.
The rights expire in November 1998 and may be redeemed prior to that time
at the option of the Board of Directors for nominal consideration. Until a
triggering event occurs, the rights will not trade separately from the related
Lotus common stock.
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Lotus Development Corporation
We have audited the accompanying consolidated balance sheets of Lotus
Development Corporation as of December 31, 1994 and 1993, and the related
consolidated statements of operations, cash flows, and stockholders' equity
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lotus
Development Corporation as of December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 24, 1995
<PAGE> 26
LOTUS SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Five-Year Summary of Selected Financial Data
-------------------------------------------------------------------------------------------
(In thousands, except per share data) 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $970,723 $981,168 $900,149 $828,895 $692,242
Income before provision for income taxes 5,599 101,769 120,005 67,686 52,826
Net income (loss) (20,879) 55,535 80,403 33,116 23,254
Net income (loss) per share (0.44) 1.24 1.87 0.75 0.54
Total assets 904,079 905,345 763,444 725,537 656,807
Cash and short-term investments 376,218 416,693 293,094 224,810 245,386
Working capital 392,004 398,643 296,166 207,670 226,961
Long-term debt 50,000 50,000 108,740 139,000 160,000
Stockholders' equity 554,130 528,391 399,438 323,113 309,439
==========================================================================================
</TABLE>
<TABLE>
Quarterly Results of Operations
(Unaudited)
<CAPTION>
-----------------------------------------------------------------------------------
(In thousands, except 1994, Three Months Ended
per share data) April 2 July 2 Oct 1 Dec 31 Year
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $246,992 $224,009 $235,246 $264,476 $970,723
Gross margin 200,584 185,141 192,516 220,157 798,398
Income (loss)
before provision
for income
taxes 33,346 15,186 (65,504) 22,571 5,599
Net income
(loss) 21,341 9,719 (66,385) 14,446 (20,879)
Net income
(loss) per share $0.45 $0.20 ($1.39) $0.30 ($0.44)
-----------------------------------------------------------------------------------
Common stock prices
High 86 1/2 73 1/2 46 1/2 46 1/4 86 1/2
Low 51 3/4 33 29 3/4 34 29 3/4
===================================================================================
-----------------------------------------------------------------------------------
(In thousands, except 1993, Three Months Ended
per share data) April 3 July 3 Oct 2 Dec 31 Year
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $227,004 $235,785 $240,104 $278,275 $981,168
Gross margin 176,625 184,751 193,295 224,054 778,725
Income before
provision for
income taxes 20,791 5,949 28,600 46,429 101,769
Net income
(loss) 12,267 (4,649) 18,304 29,613 55,535
Net income
(loss) per share $0.29 ($0.11) $0.41 $0.64 $1.24
-----------------------------------------------------------------------------------
Common stock prices
High 28 1/2 37 48 1/4 58 3/4 58 3/4
Low 18 3/4 23 1/2 30 1/4 41 3/4 18 3/4
===================================================================================
</TABLE>
The Company has historically not paid cash dividends on its common stock and
has retained earnings for use in its business.
At the end of 1994, the number of shareholders of the Company's common stock
was approximately 46,000.
Notes to Supplemental Financial Information and
Quarterly Results of Operations:
(1) 1994 amounts include a charge to operations of $67.9 million, or $1.40 per
share, in the third quarter for purchased research and development related
to the acquisitions of Soft*Switch, Inc. and Edge Research, Inc. 1994
amounts also include a restructuring charge in the third quarter of $9
million on a pre-tax basis and $5.8 million, or $0.12 per share, on an
after-tax basis.
(2) 1993 amounts include a charge to operations of $19.9 million, or $0.45 per
share, in the second quarter for purchased research and development related
to the acquisition of Approach Software Corporation.
(3) 1992 amounts include gains on the sale of the Company's investment in
Sybase, Inc. of $34.6 million in the third quarter and $15.1 million in the
fourth quarter resulting in a total gain for the year of $49.7 million on a
pre-tax basis and $33.3 million, or $0.77 per share, on an after-tax basis.
1992 amounts also include a restructuring charge in the fourth quarter of
$15 million on a pre-tax basis and $10.1 million, or $0.23 per share, on an
after-tax basis.
(4) 1991 amounts include a fourth quarter restructuring charge of $23 million
on a pre-tax basis and $18.6 million, or $0.42 per share, on an after-tax
basis.
(5) 1990 amounts include a charge to operations of $53 million, or $1.23 per
share, in the fourth quarter for purchased research and development related
to the acquisition of Samna Corporation.
(6) The Company's common stock is traded on the over-the-counter market and is
quoted on the NASDAQ National Market System under the symbol LOTS.
