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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997 Commission File Number 0-13617
LIFELINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2537528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139-4851
(Address of principal executive offices) (Zip Code)
(617) 679-1000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock $0.02 par value
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(Title of Class)
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days. Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of February 27, 1998, 5,792,862 shares of the Registrant's Common Stock were
outstanding and the aggregate market value as of such date of such Common Stock
held by non-affiliates of the Registrant was approximately $125,300,000.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's proxy statement for the Annual Meeting of
Stockholders to be held on May 20, 1998 are incorporated by reference into
Part III hereof.
Exhibit index is located on pages 40 through 44 of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Lifeline Systems, Inc. (the "Company") provides 24-hour personal response
monitoring services to its subscribers, primarily elderly individuals with
medical or age-related conditions as well as physically challenged
individuals. These subscribers communicate with the Company through products
designed, manufactured and marketed by the Company, consisting principally of
a communicator which connects to the telephone line in the subscriber's home
and a personal help button, which is worn or carried by the individual
subscriber and which, when activated, initiates a telephone call from the
subscriber's communicator to the Company's central monitoring facilities. The
Company believes it is a major provider of such services.
BUSINESS DEVELOPMENTS
In November, 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, MA which will serve as its corporate
headquarters. The Company intends to move from its current headquarters to
this facility in late 1998. Annual rental payments under the lease approximate
$775,000. The lease contains two five-year options to renew at the end of the
initial lease term. The Company is currently evaluating possible alternatives
to minimize the remaining obligations under its existing lease.
In December, 1997, the Company announced a one-time reorganization charge
of approximately $4.3 million, or $0.43 per diluted share on an after-tax
basis, to account for its approximately $11 million investment in technology
for a new call center platform, the relocation of the Company's corporate
headquarters from its current Cambridge, MA facility to a new facility in
Framingham, MA, and other initiatives to lower operating costs. The
reorganization charge reflected costs associated with decommissioning the
current call center system, rental commitments and other costs associated with
its current facility, employee severance and benefits, and the write down of
impaired goodwill.
INDUSTRY SEGMENTS
The Company operates in one industry segment. Its operations consist of
providing personal response services associated with those products it
designs, manufactures, and markets. Foreign revenues, from Canada, comprised
less than 10% of the Company's total revenues in 1997, and the Company has no
significant tangible assets in foreign countries.
THE LIFELINE SERVICE
The Company's principal offering, called LIFELINE(R), consists of a
monitoring service utilizing equipment manufactured by the Company. The
Company's monitoring service is a personal response service which provides 24-
hour monitoring and personalized support to elderly individuals with medical
or age-related conditions and to physically challenged individuals throughout
the United States and Canada. Through use of the LIFELINE service, individuals
in need of help are able to signal monitoring personnel in one of the
Company's response centers. These trained monitors identify the nature and
extent of the
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subscriber's particular need and manage the situation by notifying the
subscriber's friends, neighbors, and/or emergency personnel, as set forth in a
predetermined protocol established by the subscriber. The Company also offers
a supportive home monitoring service which emphasizes social support for
elderly individuals who live alone.
The equipment used for the LIFELINE service includes a communicator, which
connects to the telephone line in the subscriber's home and a personal help
button, which is worn or carried by the individual subscriber. When pressed,
the personal help button sends a radio signal to the communicator; the
communicator automatically dials a response center where monitoring personnel
answer the call and dispatch the designated responders, typically a friend or
relative of the subscriber and/or emergency service, when help is needed. Most
of the time, however, subscribers' calls require reassurance and support as a
result of isolation or loneliness.
The Company's primary monitoring center in Cambridge, Massachusetts is
supported by its proprietary CORMIS software,. CORMIS receives incoming
signals from subscribers' communicators, matches and retrieves the appropriate
subscriber data records from a central database, and routes both the call and
the data record to monitoring personnel in the Lifeline Response Center. The
Company has made a significant investment in a new call center platform to
replace CORMIS. This new call center platform is expected to become
operational in late 1998.
In the past, the Company offered its customers, typically healthcare
providers which established their own Lifeline programs, two alternatives for
providing the LIFELINE monitoring service: they could utilize the Lifeline
Response Center to perform their monitoring or they could perform their own
monitoring locally using equipment and software manufactured by the Company.
Although the Company continues to service equipment for customers who perform
their own monitoring, the Company no longer markets the equipment necessary
for new providers to monitor their own subscribers. New providers outsource
their monitoring activities to a Lifeline monitoring center to service their
subscribers.
Lifeline also provides its local programs with a comprehensive set of
monitoring and business support services which reduce the program management
responsibilities and administrative burden associated with a local monitoring
center. In addition, the Company also provides the LIFELINE service directly
to subscribers in the United States and to subscribers in Canada who do not
have access to a local Lifeline program.
The Company offers several versions of its communicators. All models
currently available provide two-way voice communication over a speaker between
the subscriber and the response center as well as other features. All of the
Company's current models also offer the RSVP feature, which allows the
subscriber to answer routine telephone calls by pushing the personal help
button. The Company believes that the product line offers customers
flexibility in terms of price and functionality.
CUSTOMERS
The Company primarily markets its services and products to hospitals,
institutions, and other service providers in a variety of healthcare related
fields. Hospitals, however, have historically been the Company's primary
market. The Company believes that hospitals offer Lifeline's services and
products to capture revenues from the sale of the service, improve healthcare
for the communities they serve, enhance community relations, market other
hospital services to the subscriber base, and/or contain healthcare costs by
facilitating early discharge from the hospital and reducing the need for
nursing home care.
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SALES AND MARKETING
The Company sells its services and products through a direct sales
organization in the United States and Canada.
In support of the sales effort, the Company's sales professionals assist
the Company's institutional customers in developing a marketing plan for the
Lifeline program, monitoring progress against that plan, and providing
training to the customer's staff on the management of their local Lifeline
program. Programs' marketing plans typically address the introduction of
Lifeline's services to key decision makers and service providers within the
customer's organization; the planning and delivery of presentations to
community responders such as police, fire, and medical emergency
professionals; and the development of local referral networks of elder care
and other service organizations to position the LIFELINE service as part of a
continued care plan. Lifeline personnel also provide continuing operational
support, ongoing consultation, and program evaluations.
SOURCE OF RAW MATERIALS
The Company manufactures all of its products, relying on outside vendors
for components and enclosures. Any difficulties in obtaining these parts will
have a direct effect on the Company's ability to meet shipment targets.
Although the Company does generally have two or more suppliers for its
proprietary components, it has no assurance that it will not encounter
component shortages in the future, which may adversely affect the results of
operations.
PATENTS, LICENSES AND TRADEMARKS
The Company considers its proprietary know-how with respect to the
development, manufacture, and marketing of its personal response services to
be a valuable asset. Due to rapid technological changes that characterize the
industry, the Company believes that continued development of new services and
products, the improvement of existing services and products, and patent and
license protection are important in maintaining a competitive advantage.
Although the Company owns numerous patents and patent applications in the
United States, Canada, and other countries, the Company does not believe that
its business as a whole is or will be materially dependent upon the protection
afforded by its patents.
The Company's LIFELINE trademark and servicemark are registered at the
United States Patent and Trademark Office and in most states and some foreign
countries. The Company also has a number of other trademarks.
RESEARCH AND DEVELOPMENT
Research and development continues to be an important strategic element for
the Company and is geared toward enhancing and augmenting the Company's
products and services. Research and development expenses were $1,709,000,
$1,771,000, and $1,701,000, for the years ended December 31, 1997, 1996, and
1995, respectively.
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BACKLOG/SEASONALITY
Because of the nature of the Company's products, it endeavors to minimize
the time which elapses from the receipt of a purchase order to the date of
delivery of the products. Accordingly, the Company's backlog as of the end of
any period represents only a portion of the Company's expected sales for the
succeeding period and is not significant in understanding the Company's
business. The Company does not believe that the industry in which it operates
is seasonal.
GOVERNMENT REGULATION
The Company's products are registered with the Federal Communication
Commission ("FCC") and comply with FCC regulations pertaining to radio
frequency devices (Part 15) connected to the telephone system (Part 68). The
Company has also received registrations of equipment from Canadian agencies.
As new models are developed, they are submitted to appropriate agencies as
required.
The Company has registered its communicator products with the United States
Food and Drug Administration.
None of the Company's business is subject to renegotiation of profits or
termination of contract by the government, nor is it impacted by any existing
environmental laws.
COMPETITION
The Company believes that it is a major provider of personal response
services and products. Other companies offer services and products competitive
with those offered by the Company. These companies offer personal response
services on a regional or national basis through both healthcare providers and
directly to the subscribers themselves.
Although price is a competitive factor, the Company believes that its
customers' main considerations in choosing a personal response service are the
high quality of service and product performance and reliability; customer
support and service; and reputation and experience in the industry. The
Company believes it competes favorably with respect to these factors.
EMPLOYEES
As of February 28, 1998 the Company employed approximately 535 full-time
and permanent part-time employees. None of the Company's employees is
represented by a collective bargaining unit, and the Company believes its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases a portion of a facility in Cambridge, Massachusetts
which serves as its corporate headquarters including its manufacturing and
U.S.-based monitoring operations. The lease includes two five-year options to
renew at the end of the initial ten-year lease term. The Company leases
facilities in other locations to support its field and Canadian operations.
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In November, 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, MA for its corporate headquarters. The
Company intends to occupy this new facility in late 1998 and to vacate its
Cambridge facility at that time. Annual rental payments under the lease
approximate $775,000. The lease contains two five-year options to renew at the
end of the initial lease term. The Company is currently evaluating possible
alternatives for its existing lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
Name Position Age
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<S> <C> <C>
L. Dennis Shapiro Chairman of the Board 64
Ronald Feinstein President, Chief Executive Officer
and Director 51
Dennis M. Hurley Vice President, Finance,
Chief Financial Officer, Treasurer 51
Heather E. Edelman Vice President, Human Resources 50
John D. Gugliotta Vice President, Operations 50
Thomas E. Loper Vice President, Customer Care 48
Richard M. Reich Vice President, Technology and Advanced Services 50
Donald G. Strange Vice President, Sales and Marketing 51
Norman B. Asher Clerk 71
</TABLE>
L. Dennis Shapiro, Chairman of the Board, has served the Company in this
capacity since 1978, and at various times, has served as President and Chief
Financial Officer.
Ronald Feinstein became an employee of the Company in September, 1992 and
became Executive Vice President and Chief Operating Officer in October, 1992. He
was appointed President and Chief Executive Officer in January, 1993. Mr.
Feinstein has served as a director of the Company since 1985. From January, 1991
until September, 1992, he was President and Chief Executive Officer of
International Business Interiors.
Dennis M. Hurley joined the Company in March, 1995 as Vice President, Finance;
Chief Financial Officer; and Treasurer. From November, 1994 to February, 1995,
Mr. Hurley was Corporate Controller for C.P. Clare Corp. which is an electronics
manufacturer. From 1977 to 1994, Mr. Hurley held various senior financial
management positions with Avery Dennison, most recently as Group Controller for
the Office Products Group.
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Heather E. Edelman joined the Company in June, 1993 as Vice President, Human
Resources. From 1989 through 1992, Ms. Edelman was Manager, Human Resources
Programs for ROLM, which manufactures, markets and services telecommunications
products and services.
John D. Gugliotta has been Vice President, Operations since June, 1990. Mr.
Gugliotta had served as Vice President, Manufacturing since he joined the
Company in August, 1987.
Thomas E. Loper serves as Vice President, Customer Care. He joined the Company
in September, 1995 as Vice President, Subscriber Services. From 1993 until 1995,
Mr. Loper served as Area Vice President for Herman Miller, manufacturer of
office furniture. Prior to that, he was President of Business Interiors, a
division of International Business Interiors, from 1991 until 1993.
Richard M. Reich has been Vice President, Technology and Advanced Services
since August, 1994. From June, 1990 to August, 1994, Mr. Reich had served as
Vice President, Product Planning and Development. Since joining the Company in
April, 1986 he had held the position of Vice President, Engineering.
Donald G. Strange is the Vice President, Sales and Marketing. He joined the
Company in February, 1993 as Vice President, Sales. From September, 1992 to
January, 1993, Mr. Strange was Senior Vice President and General Manager of
American Distribution System, which manages the distribution of prescription
drugs and controlled substances. From 1969 to 1992, he was employed by Hoffman-
La Roche, Inc., where he held various management positions in sales and
marketing, most recently as National Director of Sales for its Roche Home
Healthcare Services division.
Norman B. Asher has been the Clerk of the Company since July, 1978 and from
1965 until December, 1997 was a partner of the law firm of Hale and Dorr LLP,
which has been general counsel to the Company since 1976.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Quarterly Market Information and Related Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
"LIFE." On February 27, 1998, the Company had 473 shareholders of record.
The table below reflects the high and low sales prices for 1997 and 1996.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1997 First Quarter $ 19.13 $ 16.50
Second Quarter 20.50 16.00
Third Quarter 20.50 17.00
Fourth Quarter 25.25 18.00
1996 First Quarter $ 12.75 $ 10.50
Second Quarter 14.63 11.88
Third Quarter 19.25 11.50
Fourth Quarter 20.50 15.00
</TABLE>
During the periods presented, the Company has not paid or declared any cash
dividends on its common stock. While the payment of dividends is within the
discretion of the Company's Board of Directors, the Company presently expects to
retain all of its earnings for use in financing the future growth of the
Company.
The Company from time to time issues shares to its employees as part of its
bonus program. In 1997, a total of 500 shares were issued under this program.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
(In thousands, except per share data) 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total revenues $ 56,964 $ 50,223 $ 43,379 $ 36,141 $ 30,059
Income before taxes 3,921 7,078 5,505 3,413 1,870
Net income 2,298 4,176 3,148 1,980 1,085
Net income per share, diluted $ 0.37 $ 0.67 $ 0.51 $ 0.34 $ 0.19
Diluted weighted average
shares outstanding 6,232 6,197 6,115 5,776 5,680
</TABLE>
FINANCIAL POSITION(1)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 12,320 $ 14,003 $ 15,253 $ 14,971 $ 10,469
Total assets 42,269 37,909 31,961 28,883 28,327
Long-term debt 16 25 32 85 397
Stockholders' equity 29,717 27,620 24,289 21,208 19,421
</TABLE>
(1) There were no cash dividends paid or declared during any of the periods
presented.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This and other reports, proxy statements, and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of factors of which the Company is aware that may
cause the Company's actual results to vary materially from those forecast or
projected in any such forward-looking statement. These factors include, without
limitation, those set forth below under the caption "Certain Factors That May
Affect Future Results." The Company's failure to successfully address any of
these factors could have a material adverse effect on the Company's future
results of operations.
RESULTS OF OPERATIONS
1997 Compared with 1996
Total revenues for the year ended December 31, 1997 were $57.0 million, an
increase of 14% compared with the $50.2 million recorded in 1996.
Service revenues grew to $32.0 million of the Company's total revenues for the
year ended December 31, 1997, compared to $24.2 million for the prior year.
Service revenues comprised 56% of the Company's total revenues in 1997 up from
48% in 1996. This increase in revenue reflects the continued success of the
Company's strategy to focus on subscriber growth and recurring service revenues.
As a result, there was a 26% growth in the number of subscribers the Company
monitored to approximately 196,000 at December 31, 1997 from approximately
156,000 at December 31, 1996. The increase in subscribers continues to be driven
principally by conversions of locally-monitored programs to centralized
monitoring provided by the Lifeline Response Center and growth of the Company's
existing programs. The increase in service revenues was also favorably impacted
by the Company's strategy of packaging products and services into a single
service offering, which resulted in higher per-subscriber service revenue. The
Company's ability to sustain the current level of service revenue growth depends
on its ability to expand the market for its personal response services and
convert additional locally-monitored programs to monitoring service provided
directly by Lifeline. The Company believes that the high quality of its services
and its commitment to providing caring and rapid response to the at-risk elderly
and physically challenged will be a factor in meeting this challenge.
Net product revenues totaled $23.8 million during 1997, representing a 4%
decrease over net product revenues in 1996 of $24.9 million. The decrease in
1997 was a result of the decline in the average selling price from 1996 levels
because of a change in product mix sold to lower priced products coupled with
volume discounts. In January, 1997, the Company introduced the Classic
Pendant(TM), a new personal help button designed with particular emphasis on its
fashion appeal. This new button did not have a material impact on 1997 product
revenue. The Company expects continued declining product sales in future periods
as it continues with the strategy of packaging products and services into a
single service offering.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, was consistent in 1997 with the $1.1 million
recorded in the previous year. While customers continue to take advantage of the
Company's leasing program, there was an unusually high number of leases expiring
during the year ended December 31, 1996 that resulted in higher rental income in
the prior year. Rental income is derived from the short-term rental of equipment
from expired leases until such time the equipment is returned to the
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Company. The decline in rental income in 1997 was offset in part by an increase
in finance income from leases maintained in the Company's portfolio which led to
the consistent level achieved. The Company believes that the retention of new
leases in its own portfolio will increase finance income in future years.
Cost of services, as a percentage of service revenues, increased to 47% for the
year ended December 31, 1997 from 42% for the year ended December 31, 1996. The
Company's continued investment in personnel and systems enhancements in support
of its current service infrastructure has resulted in higher cost of services in
1997. These expenditures have enabled the Company to continue to provide a high
level of service to its increasing subscriber base. As the Company grows its
subscriber base and further develops its monitoring capabilities, it continues
to make capital expenditures on a new response center platform at its corporate
headquarters. Total expenditures for the Company's information systems
infrastructure at its primary monitoring facility are expected to be
approximately $11 million, of which approximately $7.5 million was expended
during 1997. These expenditures did not have an impact on 1997 results of
operations since the platform is expected to be placed in service in late 1998.
However, cost of services in future years is expected to be impacted by the
depreciation of these investments.
For the year ended December 31, 1997, cost of product sales as a percentage of
product sales was 28%, versus 33% in the prior year. The improvement is largely
attributable to continued utilization of new technology which reduced material
costs, improvements in manufacturing processes, and the enhanced reliability of
the Company's product which reduced the warranty costs compared to 1996 levels.
Selling, general, and administrative expenses as a percentage of total revenues
improved to 45% for the year ended December 31, 1997 from 47% for the year ended
December 31, 1996. The $2.0 million increase in actual expenses year-over-year
was primarily attributable to the Company's larger employee base in 1997. This
resulted in an increase in salaries and related fringe benefits as compared to
the year ended December 31, 1996. Also, increased spending associated with the
Company's employee recruitment efforts, higher operating costs for the Company's
corporate headquarters, enhancements related to information systems, and the
inclusion of a full year of costs associated with the July, 1996 acquisition of
CareTel, Inc. of Ontario, Canada attributed to the overall increased spending in
1997.
Research and development expenses represented 3% of revenues in 1997 versus 4%
in 1996. Research and development efforts are focused on ongoing product
improvements, and the Company expects to maintain these expenses, as a
percentage of total revenues, at a relatively consistent level.
In December, 1997, the Company announced a one-time reorganization charge of
approximately $4.3 million, or $0.43 per diluted share on an after-tax basis to
account for its approximately $11 million investment in technology for a new
call center platform, the relocation of the Company's corporate headquarters
from its current Cambridge, MA facility to a new facility in Framingham, MA, and
other initiatives to lower operating costs. As a result, the Company incurred a
$4.3 million pre-tax charge to operations for the year ended December 31, 1997.
The charge covered $304,000 of costs associated with the write down to fair
value of certain call center fixed assets, $1.2 million of costs for the write-
down to fair value of certain leasehold improvements and lease commitments on
its current facility, $150,000 of costs associated with the write down to fair
value of equipment made obsolete from prior years' acquisitions, $842,000 of
costs for employee severance and related benefits, and $1.8 million for the
write down of impaired goodwill.
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The Company's effective tax rate was 41.4% for 1997, as compared to 41% in 1996.
The increase in the Company's rate was largely attributable to the
nondeductibility of the write down of the Canadian portion of goodwill and a
higher Canadian tax rate.
1996 Compared with 1995
Total revenues for the year ended December 31, 1996 were $50.2 million, an
increase of 16% compared with the $43.4 million recorded in 1995.
Service revenues represented $24.2 million of the Company's total revenues for
the year ended December 31, 1996, compared to $18.6 million for the prior year.
This 30% increase in service revenues was driven primarily by a 30% increase in
subscribers, to approximately 156,000 at December 31, 1996, from nearly 120,000
at the end of 1995. Service revenues comprised 48% of the Company's total
revenues in 1996 compared to 43% in 1995 which was consistent with the Company's
continued transition to a service-oriented business, with its focus on
developing its base of subscribers and generating recurring service revenues.
The increase in subscribers in 1996 was driven by conversions of locally-
monitored programs to centralized monitoring by the Company, growth of the
Company's existing programs, and by the Company's acquisition of CareTel, Inc.
in July, 1996 which contributed nearly 3,000 subscribers.