<PAGE> 27
BOARD OF DIRECTORS
Jim Manzi
President, CEO and Chairman of the Board
Lotus Development Corporation
Richard S. Braddock
Partner
Clayton, Dubilier, and Rice
Elaine L. Chao
President and CEO
United Way of America
William H. Gray, III
President and CEO
United Negro College Fund
Michael E. Porter
Professor of Business Administration
Harvard Business School
Henri A. Termeer
Chairman and CEO
Genzyme Corporation
EXECUTIVE AND CORPORATE OFFICERS
Jim Manzi
President and CEO
Kc Branscomb
Senior Vice President
Business Development
Edwin J. Gillis
Senior Vice President
Finance and Operations
Chief Financial Officer
John B. Landry
Senior Vice President
Communications Business Group
Chief Technology Officer
Ilene H. Lang
Senior Vice President
Desktop Business Group
June L. Rokoff
Senior Vice President
Worldwide Services Group
Robert K. Weiler
Senior Vice President
Worldwide Sales and Marketing
Thomas M. Lemberg
Vice President
General Counsel and Secretary
VICE PRESIDENTS
Jeffrey Beir
Vice President
Desktop Product Line
Deborah M. Besemer
Vice President
North, Central and South America
Russell J. Campanello
Vice President
Human Resources
Allen Carney
Vice President
Desktop Marketing
Kevin Cavanaugh
Vice President
International Product Development
David Champagne
Vice President
Worldwide Customer Service and Support
Hemang D. Dave
Vice President
Strategic Alliances
Tim Davenport
Vice President
Developer Tools Group
James Fieger
Vice President
Lotus Development Europe, Middle East, Africa
Charles B. Hamlin
Vice President
Corporate Marketing
Stuart C. Kazin
Vice President
Worldwide Operations and Information Systems
Saburo Kikuchi
President
Lotus Development Japan
Steve King
Vice President
Lotus Development Asia Pacific
Jack Martin
Vice President
Communications Products Group
Finance and Business Development
Larry Moore
Vice President
Inter-enterprise Communications Division
Ray Ozzie
President
Iris Associates
Jeffrey P. Papows
Vice President
Communications Products Group
Ian Richmond
Vice President
Lotus Consulting
Eileen Rudden
Vice President
Inter-enterprise Communications Division
John C. Throckmorton
Vice President
Word Processing Division
Michael Wyzga
Vice President
Worldwide Sales and Marketing
Plans and Controls
Michael Zisman
Vice President
Communications Products Group
<PAGE> 28
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held on Tuesday, May 2, 1995 at
10:00 a.m. at the following location:
Museum of Transportation
Larz Anderson Park
15 Newton Street
Brookline, Massachusetts
Copies of Lotus' Annual Report on Form 10-K are available, without charge,
upon request from:
Kay Waxman
Director of Investor Relations
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, Massachusetts 02142
To request further information about
Lotus Development Corporation, please contact
the Investor Relations Information Line at
(617) 693-1900.
Common Stock
Lotus' common stock is traded over the
counter on the NASDAQ National Market
System - symbol LOTS.
Auditors
Coopers & Lybrand L.L.P.
Boston, Massachusetts
Legal Counsel
Baker & Botts, L.L.P.
New York, New York
Transfer Agent
Bank of Boston
Boston, Massachusetts
(617) 575-2900
CORPORATE DIRECTORY
Corporate Headquarters
55 Cambridge Parkway
Cambridge, Massachusetts 02142
(617) 577-8500
Lotus North American Offices
Phoenix, Arizona
Irvine, California
Los Angeles, California
Mountain View, California
San Francisco, California
Denver, Colorado
Farmington, Connecticut
Del Ray Beach, Florida
Key Largo, Florida
Miami, Florida
Orlando, Florida
Atlanta, Georgia
Chicago, Illinois
Overland Park, Kansas
Boston, Massachusetts
Detroit, Michigan
Grand Rapids, Michigan
Minneapolis, Minnesota
St. Louis, Missouri
Edison, New Jersey
Clifton Park, New York
New York, New York
Rochester, New York
Clemmons, North Carolina
Durham, North Carolina
Cincinnati, Ohio
Cleveland, Ohio
Columbus, Ohio
Bala Cynwyd, Pennsylvania
Pittsburgh, Pennsylvania
Wayne, Pennsylvania
Newport, Rhode Island
Chattanooga, Tennesee
Austin, Texas
Dallas, Texas
Houston, Texas
Arlington, Virginia
Seattle, Washington
Calgary, Alberta
Vancouver, B.C.
Ottawa, Ontario
Toronto, Ontario
Montreal, Quebec
Manufacturing and Distribution
Lotus Development Corporation
North Reading, Massachusetts
Lotus Development B.V.
Dublin, Ireland
Lotus Development Distribution Ltd.