Net product revenues totaled $24.9 million during 1996, representing a 6%
increase over product revenues in 1995 of $23.4 million. The 1996 results
benefited from an entire year of sales of the CarePartner(TM) line, the first
models of which were introduced in September, 1995. The increase in volume
attributed to this line was partially offset by a decline in the average selling
price. The average selling price decreased because of product and service price
offerings in support of the Company's strategy to grow recurring service revenue
while maintaining product sales. The Company introduced the CarePartner
Telephone(TM) during the third quarter of 1996, which replaced the Company's
CommuniCatorPlus(TM). This version of the Company's full-function speaker
telephone incorporates digital speech technology, called VoiceAssist(TM), which
provides special features for those with visual or hearing limitations,
clarifies alarm messages, and instructs users in a friendly, reassuring manner.
This product did not have a material impact on 1996 product revenues.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, decreased $.2 million to $1.1 million in 1996
from $1.3 million in 1995. The decline was attributable to the overall aging of
the lease portfolio existing when the Company transitioned to an arrangement
with a third-party leasing agent, beginning in January, 1994. Although this
arrangement provided cash flow benefits during 1994 and 1995, in January, 1996
the Company terminated this arrangement and introduced a more customer-focused,
internally managed and funded leasing program.
Cost of services, as a percentage of service revenues, increased to 42% for the
year ended December 31, 1996 from 40% for the year ended December 31, 1995. The
increased cost was attributable to the Company's investment in personnel and
systems supporting its growing service infrastructure. As the Company grows its
subscriber base and develops its monitoring capabilities, it expects to continue
to invest in its service infrastructure to enhance its ability to provide caring
service for its subscribers. These investments are expected to be directed
primarily toward systems enhancements and improvements.
For the year ended December 31, 1996, cost of product sales as a percentage of
product sales was 33%, versus 36% in the prior year. This decrease was due
largely to improvements in manufacturing processes and the application of new
technology which reduced product costs.
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Selling, general, and administrative expenses as a percentage of revenues
decreased slightly to 47% for the year ended December 31, 1996 from 48% for the
year ended December 31, 1995. The dollar increase in actual expenses to $23.9
million in 1996 from $21.0 million in 1995 was largely attributable to
expenditures related to enhancements to information systems, salaries, and
related fringe benefits due to the overall increase of the Company's employee
base; market development and promotional strategies aimed at the healthcare
channel and related referral networks; and the additional administrative
expenses associated with the acquisition of CareTel, Inc. in the third quarter
of 1996.
Research and development expenses represented 4% of revenues in 1996 and in
1995. Research and development efforts are focused on ongoing product
improvements.
The Company's effective tax rate was 41% for 1996, as compared to 43% in 1995.
The reduction in the Company's rate was largely due to the impact of tax-exempt
income from the Company's marketable securities portfolio and utilization of a
subsidiary with favorable tax status.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, the Company's portfolio of cash, cash
equivalents, and investments decreased $5.4 million to $7.9 million at December
31, 1997 from $13.3 million at December 31, 1996. The net decrease resulted from
continued expenditures for the Company's information systems infrastructure. The
Company anticipates it will spend approximately $11.0 million as it develops a
flexible, scaleable, and fault tolerant response center platform at its primary
monitoring facility to support its growing subscriber base. While the new
platform will be placed in service after 1997, approximately $7.5 million was
expended during 1997, principally pursuant to development agreements entered
into with third party vendors. In addition, the Company used $1.6 million, net
of cash received on leases, to fund its internal leasing program, as compared to
$1.2 million in 1996, and a generation of $2.9 million of cash in 1995 from
payments received from the Company's existing portfolio of sales-type leases.
Also, during 1997 the Company invested $2.8 million in equipment purchases for
use in the development and manufacture of its products and services, as well as
for Company-owned equipment provided directly to customers under comprehensive
service agreements and to subscribers not serviced by local Lifeline programs.
Total expenditures were offset, in part, by the Company's profitable operations
in 1997.
In November, 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, MA for its corporate headquarters. The
Company intends to occupy this new facility in late 1998. Annual rental payments
under the lease approximate $775,000. The lease contains two five-year options
to renew at the end of the initial lease term. The Company is currently
evaluating possible alternatives for its existing lease. The Company expects
that it will incur capital expenditures associated with the move.
In January, 1997, the Company's Board of Directors approved the repurchase of up
to 100,000 shares of the Company's common stock from time to time in the open
market for general corporate purposes. The Company purchased 60,700 shares
directly from its Chief Executive Officer during 1997 for $1.1 million as part
of this program. These shares were purchased from the Chief Executive Officer
partly in connection with the repayment of a $250,000 note receivable and
associated tax expenses.
In November, 1995, the Company secured a $4.0 million line of credit effective
in January, 1996. During 1997, the term of the credit facility was extended
until March, 1998. This credit agreement contains a number of covenants,
including requirements that the Company maintain certain levels of financial
performance and capital structure, limitations on the Company's capital and
other expenditures, and restrictions on the
-13-
<PAGE>
Company's capacity to secure additional debt financing. No amounts were
outstanding as of December 31, 1997. The Company is currently in the process of
renegotiating a new line of credit.
The Company expects that funding requirements for operations and in support of
future growth are expected to be met primarily from operating cash flow and
existing cash and marketable securities. The Company expects these sources will
be sufficient to finance the cash needs of the Company through 1998 including
the continued investment in its new response center platform, the 1998 move to
new corporate headquarters, the 1998 requirements of its internally funded lease
financing program and stock repurchases, any potential acquisitions, and other
investments in support of its current business.
In June, 1997 the Financial Accounting Standards Board issued Statement No. 130
("SFAS" 130), "Reporting Comprehensive Income." SFAS 130 requires changes in
comprehensive income to be shown in a financial statement that is displayed with
the same prominence as other financial statements. While not mandating a
specific financial statement format, SFAS 130 requires that an amount
representing total comprehensive income be reported. SFAS 130 will become
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required for comparative
purposes. The Company does not believe that the adoption of SFAS 130 will have a
material impact on results of operations.
In June, 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS" 131), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131, which supersedes Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report segment information
quarterly and entity-wide disclosures about products and services, major
customers, and the material countries in which the entity holds assets and
reports revenues. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. Restatement for earlier years is required for comparative
purposes unless impracticable. In addition, SFAS 131 need not be applied to
interim periods in the initial year; however, in subsequent years, interim
period information must be presented on a comparative basis. The Company does
not believe that the adoption of SFAS 131 will have a material impact on
financial statement disclosures.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.
The Company's results are partially dependent on its ability to develop services
and products that keep pace with continuing technological changes, evolving
industry standards, changing subscriber preferences and new service and product
introductions by the Company's competitors. Lifeline's future success will
depend on its ability to enhance its existing services and products (including
accessories), to introduce new service and product offerings to meet and adapt
to changing customer requirements and emerging technologies on a timely basis
and to offer such products and services at competitive prices. There can be no
assurance that Lifeline will be successful in identifying, developing,
manufacturing or marketing new services and products or enhancing its existing
services and products on a timely basis or that Lifeline will be able to offer
such services and products at competitive prices. Also, there can be no
assurance that services, products or technologies developed by others will not
render Lifeline's services or products noncompetitive or obsolete.
-14-
<PAGE>
The Company may experience risks and uncertainties associated with the
development of new information technology. These include the risks that such
development effort may not be completed on schedule, or at all, or within
budget, or that future developments in information technology will not render
the Company's system non-competitive; the risks that the Company does not
realize the intended benefits from the new system, once completed; and the
uncertainty associated with the substantial commitment of funds to the
development effort, including the risks that the Company will have available
significantly less cash to finance its operations, other capital expenditures
and future growth, including acquisitions.
The Company's growth is dependent on its ability to increase the number of
subscribers served by its monitoring centers. The Company's ability to continue
to increase service revenue is a key factor in its long-term growth, and there
can be no assurance that the Company will be able to do so. The Company's
failure to increase service revenue could have a material adverse effect on the
Company's results of operations.
The Company may expand its operations through the acquisition of additional
businesses. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate any
acquired businesses into the Company without substantial expenses, delays or
other operational or financial problems. In addition, acquisitions may involve a
number of special risks, including diversion of management's attention, failure
to retain key acquired personnel, unanticipated events, contingent liabilities
and amortization of acquired intangible assets. There can be no assurance that
the acquired businesses, if any, will achieve anticipated revenues or earnings.
The Company sells a significant portion of its products to healthcare providers
which establish their own Lifeline programs. These healthcare providers
typically rent, rather than sell, the Lifeline products to subscribers and
accordingly following such time as a product is no longer used by a subscriber,
it is returned to the healthcare provider and becomes available for rent to
another subscriber. As a result of this use and reuse of the Company's products,
sales of such products are dependent on growth in the number of subscribers and
on the ability of the Company to encourage its healthcare provider customers to
replace their existing inventory by continuing to enhance its products with new
features.
The Company's monitoring operations are concentrated principally in its
corporate headquarters facility. Although the Company believes that it has
constructed safeguards to protect against system failures, the disruption of
service at its monitoring facility, whether due to telephone or electrical
failures, earthquakes, fire, the 1998 move to new corporate headquarters, or
other similar events or for any other reason, could have a material adverse
effect on the Company's results of operations.
The Company's equipment sales have continued to decline as a result of the
Company's strategy of combining service and hardware offerings to support the
transition to a service oriented business. There can be no assurance that
service revenue will increase at a rate sufficient to offset the expected
decrease in equipment sales.
-15-
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. This could result in
computer programs that have date-sensitive software recognizing a date using
"00" as the year 1900 rather than the year 2000. Such errors could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has implemented a formal Year 2000 program to determine the extent
of its own Year 2000 problems. As part of this program, the Company is in the
process of determining whether its operating systems need modifications to be in
compliance with the Year 2000. The Company has not yet fully assessed the Year
2000 compliance expense and related potential effect on the Company's earnings.
The Company anticipates that any modifications required to be made to its
software systems to comply with the Year 2000 Issue will be completed in a
timely manner. The Company has designed its new call center platform to be in
compliance with the Year 2000.
The Company has also initiated formal communications with significant suppliers
and other key third parties to determine the extent to which the Company is
vulnerable to those third parties' failure to resolve their own Year 2000 issue.
There can be no assurance that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company's results of
operations.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
(Unaudited) Quarter Ended
(Dollars in thousands, except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Full Year
<S> <C> <C> <C> <C> <C>
1997 Total revenues $13,556 $14,243 $14,185 $14,980 $56,964
Net income (loss) 955 1,226 1,289 (1,172) 2,298
Net income (loss) per share, diluted $ 0.15 $ 0.20 $ 0.21 $ (0.20) $ 0.37
1996 Total revenues $11,156 $13,043 $12,755 $13,269 $50,223
Net income 690 1,065 1,136 1,285 4,176
Net income per share, diluted $ 0.11 $ 0.17 $ 0.18 $ 0.21 $ 0.67
</TABLE>
Report of Independent Accountants
To the Stockholders and Board of Directors of Lifeline Systems, Inc.:
We have audited the accompanying consolidated financial statements and financial
statement schedule of Lifeline Systems, Inc. ("The Company") listed in Items
14(a)(1) and 14(a)(2) of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lifeline Systems,
Inc. as of December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
In addition, 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 aspects, the information to be included
therein.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Boston, Massachusetts
February 9, 1998
-17-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,019 $ 3,030
Short-term investments 5,850 7,140
Accounts receivable, net of allowance for doubtful
accounts of $216 in 1997 and $197 in 1996 7,406 6,062
Inventories 1,375 1,450
Net investment in sales-type leases 1,444 1,278
Prepaid expenses and other current assets 1,045 1,675
Deferred income taxes 2,209 1,046
Total current assets --------- ---------
21,348 21,681
Long-term investments - 3,178
Property and equipment, net 15,435 7,127
Goodwill, net 192 2,568
Net investment in sales-type leases 4,641 3,160
Other assets 653 195
--------- ---------
Total assets $ 42,269 $ 37,909
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,352 $ 1,063
Accrued expenses 1,954 2,520
Accrued payroll and payroll taxes 1,753 1,743
Accrued income taxes 229 854
Deferred revenues 714 812
Product warranty and other current liabilities 702 686
Accrued restructuring charge 2,324 -
--------- ---------
Total current liabilities 9,028 7,678
Deferred income taxes 2,136 1,690
Deferred compensation 975 896
Other non-current liabilities 413 25
Commitments:
Stockholders' equity:
Common stock, $.02 par value, 10,000,000 shares authorized,
6,375,750 shares issued in 1997 and 6,217,192 shares issued in 1996 128 124
Additional paid-in capital 16,340 15,618
Retained earnings 17,449 15,151
--------- ---------
33,917 30,893
Less: treasury stock at cost, 592,548 shares in 1997 and 532,348 shares in 1996 (4,028) (2,923)
Notes receivable - officers (100) (350)
Cumulative translation adjustment (72) -
--------- ---------
Total stockholders' equity 29,717 27,620
--------- ---------
Total liabilities and stockholders' equity $ 42,269 $ 37,909
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-18-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands except for per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
Services $ 32,031 $ 24,220 $ 18,602
Net product sales 23,776 24,864 23,440
Finance and rental income 1,157 1,139 1,337
--------- --------- ---------
Total revenues 56,964 50,223 43,379
--------- --------- ---------
Costs and expenses
Cost of services 15,133 10,064 7,454
Cost of sales 6,582 8,238 8,500
Selling, general, and administrative 25,903 23,855 20,959
Research and development 1,709 1,771 1,701
Restructuring charge 4,310 - -
--------- --------- ---------
Total costs and expenses 53,637 43,928 38,614
--------- --------- ---------
Income from operations 3,327 6,295 4,765
--------- --------- ---------
Other income (expense)
Interest income 614 790 748
Interest expense (20) (7) (8)
--------- --------- ---------
Total other income, net 594 783 740
--------- --------- ---------
Income before income taxes 3,921 7,078 5,505
Provision for income taxes 1,623 2,902 2,357
--------- --------- ---------
Net income $ 2,298 $ 4,176 $ 3,148
========= ========= =========
Net income per weighted average share:
Basic $ 0.40 $ 0.74 $ 0.56
Diluted $ 0.37 $ 0.67 $ 0.51
Weighted average shares
Basic 5,736 5,678 5,643
Diluted 6,232 6,197 6,115
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-19-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Notes Cumulative Total
Common Stock Paid-In Retained Treasury Receivable Translation Stockholders'
---------------------
Shares Amount Capital Earnings Stock Officers Adjustment Equity
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 5,494,915 $118 $14,533 $ 8,366 ($1,559) ($250) $21,208
Exercise of stock options 177,202 5 423 428
Issuance of stock under employee
stock purchase plan 16,053 88 88
Purchase of treasury stock (10,000) (122) (122)
Sale of stock to officer 8,939 69 31 (100)
Issuance of treasury stock 8,500 48 30 78
Purchase of common stock warrant (539) (539)
Net income 3,148 3,148
--------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,695,609 123 15,161 10,975 (1,620) (350) 24,289
Exercise of stock options 69,650 1 230 231
Issuance of stock under employee
stock purchase plan 15,085 163 163
Purchase of treasury stock (103,000) (1,337) (1,337)
Issuance of treasury stock 7,500 64 34 98
Net income 4,176 4,176
--------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 5,684,844 124 15,618 15,151 (2,923) (350) 27,620
Exercise of stock options 143,546 4 490 494
Issuance of stock under employee
stock purchase plan 15,012 220 220
Income tax benefit from stock
options exercised 6 6
Purchase of treasury stock (60,700) (1,107) (1,107)
Issuance of treasury stock 500 6 2 8
Payment of note receivable by CEO 250 250
Cumulative translation adjustment ($72) (72)
Net income 2,298 2,298
--------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 5,783,202 $128 $16,340 $17,449 ($4,028) ($100) ($72) $29,717
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,298 $ 4,176 $ 3,148
Adjustments to reconcile net income to net cash provided
by operating activities:
Restructuring charge 4,310 - -
Depreciation and amortization 3,919 3,216 2,231
Provision for bad debts 85 120 -
Deferred income tax provision (benefit) (717) 589 (869)
Deferred compensation 79 446 384
Changes in operating assets and liabilities:
Accounts receivable (1,440) (182) (961)
Inventories 75 (56) 117
Net investment in sales-type leases (1,647) (1,238) 2,963
Prepaid expenses, other current assets and other assets 171 (1,049) (331)
Accounts payable, accrued expenses and other liabilities 112 1,099 509
Income taxes payable/receivable (625) 529 319
Accrued restructuring charge - - (200)
-------- -------- -------
Net cash provided by operating activities 6,620 7,650 7,310
-------- -------- -------
Cash flows from investing activities:
Purchases of investments (7,500) (20,664) (9,323)
Sales and maturities of investments 11,968 19,669 -
Additions to property and equipment (11,886) (5,033) (2,709)
Payment for business acquisition - (1,146) (1,000)
-------- -------- -------
Net cash used in investing activities (7,418) (7,174) (13,032)
-------- -------- -------
Cash flows from financing activities:
Principal payments under long-term obligations (59) (91) (276)
Proceeds from stock options exercised and
employee stock purchase plan 720 394 516
Purchase of common stock warrant - - (539)
Repayment of loan from officer 250 - -
Purchase of treasury stock (1,107) (1,337) (122)
Issuance of treasury stock 8 98 78
-------- -------- -------
Net cash used in financing activities (188) (936) (343)
-------- -------- -------
Net decrease in cash and cash equivalents (986) (460) (6,065)
-------- -------- -------
Effect of foreign exchange on cash (25) - -
-------- -------- -------
Cash and cash equivalents at beginning of year 3,030 3,490 9,555
-------- -------- -------
Cash and cash equivalents at end of year $ 2,019 $ 3,030 $ 3,490
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Lifeline
Systems, Inc. and its wholly owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Cash, Cash Equivalents, and Investments
The Company considers all securities purchased with a maturity of three
months or less at the date of acquisition to be cash equivalents. The
Company's investments are deemed to be available for sale. Short-term
investments consist primarily of obligations of the US Government and its
agencies, tax-exempt securities, commercial paper, and bank time deposits
with maturities at date of acquisition beyond three months and less than
one year. Long-term investments consist primarily of obligations of the US
Government and its agencies, tax-exempt securities, and commercial paper
with maturities at date of acquisition beyond one year and less than three
years. Investments are carried at fair market value, which approximates
cost.
The fair market value of securities, which approximates cost, consists of
the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands) Maturity
-------------------------------------------------------------
Less than More than
Type of Security one year one year Total
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
US Government and Agency
securities $ 649 $2,917 $ - $ 500 $ 649 $ 3,417
Tax-exempt securities 2,724 4,223 - 2,678 2,724 6,901
Corporate bonds and securities 2,477 - - - 2,477 -
-----------------------------------------------------------------------------------------------
$5,850 $7,140 $ - $3,178 $5,850 $10,318
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,019 3,030
- ----------------------------------------------------------------------------------------------------------------------------------
$7,869 $13,348
==================================================================================================================================
</TABLE>
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or market, as determined by the
first-in, first-out method.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
computed principally by the straight-line method over the useful lives of the
assets, typically three to five years, or, in the case of leasehold
improvements, over the lesser of the useful life or the lease term.
When assets are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income. Expenditures for maintenance and repairs are charged to
expense as incurred; betterments are capitalized.
Goodwill
Goodwill is recorded at cost and amortized on a straight-line basis over an
estimated useful life not to exceed seven years. Amortization expense was
$542,000, $472,000, and $361,000 in 1997, 1996 and 1995, respectively.
Accumulated amortization amounted to $0 and $1,244,000 as of December 31, 1997
and 1996, respectively.
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
be Disposed Of," the Company evaluates the possible impairment of long-lived
assets, including goodwill, whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable. In December, 1997, the
Company initiated a reorganization plan to account for its approximately $11
million investment in technology for a new call center platform, the relocation
of the Company's corporate headquarters from its current Cambridge, MA facility
to a new facility in Framingham, MA, and other initiatives to lower operating
costs. In accordance with this plan, the Company analyzed the acquisitions of
the Communicall(R) brand of value-added supportive home monitoring services to
the elderly, Tele-Response and Support Services, Inc. who was a distributor of
the Company's personal response products and services, and the ProtectAlert(TM)
trade name. Based on an estimate of future discounted net cash flows, the
Company recorded a charge of $1.8 million to write down the carrying amounts of
these businesses to their estimated fair values. The charge is included in the
Company's results of operations for the year ended December 31, 1997 as part of
the restructuring charge.
As a result of the Company's reorganization plan, the Company also recorded a
non-cash accounting charge of $897,000 related to a write down of property,
plant and equipment associated with the Company's current call center, leasehold
improvements on its current facility, and certain assets related to the
aforementioned acquisitions. The charge is included in the Company's results of
operations for the year ended December 31, 1997 as part of the restructuring
charge.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Product Warranty
The Company's products are generally under warranty against defects in material
and workmanship. The Company provides an accrual for estimated warranty costs at
the time of sale of the related products.
Revenue Recognition
Service revenues are associated primarily with providing monitoring and
maintenance of personal response products and are recognized ratably over the
contractual period. Revenues from the sale of personal response products are
recognized upon shipment. Finance income attributable to sales-type lease
contracts is initially recorded as unearned income and subsequently recognized
under the interest method over the term of the leases.
Income Taxes
The Company accounts for income taxes under a liability approach. Under this
approach, deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse.