Dublin, Ireland
Lotus Development B.V.
Singapore, Republic of Singapore
International Locations
Lotus Development Pty. Ltd.
Sydney, Melbourne, Canberra, Brisbane and
Perth, Australia
Lotus Development GmbH
Vienna, Austria
Lotus Development Benelux BV
Brussels, Belgium
Lotus Desenvolvimento de Software Ltda.
Sao Paulo and Rio de Janeiro, Brazil
Lotus Development SOLA
(Argentina, Bolivia, Chile, Paraguay,
Peru, Uruguay)
Santiago, Chile
Lotus Development Czech Republic
Prague, Czech Republic
Lotus Development Denmark A/S
Horsholm, Denmark
Lotus Development Finland
Helsinki, Finland
Lotus Development SA
Paris, France
Lotus Development GmbH
Berlin, Dusseldorf, Frankfurt, Hamburg
Stuttgart and Munich, Germany
Lotus Development Software
(Hong Kong) Ltd.
Hong Kong
Lotus Development Hungary
Budapest, Hungary
Lotus Development India
New Delhi, India
Lotus Development European Corporation
Jakarta, Indonesia
Lotus Development Ireland
Dublin, Ireland
Lotus Development Italia SPA
Milan and Rome, Italy
Lotus Development Software, Ltd.
Tel Aviv, Israel
Lotus Development Japan, Ltd.
Tokyo, Japan
Lotus Sales and Services Sdn Bhd
Kuala Lumpur, Malaysia
Lotus Development Corporation de Mexico,
S.A. de C.V.
Mexico City, Mexico
Lotus Development Benelux BV
Diemen, The Netherlands
Lotus Development B.V.
Curacao, Netherlands Antilles
Lotus Development Pty. Ltd.
Auckland and Wellington, New Zealand
Lotus Development Norway
Oslo, Norway
Lotus Development Pte. Ltd.
Beijing, People's Republic of China
Lotus Development, Office Warsaw
Warsaw, Poland
Lotus Development European Corporation
Lisbon, Portugal
Lotus Development Russia
Moscow, Russia
Lotus Development B.V.
Singapore, Republic of Singapore
Lotus Development SA Pty. Ltd.
Johannesburg, South Africa
Lotus Development Korea Ltd.
Seoul, South Korea
Lotus Development Iberica S.A.
Barcelona and Madrid, Spain
Lotus Development Nordic AB
Stockholm, Sweden
Lotus Development (Schweiz) AG
Glattbrugg, Switzerland
Lotus Development European Corporation
Taipei, Taiwan
Lotus Development Middle East Office
Dubai, United Arab Emirates
Lotus Development U.K. Ltd.
Staines, Slough, Manchester and
Edinburgh, U.K.
Lotus Development Corporation
Caracas, Venezuela
Lotus is represented by authorized
distributors in the following countries:
Argentina
Botswana
Bulgaria
Byelorussia
Colombia
Costa Rica
Croatia
Egypt
Greece
Hungary
Kazakhstan
Mauritius
Morocco
Nepal
Pakistan
Philippines
Poland
Romania
Slovak Republic
Thailand
Turkey
Ukraine
Uruguay
Lotus, 1-2-3, Lotus Notes, SmartSuite, Freelance Graphics, Approach and Ami Pro
are registered trademarks and Organizer and Notes are trademarks of Lotus
Development Corporation. cc:Mail is a trademark of cc:Mail, Inc., a
wholly-owned subsidiary of Lotus Development Corporation.
_______________________________________________________________________________
APPENDIX TO 1994 REPORT TO SHAREHOLDERS
GRAPHIC AND IMAGE MATERIAL
CONTAINED IN PRESIDENT'S LETTER AND STORY
Figure/Image Description
1 Photo of Jim Manzi, President and CEO
2 Graphic text reads across the top of all pages
in the story as follows:
Today we have more than 5,000 customers and 1.35
million users of Notes. An entire industry has built
up around Notes, with more than 8,000 business
partners offering new products and services. cc:Mail,
the industry's leading mail product, now has 6.5
million users.
For Lotus, the information superhighway is not
something on the drawing boards, or under
construction. We have ten years of development
experience and five years of in-market experience with
our communications products, and people are using it
to get places. In early 1994, IDC announced the
results of a study showing that companies deploying
Notes are realizing returns on investment averaging
179 percent.
This past year, we've been joined by several
partners in broadening the scope of Notes in the
marketplace, including AT&T, Hewlett-Packard, and IBM.
Our communications strategy has clearly given us a
fast lane for growth - with revenues increasing 94
percent this past year.