Net Income Per Common Share
Net income per basic common share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Net income per diluted common shares is computed based on the
weighted average number of common and dilutive common equivalent shares
outstanding during each period. Common equivalent shares consist of stock
options and warrants calculated in accordance with SFAS No. 128, "Earnings per
Share."
Industry Segments
The Company operates in one industry segment. Its operations consist of
providing personal response services associated with the monitoring of those
products it designs, manufactures, and markets. Foreign revenues, from Canada,
comprise less than 10% of the Company's total revenues, and the Company has no
significant tangible assets in foreign countries.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk include cash, cash equivalents, investments, and trade receivables.
The Company sells its products primarily to hospitals and other healthcare
institutions. The Company performs ongoing credit evaluations of its customers
and, in the case of sales-type leases, the leased equipment serves as collateral
in the transactions. The Company has established guidelines relative to credit
ratings, diversification and maturities that maintain safety and liquidity. The
Company has not experienced any significant losses on these financial
instruments.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchased parts and assemblies $ 827 $ 797
Work in progress 391 392
Finished goods 157 261
- ---------------------------------------------------------------------------------------------------
$1,375 $1,450
===================================================================================================
</TABLE>
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment $ 10,410 $ 9,099
Furniture and fixtures 659 574
Equipment leased to others 7,195 5,218
Equipment under capital leases 1,035 1,035
Leasehold improvements 751 692
Capital in progress 8,319 687
------------------------------------
28,369 17,305
Less: accumulated depreciation and amortization (12,934) (10,178)
- ---------------------------------------------------------------------------------------------------
$ 15,435 $ 7,127
===================================================================================================
</TABLE>
Accumulated depreciation and amortization amounted to $3,708,000 and $2,256,000
on equipment leased to others and $1,014,000 and $1,006,000 on equipment under
capital leases at December 31, 1997 and 1996, respectively. In total,
depreciation expense amounted to $3,377,000, $2,750,000 and $1,774,000 for the
years ended December 31, 1997, 1996, and 1995, respectively.
D. LEASING ARRANGEMENTS
As Lessor
The Company maintains an internally-financed and operated leasing program and
leases its personal response products to customers principally under sales-type
leases.
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. LEASING ARRANGEMENTS (continued)
As sales-type leases, the lease payments to be received over the term of the
leases are recorded as a receivable at the inception of the new lease. Finance
income attributable to the lease contracts is initially recorded as unearned
income and subsequently recognized as income under the interest method over the
term of the leases. The lease contracts are generally for five-year terms, and
the residual value of the leased equipment is considered to be nominal at the
end of the lease period.
The components of the net investment in sales-type leases are
as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum lease payments receivable $8,580 $6,193
Less: Unearned interest 2,305 1,579
Allowance for doubtful accounts 190 176
- ----------------------------------------------------------------------------------------------------
6,085 4,438
Less: Current portion 1,444 1,278
- ----------------------------------------------------------------------------------------------------
Net investment in sales-type leases $4,641 $3,160
====================================================================================================
</TABLE>
Future minimum lease payments due under non-cancellable sales-type leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1998 $2,357
1999 1,995
2000 1,953
2001 1,615
2002 653
Thereafter 7
- ----------------------------------------------------------------------------------------------------
$8,580
====================================================================================================
</TABLE>
As Lessee
The Company conducts its primary operations in a leased facility under a ten-
year operating lease which commenced in the second quarter of 1994. The lease
includes scheduled base rent increases over the term of the lease. The total
amount of base rent payments is being charged to expense on the straight-line
method over the term of the lease. The Company recorded a deferred credit to
reflect the excess of rent expense over cash payments upon the commencement of
the lease. In addition, the Company pays a monthly allocation of the building's
operating expenses and real estate taxes. The lease contains two five-year
renewal options.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. LEASING ARRANGEMENTS (continued)
In conjunction with the leased facility, the Company also entered into operating
lease arrangements for certain furniture, computer equipment, and leasehold
improvements totaling approximately $1.5 million. These leases contain renewal
options and expire through 2001.
In November, 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, MA for its corporate headquarters. The
Company intends to occupy this new facility in late 1998. Annual rental
payments under the lease approximate $775,000. The lease contains two five-year
options to renew at the end of the initial lease term. The Company is currently
evaluating possible alternatives for its existing lease.
As a result of the Company's reorganization plan, the Company recorded a charge
of $731,000 for the rental commitment on its current facility.
The Company also has several operating lease arrangements for sales offices and
office equipment that expire through 2000 and leases certain equipment under
capital leases which expire through 2000. Capital lease obligations are
collateralized by the related equipment.
Future minimum lease payments under capital and operating leases with initial or
remaining terms of one year or more are:
<TABLE>
<CAPTION>
(Dollars in thousands) Capital Leases Operating Leases
--------------------------------------
<S> <C> <C>
1998 $13 $ 1,540
1999 13 1,941
2000 6 1,986
2001 - 1,876
2002 - 1,842
Thereafter - 6,132
- -----------------------------------------------------------------------------------------------
Total minimum lease payments 32 $15,317
========
Less amount representing interest 7
- --------------------------------------------------------------------------
Present value of net minimum lease payments 25
Less current portion 9
- --------------------------------------------------------------------------
Long-term obligation under capital leases $16
==========================================================================
</TABLE>
Total rent expense under all operating leases was $1,485,000, $1,466,000, and
$1,451,000, for the years ended December 31, 1997, 1996, and 1995,
respectively.
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY
Net Income Per Common Share
The Company has adopted SFAS No. 128, "Earnings per Share" for the fiscal year
ended December 31, 1997. This Statement replaces the presentation of primary
and fully diluted earnings per share ("EPS") with a presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. A reconciliation of the
basic EPS to diluted EPS and dual presentation on the face of the statement of
income are also required.
Calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
(In thousands except per share figures)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic:
- ------
Net income $2,298 $4,176 $3,148
Weighted average common shares outstanding 5,736 5,678 5,643
Net income per share, basic $ 0.40 $ 0.74 $ 0.56
====== ====== ======
Diluted:
- --------
Net income for calculating diluted earnings per share $2,298 $4,176 $3,148
Weighted average common shares outstanding 5,736 5,678 5,643
Common stock equivalents 496 519 472
------ ------ ------
Total weighted average shares 6,232 6,197 6,115
Net income per share, diluted $ 0.37 $ 0.67 $ 0.51
====== ====== ======
</TABLE>
Stock-Based Compensation Plans
The Company has adopted the disclosure requirements of SFAS No. 123 "Accounting
for Stock-Based Compensation." The Company continues to recognize compensation
costs using the intrinsic value based method described in Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees."
In May, 1994 the stockholders approved the 1994 Stock Option Plan (the "1994
Plan"). The 1994 Plan provides that officers and key employees may be granted
either nonqualified or incentive stock options for the purchase of the Company's
common stock at the fair market value
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY (continued)
on the date of grant. The employee options granted generally become exercisable
at a rate of 20% per year and expire ten years from the date of grant. Certain
options, as originally granted, became exercisable only to the extent the
Company achieved specific financial goals. During 1995 these options were
amended to provide for vesting on the earlier of the six year anniversary of the
date of grant or the original vesting schedule upon the achievement of the
aforementioned financial goals. As a result of this change, the Company incurred
additional compensation expense totaling $1.6 million, which is being amortized
based on a vesting schedule which approximates the expected date of meeting the
specific financial goals. Compensation expense of $79,000, $446,000, and
$384,000 was recorded in 1997, 1996, and 1995 and accumulated deferred
compensation was $975,000 and $896,000 at December 31, 1997 and 1996,
respectively.
The 1991 Stock Option Plan also remains in effect, providing for similar grants
to officers and employees. Additionally, the 1991 Plan provides for an
automatic annual grant to non-employee directors. The non-employee director
options become exercisable in three equal installments with the first
installment exercisable on the date of grant and the second and third
installments becoming exercisable on the second and third anniversaries of such
date.
Prior to the adoption of the 1994 Plan, several other stock option plans were in
effect and options which remain outstanding under those plans are included
below.
In May, 1996 the Company, upon approval by the Board of Directors and
stockholders, increased the total number of shares approved for future grant
under plans currently in effect by 300,000 for the 1994 Stock Option Plan and
25,000 for the 1991 Stock Option Plan. At December 31, 1997 shares available
for future grants under all option plans were 309,150.
Net income and net income per share as reported in these financial statements
and on a pro forma basis for the years ended December 31, 1997, 1996 and 1995,
as if the fair value based method described in SFAS No. 123 had been adopted are
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net income As Reported $2,298 $4,176 $3,148
Pro Forma $1,973 $3,990 $3,069
Basic net income per share As Reported $0.40 $0.74 $0.56
Pro Forma $0.34 $0.70 $0.54
Diluted net income per share As Reported $0.37 $0.67 $0.51
Pro Forma $0.32 $0.66 $0.53
</TABLE>
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY (continued)
The effect of applying SFAS No. 123 for the purpose of providing pro forma
disclosure may not be indicative of the effects on reported net income and net
income per share for future years. The pro forma disclosures include the effects
of all awards granted after January 1, 1995 and additional awards in future
years are anticipated.
For the purpose of providing pro forma disclosures, the fair values of stock
options granted were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1997, 1996 and
1995, respectively: a risk-free interest rate of 6.3%, 6.3% and 6.7%; an
expected life of 6 years in all years; expected volatility of 37%, 40% and 50%;
and no expected dividends.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
Wgtd. Avg. Wgtd. Avg. Wgtd. Avg.
Shares Exer.Price Shares Exer.Price Shares Exer.Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning of year 875,657 $ 6.24 871,673 $ 5.40 866,226 $ 4.22
Granted 128,450 17.03 100,500 12.51 207,450 7.83
Exercised (143,546) 3.43 (69,650) 3.31 (177,202) 2.41
Cancelled or lapsed (29,151) 7.00 (26,866) 9.95 (24,801) 6.18
--------- --------- ---------
Outstanding at end of year 831,410 8.37 875,657 6.24 871,673 5.40
========= ========= =========
Option exercisable
at year end 380,709 $ 7.01 400,726 $ 5.58 363,880 $ 5.30
Weighted average fair value
of options granted
during the year $ 8.12 $ 6.19 $ 4.45
</TABLE>
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY (continued)
The following table summarizes information about stock options outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.00-$ 5.00 363,410 5.0 $ 3.56 212,039 $ 3.65
5.50- 7.25 120,110 6.4 6.34 41,120 6.11
10.00- 11.94 102,500 6.7 11.12 59,300 10.93
12.13- 14.81 110,190 6.5 13.20 56,750 13.95
16.19- 18.50 135,200 8.9 17.05 11,500 17.84
------- -------
$ 3.00-$18.50 831,410 6.3 $ 8.37 380,709 $ 7.01
======= =======
</TABLE>
In May, 1995 the stockholders approved the Lifeline Employee Stock Purchase Plan
(ESPP) whereby eligible employees may invest up to 10% of their base salary in
shares of the Company's common stock. The purchase price of the shares is 90%
of the fair market value of the stock on either the commencement date or the
date of purchase, whichever is lower. Under the Plan, 200,000 shares of common
stock are available for purchase over ten offering periods through April, 2000,
of which approximately 162,116 shares remain available. Shares purchased under
the ESPP totaled 15,012, 15,085, and 7,787 in 1997, 1996 and 1995, respectively.
The weighted-average grant-date fair value of shares purchased under the ESPP
was $17.79, $15.62 and $9.39 in 1997, 1996, and 1995, respectively.
For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for purchases in 1997, 1996 and 1995
respectively: a risk free interest rate of 5.94%, 5.41% and 5.37%; an expected
life of 6 months in each year; expected volatility of 30% in 1997 and 40% in
1996 and 1995; and no expected dividends.
Common Stock
In September, 1995 the Company issued 8,939 shares of its common stock to the
Vice President, Customer Care in exchange for a collateralized promissory note
in the amount of $100,000. The note, which bears interest at a rate of 6.3% per
annum, payable annually in arrears, is due September, 2002. In September, 1992
the Company issued 83,333 shares of its common stock to the Chief Executive
Officer in exchange for a collateralized promissory note in the amount of
$250,000. The note, which bears interest at a rate of 5.98% per annum, payable
annually in
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY (continued)
arrears, was due September 1, 1999. On February 24, 1997, the Company's Chief
Executive Officer repaid the note in full, in part by exercising stock options
and selling 10,700 shares of Common Stock back to the Company at their fair
market value of $17.00 on such date, the proceeds of which were used to repay
the note.
In connection with the 1993 acquisition of the assets of CarePartners, Inc., the
Company issued a warrant to purchase 100,000 shares of the Company's common
stock at $4.78 per share, expiring in March, 1996. In September, 1995 the
Company paid $539,000 to repurchase the warrant.
In January, 1997, the Board of Directors authorized the repurchase of an
additional 100,000 shares of common stock for general corporate purposes. The
Company has purchased 60,700 shares directly from the Company's Chief Executive
Officer through December 31, 1997 for $1.1 million as part of this program,
including the 10,700 shares repurchased on February 24, 1997. These shares were
purchased from the Chief Executive Officer partly in connection with the
repayment of the $250,000 note and associated tax expenses.
F. INCOME TAXES
The provision (benefit) for income taxes was computed as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $1,720 $1,834 $2,563
Deferred (586) 404 (722)
- --------------------------------------------------------------------------------
1,134 2,238 1,841
- --------------------------------------------------------------------------------
State income taxes:
Current 504 567 663
Deferred (131) 97 (147)
- --------------------------------------------------------------------------------
373 664 516
- --------------------------------------------------------------------------------
Foreign income taxes:
Foreign income taxes 116 - -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Provision for income taxes $1,623 $2,902 $2,357
================================================================================
</TABLE>
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. INCOME TAXES (continued)
Total deferred tax assets (liabilities) are as follows at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets $ 3,588 $ 1,913
Total deferred tax liabilities (3,515) (2,557)
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 73 ($644)
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following
significant items at December 31:
1997 1996
---- ----
Current deferred tax assets:
Inventory and warranty reserves $ 653 $ 793
Restructuring reserve 586 -
Deferred compensation 393 -
Deferred revenue 255 -
Accounts receivable reserves 126 105
Accrued vacation and other reserves 196 148
- ----------------------------------------------------------------------------------------------------------------------
Net current deferred tax asset 2,209 1,046
- ----------------------------------------------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Sales type leases (3,447) (2,489)
Restructuring reserve 425 -
Depreciation 117 485
Foreign net operating losses - 126
Amortization 769 188
- ----------------------------------------------------------------------------------------------------------------------
Net noncurrent deferred tax liability (2,136) (1,690)
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 73 ($644)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The differences between the statutory U.S. federal income tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $1,336 $2,406 $1,872
State income tax, net of federal tax effect 246 472 338
Tax exempt income (68) (60) -
Canadian goodwill 112 - -
Foreign rate differences 65 - -
Other, net (68) 84 147
- ------------------------------------------------------------------------------------------------------
Provision for income taxes $1,623 $2,902 $2,357
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Company has no foreign operating loss carry forwards at December 31, 1997.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution savings plan covering
substantially all of its employees. The Company's contributions, which are
included in selling, general and administrative expenses, were $354,000,
$184,000, and $152,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
H. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not incur capital lease obligations in 1997 or 1996. However,
the Company did incur a capital lease obligation to obtain certain equipment in
the amount of $41,000 in 1995.
Cash paid for income taxes amounted to $2,313,000, $2,679,000, and $2,908,000
during 1997, 1996, and 1995, respectively. Interest paid was $20,000, $7,000,
and $8,000 during 1997, 1996, and 1995, respectively.
I. REVOLVING CREDIT AGREEMENT
The Company secured a $4.0 million line of credit effective in January, 1996.
During 1997, the term of the credit facility was extended until March, 1998.
This credit agreement contains a number of covenants, including requirements
that the Company maintain certain levels of financial performance and capital
structure, limitations on the Company's capital and other expenditures, and
restrictions on the Company's capacity to secure additional debt financing. No
amounts were outstanding at December 31, 1997 and 1996. The Company is currently
in the process of renegotiating a new line of credit.
J. ACQUISITION
In July, 1996 the Company acquired all of the outstanding stock of CareTel, Inc.
of Toronto, Ontario, Canada through its subsidiary, Lifeline Systems (Canada),
Inc. CareTel provided monitoring services similar to those offered by the
Company, directly to consumers under the brand name ProtectAlert. The purchase
price was approximately $1.1 million in cash, all of which was paid in 1996.
The acquisition was accounted for as a purchase transaction, and, as a result,
the Company recorded goodwill of approximately $1,000,000. The results of the
acquired business have been included in the Company's consolidated financial
statements from the date of acquisition. See Note K.
K. RESTRUCTURING
In December, 1997, the Company initiated a plan of reorganization and
restructuring designed to account for an approximate $11 million investment in
technology for a new call center platform, the relocation of the Company's
corporate headquarters from its current Cambridge, MA facility to a new facility
in Framingham, MA, and other initiatives to lower operating costs.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. RESTRUCTURING (continued)
As a result, in the fourth quarter of 1997, the Company recorded a $4.3 million
pre-tax charge to operations. The Company took a charge for a minor workforce
reduction in such areas as sales and marketing, research and development and
administration. This resulted in a pre-tax charge of $842,000 for employee
severance and related benefits, and none of these amounts were paid as of
December 31, 1997. Also in connection with the restructuring plan, the Company
will take steps to decommission the current call center system. Therefore, the
restructuring charge also included $304,000 of costs associated with the write
down to fair value of certain call center fixed assets. Also in association
with the Company's relocation from its current Cambridge, MA facility to a new
facility in Framingham, MA, the restructuring charge included $1.2 million of
costs for the write down to fair value of certain leasehold improvements and
lease commitments on its current facility. The remaining restructuring charge
primarily related to $150,000 of costs associated with the write down to fair
value of equipment made obsolete from prior years' acquisitions, and $1.8
million for the write down of impaired goodwill.
Accrued restructuring charges in 1997 of $2.3 million represent the expected
future cash payments remaining at December 31, 1997. A summary of the
restructuring activity is presented below:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Balance at December 31, 1996 $ -
Non-cash write-downs of property
and equipment 827
Rent commitment 655
Reduction of workforce and other cash flows 842
-------
Balance at December 31, 1997 $ 2,324
=======
</TABLE>
L. NEWLY ISSUED ACCOUNTING STANDARDS
In June, 1997 the Financial Accounting Standards Board issued Statement No. 130
("SFAS" 130), "Reporting Comprehensive Income." SFAS 130 requires changes in
comprehensive income to be shown in a financial statement that is displayed with
the same prominence as other financial statements. While not mandating a
specific financial statement format, SFAS 130 requires that an amount
representing total comprehensive income be reported. SFAS 130 will become
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required for comparative
purposes. The Company does not believe that the adoption of SFAS 130 will have a
material impact on results of operations.
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. NEWLY ISSUED ACCOUNTING STANDARDS (continued)
In June, 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS" 131), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131, which supersedes Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report segment information
quarterly and entity-wide disclosures about products and services, major
customers, and the material countries in which the entity holds assets and
reports revenues. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. Restatement for earlier years is required for comparative
purposes unless impracticable. In addition, SFAS 131 need not be applied to
interim periods in the initial year; however, in subsequent years, interim
period information must be presented on a comparative basis. The Company does
not believe that the adoption of SFAS 131 will have a material impact on
financial statement disclosures.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-36-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the heading "Election of Directors" in the Company's
definitive proxy material for its annual meeting of stockholders to be held on
May 20, 1998, is incorporated herein by reference. Information concerning
officers of the Company appears in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation," excluding the
"Compensation Committee Report on Executive Compensation" and the Stock Price
Performance Graph in the Company's definitive proxy material for its annual
meeting of stockholders to be held on May 20, 1998, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners: The information
under the heading "Beneficial Ownership of Common Stock" in the
Company's definitive proxy material for its annual meeting of
stockholders to be held on May 20, 1998, is incorporated herein by
reference.
(b) Security ownership of management: The information under the heading
"Beneficial Ownership of Common Stock" in the Company's definitive
proxy material for its annual meeting of stockholders to be held on
May 20, 1998, is incorporated herein by reference.
(c) Changes in control: None known.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-37-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of LIFELINE SYSTEMS, INC.
and the report of independent accountants relating thereto, are set forth in
Item 8 of this Annual Report on Form 10-K on the pages indicated.
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Accountants 17
Consolidated Balance Sheets as of December 31, 1997 and 1996 18
Consolidated Statements of Income for the years
ended December 31, 1997, 1996, and 1995 19
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996, and 1995 20
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 21
Notes to Consolidated Financial Statements 22-36
</TABLE>
(A)(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of LIFELINE SYSTEMS, INC. is
filed herewith and included in ITEM 14 (a)(2) on the pages indicated below.
Pages
-----
Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1996 and 1995 45
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the quarter ended December 31, 1997.
(C) EXHIBITS
The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibit Index which appears on pages 40
through 44 hereof.
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIFELINE SYSTEMS, INC.