We have built a great road. We are out in front
with Notes. No competitor has anything like it. Our
customers are reaching destinations in terms of return
on investment and achieving business goals. But in
another sense, we are still on our way. Our customers
continue to face difficult technology and investment
choices, and no one is going to get there all at once.
Our job is to help them manage the journey.
3 Photo of a portion of a yellow line in road.
4 The words "STARTING OUT" appear in a vertical format going
up the left side of the page.
5 Photo of a "Pedestrians Crossing" street sign.
6 Photo of a pair of binoculars in lower right corner of page.
7 Photo of tire tread marks in road.
8 The words "ROADS PRECEDE MAPS" appear in a vertical format
going up the left side of the page.
9 Photo of a bridge overpass.
10 Photo of a globe in lower right corner of page.
11 An abstract photo of an interstate sign.
12 The words "ROADS ARE FOR COMMERCE" appear in a vertical
format going up the left side of the page.
13 Photo of the side of a truck.
14 Photo of a scale in lower right corner.
15 Photo of a 15-minute parking sign.
16 The words "YOU NEED TO GET THERE FROM HERE" appear in a
vertical format going up the left side of the page.
17 Photo of tire tread marks on road into the horizon.
18 Photo of a welcome mat in lower right corner of page.
______________________________________________________________________________
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name of Organization Jurisdiction
-------------------- ------------
Approach Software Corporation Delaware
cc:Mail, Inc. California
Edge Research, Inc. New Hampshire
Iris Associates, Inc. Delaware
Lotus Charles Park Corporation Massachusetts
Lotus CSG Canada Limited Canada
Lotus Desenvolvimento de Software Ltda. Brazil
Lotus Development, B.V. Netherlands
Lotus Development Benelux, B.V. Netherlands
Lotus Development Canada Ltd. Canada
Lotus Development Caribe Corporation Delaware
Lotus Development Corporation Massachusetts
Lotus Development Corporation de Mexico, S.A. Mexico
Lotus Development Denmark A/S Denmark
Lotus Development Distribution Limited Ireland
Lotus Development European Corporation Delaware
Lotus Development Finland OY Finland
Lotus Development Foreign Sales
Corporation, Ltd. Jamaica
Lotus Development GmbH Austria
Lotus Development GmbH Germany
Lotus Development Holdings, B.V. Netherlands
Lotus Development Iberica Spain
Lotus Development Italia SpA Italy
Lotus Development Japan Ltd. Japan
Lotus Development New Zealand, Ltd. New Zealand
Lotus Development Nordic A.B. Sweden
Lotus Development Norge AS Norway
Lotus Development Pty, Ltd. Australia
Lotus Development Russia Russia
Lotus Development S.A. France
Lotus Development S.A. (Pty.) Ltd. South Africa
Lotus Development (Schweiz) A.G. Switzerland
Lotus Development Security Corporation Delaware
Lotus Development Asia Pte. Ltd. Singapore
Lotus Development (Software) Ltd. Israel
Lotus Development Software (Hong Kong) Ltd. Hong Kong
Lotus Development (U.K.), Ltd. United Kingdom
Lotus Equity Corporation Delaware
Lotus Korea Development Co. Ltd. Korea
Lotus Rogers Street Corporation Delaware
Lotus Sales & Service Sdn. Bhd. Malaysia
PS Publishing, Inc. California
Samna Corporation Georgia
Soft*Switch, Inc. Delaware
Soft*Switch Ltd. United Kingdom
Soft*Switch SARL France
Soft*Switch GmbH Germany
Soft*Switch AS Norway
The Human Interface Group, Inc. Delaware
The Lotus Development Foundation, Inc. Massachusetts
Vanguard Business Solutions, Inc. California
_____________________________________________________________________________
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Lotus Development Corporation on Form S-3 (No.
33-53773) and related prospectus and in the registration
statements of Lotus Development Corporation on Form S-8 and
related prospectuses with respect to the 1992 Stock Option Plan
(No. 33-51263), Employee Stock Purchase Plan (Nos. 2-88906,
33-6366), 1986 Stock Option Plan for Non-Employee Directors (Nos.
33-35497, 33-55488), Amended and Restated 1983 Non-Qualified Stock
Option Plan (Nos. 2-92360, 33-6702, 33-46652) and Soft-Switch,
Inc. Amended and Restated Stock Option Plan (No. 33-55077), of our
reports dated January 24, 1995, on our audits of the consolidated
financial statements and financial statement schedule of Lotus
Development Corporation as of December 31, 1994 and 1993 and for
each of the three years in the period ended December 31, 1994,
which reports are included or incorporated by reference in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1995
______________________________________________________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 209,076
<SECURITIES> 167,142
<RECEIVABLES> 230,977
<ALLOWANCES> 37,971
<INVENTORY> 20,711
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0
0
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</TABLE>