March 16, 1998 By: /s/ Ronald Feinstein
- -------------- --------------------------------
Date Ronald Feinstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ L. Dennis Shapiro Chairman of the Board March 16, 1998
- ------------------------ --------------
L. Dennis Shapiro
/s/ Ronald Feinstein Chief Executive Officer, March 16, 1998
- ------------------------ --------------
Ronald Feinstein President and Director (Principal
Executive Officer)
/s/ Dennis M. Hurley Vice President of Finance March 16, 1998
- ------------------------ --------------
Dennis M. Hurley (Principal Financial and
Accounting Officer)
/s/ Everett N. Baldwin Director March 16, 1998
- ------------------------ --------------
Everett N. Baldwin
/s/ Joseph E. Kasputys Director March 16, 1998
- ------------------------ --------------
Joseph E. Kasputys
/s/ Carolyn C. Roberts Director March 16, 1998
- ------------------------ --------------
Carolyn C. Roberts
/s/ Steven M. Tritman Director March 16, 1998
- ------------------------ --------------
Steven M. Tritman
/s/ Gordon C. Vineyard Director March 16, 1998
- ------------------------ --------------
Gordon C. Vineyard
</TABLE>
-39-
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities and Exchange Act
of 1934 and are referred to and incorporated herein by reference to such
filings.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT SEC DOCUMENT REFERENCE
- ----------- ------- ------------------------
<S> <C> <C>
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Organization of Lifeline Systems, Inc., 2-84060 Exhibit 3.1
as amended.
3.2 Articles of Amendment of Lifeline Systems, Inc. 1987 10K Exhibit 3.4
3.3 Restated By-Laws of Lifeline Systems, Inc. 1990 10K Exhibit 3.4
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Specimen Stock Certificate. 2-84060 Exhibit 4.1
EXHIBIT 10. MATERIAL CONTRACTS
10.01 Registrant's 1982 Incentive Stock Option Plan 2-84060 Exhibit 10.19
and form of Option Agreement.
10.02 Registrant's 1982-A Incentive Stock Option Plan and 2-84060 Exhibit 10.20
form of Option Agreement.
10.03 Medical Expense Reimbursement Plan. 2-84060 Exhibit 10.21
10.04 Registrant's 1986 Incentive Stock 33-12030 Exhibit 10.26
Option Plan and form of Option Agreement
10.05 Amendments to Registrant's 1986 Incentive 1987 10K Exhibit 10.13
Stock Option Plan.
10.06 Registrant's 1982 Incentive Stock Option Plan, 1988 10K Exhibit 10.14
as amended.
10.07 Registrant's 1982-A Incentive Stock Option Plan, 1988 10K Exhibit 10.15
as amended.
10.08 Amendment to Registrant's 1986 Incentive Proxy Statement filed
Stock Option Plan. April 13, 1989 (0-13617)
10.09 Registrant's 1991 Stock Option Plan. 1990 10K Exhibit 10.37
</TABLE>
-40-
<PAGE>
<TABLE>
<S> <C> <C>
10.10 Form of Non-statutory Stock Option Agreement 1992 10K Exhibit 10.32
for Registrant's 1991 Stock Option Plan.
10.11 Form of Special Non-statutory Stock Option Agreement 1992 10K Exhibit 10.33
for Registrant's 1991 Stock Option Plan.
10.12 Lease Agreement between the Registrant and 1992 10K Exhibit 10.34
the Massachusetts Institute of Technology,
dated April 3, 1992.
10.13 First Amendment to Lease Agreement dated April 3, 1992 1992 10K Exhibit 10.35
between the Registrant and the Massachusetts
Institute of Technology, dated August 25, 1992.
10.14 Amended Employment and Noncompetition Agreement 1992 10K Exhibit 10.36
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.15 Secured Promissory Note between Ronald Feinstein and 1992 10K Exhibit 10.37
the Registrant, dated September 1, 1992.
10.16 Security and Pledge Agreement between 1992 10K Exhibit 10.38
Ronald Feinstein and the Registrant,
dated September 1, 1992.
10.17 Non-statutory Stock Option Agreement, as amended, 1992 10K Exhibit 10.39
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.18 Special Non-statutory Stock Option Agreement, as 1992 10K Exhibit 10.40
amended, between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.19 Second Amendment to Lease Agreement dated April 3, 1992 10Q for the Quarter
between the Registrant and ended June 30, 1993
the Massachusetts Institute of Technology, Exhibit 10.42
dated May 18, 1993.
10.20 Amended and Restated Asset Purchase Agreement 10Q for the Quarter
dated September 9, 1993 between the Registrant and ended September 30,1993
CarePartners, Inc. Exhibit 10.43
10.21 Second Amendment to Lease Agreement 1993 10K Exhibit 10.44
dated August 31, 1989 and Consent to
Assignment of Lease between the Registrant
and Tierrasanta 234 dated September 9, 1993.
10.22 Letter Agreement between Ronald Feinstein 1993 10K Exhibit 10.45
and the Registrant dated March 4, 1994.
</TABLE>
-41-
<PAGE>
<TABLE>
<S> <C> <C>
10.23 Nonstatutory Stock Option Agreement between 1993 10K Exhibit 10.46
Ronald Feinstein and the Registrant dated
February 11, 1994.
10.24 Third Amendment to Lease Agreement dated April 3, 1992 10Q for the Quarter
between the Registrant and the Massachusetts ended March 31, 1993
Institute of Technology Exhibit 10.47
10.25 Registrant's 1994 Stock Option Plan. 1994 10K Exhibit 10.48
10.26 Form of Non-statutory Stock Option Agreement 1994 10K Exhibit 10.49
for Registrant's 1994 Stock Option Plan.
10.27 Form of Special Non-statutory Stock Option Agreement 1994 10K Exhibit 10.50
for Registrant's 1994 Stock Option Plan.
10.28 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.51
Bell Atlantic-TriCon Leasing Corporation
10.29 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.52
U.S. Leasing Corporation
10.30 Secured Promissory Note between Thomas E. Loper
and the Registrant, dated September 11, 1995. 1995 10K Exhibit 10.30
10.31 Security and Pledge Agreement between
Thomas E. Loper and the Registrant,
dated September 11, 1995. 1995 10K Exhibit 10.31
10.32 Asset Purchase Agreement dated May 17, 1995
between the Registrant and Martha's Vineyard
Hospital Foundation. 1995 10K Exhibit 10.32
10.33 Form of the Non-statutory Stock Option
Agreement to Registrant's 1991 Stock
Option Plan 1995 10K Exhibit 10.33
10.34 Form of the Non-statutory Stock Option
Agreement to Registrant's 1994 Stock
Option Plan 1995 10K Exhibit 10.34
10.35 1995 Employee Stock Purchase Plan 1995 10K Exhibit 10.35
10.36 Revolving Credit Agreement between
the First National Bank of Boston
and the Registrant, dated November 30, 1995 1995 10K Exhibit 10.36
</TABLE>
-42-
<PAGE>
<TABLE>
<S> <C> <C>
10.37 Amended Employment Agreement between
Ronald Feinstein and the Registrant, 10Q for the quarter ended
dated June 14, 1996 June 30, 1996, Exhibit 10.60
10.38 Employment Agreement between Len Wechsler
and Lifeline Systems (Canada), Inc. 10Q for the quarter ended
dated July 3, 1996 September 30, 1996, Exhibit 10.60
10.39 Stock purchase agreement between
Lifeline Systems (Canada), Inc. and
Len Wechsler dated July 3, 1996 10Q for the quarter ended
September 30, 1996, Exhibit 10.61
10.40 Stock purchase agreement between
Lifeline Systems (Canada), Inc., and
CareTel, Inc. and the stockholders of 10Q for the quarter ended
CareTel, ,Inc., dated July 3, 1996 September 30, 1996, Exhibit 10.62
10.41 Amendment to Registrant's 1991
Stock Option Plan 1996 10K Exhibit10.41
10.42 Amendment to Registrant's 1994 1996 10K Exhibit 10.42
Stock Option Plan
10.43 First Amendment to Revolving Credit Agreement
between the First National Bank of Boston
and the Registrant dated November 29, 1996 1996 10K Exhibit 10.43
Filed herewith:
10.44 Lease Agreement between the Registrant and
Bishop/Clark Associates Limited Partnership
dated November 11, 1997
10.45 Second Amendment to Revolving Credit Agreement
between the First National Bank of Boston
and the Registrant dated December 31, 1997
10.46 Offer to Lease between CareTel, Inc. and Graduate Holdings
Limited and Samuel Sarick Limited dated September 1, 1994
10.47 Form of Lease Agreement between Lifeline Systems, Canada and
Samuel Sarick Limited and Graduate Holdings Limited
dated January 29, 1998
10.48 Master Agreement for Professional Services between
Cambridge Technology Partners and the
</TABLE>
-43-
<PAGE>
<TABLE>
<S> <C>
Registrant dated June 16, 1997
10.49 Form of Change in Control Agreement for
the following Named Executives:
Mr. Richard Reich, Mr. Thomas Loper
Mr. Dennis Hurley, Mr. John Gugliotta
EXHIBIT 21. SUBSIDIARIES.
Filed herewith:
21.1 Subsidiaries of Lifeline Systems, Inc.
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL.
Filed herewith:
23.1 Consent of Coopers and Lybrand L.L.P.
</TABLE>
-44-
<PAGE>
LIFELINE SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs & End of
Description of Year Expenses Deductions/(1)/ Year
- ----------- ------- -------- --------------- -----
<S> <C> <C> <C> <C>
1997
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $197 $ 71 $ 52 $216
Lease receivables 176 14 - 190
---- ---- ---- ----
Total $373 $ 85 $ 52 $406
1996
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $156 $120 $ 79 $197
Lease receivables 217 - 41 176
---- ---- ---- ----
Total $373 $120 $120 $373
1995
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $221 $ - $ 65 $156
Lease receivables 304 - 87 217
---- ---- ----
Total $525 $152 $373
</TABLE>
/(1)/ Uncollectible accounts and adjustments.
-45-
<PAGE>
Exhibit 10.44
LEASE BETWEEN
BISHOP/CLARK ASSOCIATES LIMITED PARTNERSHIP
AND
BISHOP 108 ASSOCIATES LIMITED PARTNERSHIP
(collectively, the "Landlord")
and
LIFELINE SYSTEMS, INC.
as Tenant
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1 - REFERENCE, DEFINITIONS AND EXHIBITS................................................................ 1
-----------------------------------
1.1 Definitions........................................................................................ 1
-----------
1.2 Effect of Reference to Definitions................................................................. 4
----------------------------------
1.3 Exhibits........................................................................................... 4
--------
ARTICLE 2 - LEASED PREMISES, TERM AND COMMENCEMENT OF TERM..................................................... 4
----------------------------------------------
2.1A Landlord........................................................................................... 4
--------
2.1 Leased Premises.................................................................................... 4
---------------
2.2 Term .............................................................................................. 5
----
ARTICLE 3 - RENT, ITS DETERMINATION, COMMENCEMENT AND
-----------------------------------------
METHOD OF PAYMENT........................................................................... 5
-----------------
3.1 Rent............................................................................................... 5
----
3.2 Base Rent.......................................................................................... 5
---------
3.2A TIF Agreement; Reduction in Base Rent ............................................................. 6
-------------------------------------
3.3 Additional Rent.................................................................................... 6
---------------
3.4 Payment of Estimated Operating Expenses............................................................ 7
---------------------------------------
3.5 Lease to be Deemed Net............................................................................. 8
----------------------
3.6 Tenant's Right to Seek Abatement................................................................... 8
--------------------------------
3.7 Landlord's Right to Seek Abatement................................................................. 9
----------------------------------
3.8 Abatements Generally............................................................................... 9
--------------------
3.9 Tax Credits and Deductions for Tenant Work ........................................................ 9
------------------------------------------
3.10 Prepaid Rent and Security Deposit.................................................................. 9
---------------------------------
ARTICLE 4 - UTILITIES AND SERVICES............................................................................. 10
----------------------
ARTICLE 5 - INSURANCE.......................................................................................... 10
---------
5.1 Required Coverage.................................................................................. 10
-----------------
5.2 Writing and Disposition of Insurance Policies...................................................... 10
--------------------------------------------
5.3 Mutual Waiver of Subrogation....................................................................... 11
----------------------------
5.4 Blanket Policies ................................................................................. 11
-----------------
5.5 Landlord's Insurance Covenants.................................................................... 11
-------------------------------
ARTICLE 6 - TENANT'S ADDITIONAL COVENANTS...................................................................... 12
6.1 Performing Obligations............................................................................. 12
----------------------
67.2 Use................................................................................................. 12
---
6.3 Maintenance and Repair.............................................................................. 12
-----------------------
6.4 Compliance with Laws............................................................................... 13
--------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.5 Payment for Tenant's Work.......................................................................... 13
------------------------
6.6 Indemnity.......................................................................................... 13
---------
67.7 Personal Property at Tenant's Risk.................................................................. 14
----------------------------------
6.8 Payment of Landlord's Cost of Enforcement........................................................... 14
-----------------------------------------
6.9 Yield Up........................................................................................... 14
--------
6.10 Subordination...................................................................................... 14
------------
6.11 Estoppel Certificates.............................................................................. 15
---------------------
6.12 Nuisance........................................................................................... 15
--------
6.13 Changes and Alterations............................................................................ 15
-----------------------
ARTICLE 6A LANDLORD'S ADDITIONAL COVENANTS ................................................................... 16
-------------------------------------------
6A.1 Landlord's Maintenance, Repair and Replacement Obligations ........................................ 16
----------------------------------------------------------
6A.2 Landlord's Obligations Regarding Compliance with Laws ............................................. 17
-----------------------------------------------------
6A.3 Payment of Tenant's Costs of Enforcement .......................................................... 18
----------------------------------------
ARTICLE 7 - QUIET ENJOYMENT.................................................................................... 18
---------------
ARTICLE 8 - DAMAGE AND EMINENT DOMAIN.......................................................................... 18
8.1 Fire and Other Casualty............................................................................ 18
-----------------------
8.2 Eminent Domain..................................................................................... 19
--------------
ARTICLE 9 - DEFAULTS BY TENANT AND REMEDIES.................................................................... 20
9.1 The Condition...................................................................................... 20
-------------
9.2 Reimbursement of Landlord's Expenses............................................................... 21
------------------------------------
9.3 Damages............................................................................................ 22
-------
9.4 Mitigation......................................................................................... 22
----------
9.5 Claims in Bankruptcy............................................................................... 22
--------------------
9.6 Late Charge........................................................................................ 22
-----------
9.7 Landlord's Right to Cure Defaults.................................................................. 23
---------------------------------
9.8 Effect of Waivers of Default....................................................................... 23
----------------------------
ARTICLE 10 - ASSIGNMENT AND SUBLETTING......................................................................... 23
-------------------------
ARTICLE 11 - NOTICES........................................................................................... 24
-------
ARTICLE 12 - NOTICE OF LEASE................................................................................... 26
---------------
ARTICLE 13 - APPLICABLE LAW, SEVERABILITY, CONSTRUCTION........................................................ 26
------------------------------------------
ARTICLE 14 - SUCCESSORS AND ASSIGNS, ETC....................................................................... 26
----------------------------
ARTICLE 15 - LANDLORD'S ACCESS................................................................................. 27
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 16 - BASE BUILDING IMPROVEMENTS AND TENANT WORK 27
16.1 Definitions 27
-----------
16.2 "As of Right Work" and "As of Right Uses" 28
----------------------------------------
16.3 Landlord's Obligations to Perform the Work; Guaranty of Work 29
------------------------------------------------------------
16.4 Architect, Plans and Specifications 30
-----------------------------------
16.5 Selection of the Contractor 30
---------------------------
16.6 Payment of Costs 31
----------------
16.7 Tenant's Self-Funding Option 31
----------------------------
16.8 Substantial Completion 32
----------------------
16.9 Performance Dates; Remedies 32
---------------------------
16.10 Guaranty 35
---------
16.11 Other Terms 36
-----------
ARTICLE 17 - WARRANTY REGARDING BROKER ............................................................................. 36
-------------------------
ARTICLE 18 - HAZARDOUS MATERIALS.................................................................................... 36
-------------------
ARTICLE 19 - FIRST EXTENSION TERM 38
--------------------
ARTICLE 20 - SECOND EXTENSION TERM 40
---------------------
ARTICLE 21 - RIGHT OF FIRST OFFER................................................................... 42
--------------
SIGNATURE PAGES......................................................................................................44-45
SCHEDULE OF EXHIBITS:
- --------------------
</TABLE>
EXHIBIT A - DESCRIPTION OF THE LAND
EXHIBIT B - PLAN OF THE LEASED PREMISES
EXHIBIT C - DESCRIPTION OF WORK
EXHIBIT D - LIST OF ENVIRONMENTAL SITE ASSESSMENT REPORTS REFERRED TO IN
ARTICLE 18
EXHIBIT E - GZA SCOPE OF WORK FOR ASBESTOS REMEDIATION
iii
<PAGE>
ARTICLE 1 - REFERENCE, DEFINITIONS AND EXHIBITS
-----------------------------------
1.1 Definitions
-----------
Term
Commencement Date: Upon the later to occur of: (a) September 1, 1998; and
(b) the earlier to occur of (i) "Substantial Completion"
(as that term is defined in Article 16 below ), and (ii)
----------
the date the Tenant takes occupancy of the Leased
Premises for the purpose of conducting its business.
Landlord: Collectively, Bishop/Clark Associates Limited
Partnership, a Massachusetts limited partnership, and
Bishop 108 Associates Limited Partnership
Original Address
of Landlord: c/o Levco, Inc.
Rosemary Office Center
145 Rosemary Street
Suite E
Needham, MA 02194
Tenant: Lifeline Systems, Inc., a Massachusetts corporation
Original Address
of Tenant: 640 Memorial Drive
Cambridge, MA 02139
Attention: Dennis M. Hurley, Chief Financial Officer
Broker: Davis & diMarco (the "Landlord's Broker").
Fallon Hines & O'Connor ( the "Tenant's Broker")
Original Lease Term: Ten (10) Lease Years commencing on the Term Commencement
Date and ending on the last day of the tenth Lease Year.
Options to Extend
Original Lease Term: Two (2) options to extend the Original Lease Term for
five (5) Lease Years each as more particularly set forth
in Articles 19 and 20 below.
------------------
1
<PAGE>
Lease Term: The Original Lease Term as the same may have been
extended or earlier terminated in accordance with the
terms and conditions of this Lease.
Building: The building containing approximately 84,420 square feet
of rentable floor space and known as 108 Clark Street,
Framingham, Massachusetts, all as more particularly
shown on the plan attached hereto as Exhibit B. Any
---------
reference in this Lease to the "land" or "Site" shall,
to the extent possible, mean the land on which the
Building is situated (including, without limitation, the
driveways, parking areas, landscaping and the other
improvements situated thereon) located in Framingham,
Massachusetts, and more particularly described on
Exhibit A attached hereto.
---------
Leased Premises: The Building.
Property: The Building and the Site.
Parking and
Site Amenities: Tenant shall have the exclusive use of the Site
including, without limitation, all driveways, parking
areas and other amenities, if any, located on the Site
(subject to reasonable rules and regulations which may
be promulgated by Landlord from time to time). Landlord,
as part of the Base Building Improvements, shall
resurface the parking area with asphalt and stripe the
parking area with the dimensions of the parking spaces
and adjacent aisles being in accordance with the
applicable sections of the Zoning Bylaws of the Town of
Framingham, Massachusetts.
Permitted Uses: Use only for general office, light assembly, warehouse,
distribution, research and development, call monitoring
center and purposes and uses customarily accessory
thereto (including, without limitation, cafeteria and
exercise rooms for Tenant's employees) and for no other
purpose, subject, in all cases, to applicable legal
requirements.
Lease Year: As used in this Lease, the term "Lease Year" shall have
the following meaning: (i) the first Lease Year shall
commence on the Term Commencement Date and shall include
any partial calendar month at the beginning of the
Original Lease Term and the succeeding twelve (12) month
period; and (ii) after the first Lease Year, a Lease
Year shall be each successive 12-month period included
in the Lease Term and, if the expiration of the Lease
Term or the earlier termination of this Lease does not
coincide with the termination of such a 12-month period,
Lease Year shall mean the portion of such 12-month
period before such expiration or
2
<PAGE>
termination.
Impositions: All taxes including real estate taxes (which term shall
include payments in lieu of real estate taxes),
assessments (which shall be paid over the maximum period
of time permitted by law), water and sewer rents, rates
and charges, levies, and other governmental charges,
general and special, ordinary and extraordinary,
foreseen and unforeseen, of any kind and nature
whatsoever, which at any time during the Lease Term may
be assessed, levied, confirmed, imposed upon, or may
become due and payable out of or in respect of, or
become a lien upon, the Property (including all
improvements thereto), other than: (i) municipal, state
----------
and federal income taxes (if any) assessed against
Landlord; or (ii) municipal, state or federal capital
levy, gift, estate, succession, inheritance or transfer
taxes of Landlord; or (iii) corporation excess profits
or franchise taxes imposed upon any corporate owner of
the Property; or (iv) any income, profits or revenue
tax, assessment or charge imposed upon the Rent payable
by Tenant under this Lease, provided, however, that if
-------- -------
at any time during the Lease Term the methods of
taxation prevailing at the commencement of the Lease
Term shall be altered so that, in lieu of or as a
substitute for the whole or any part of the taxes,
assessments, levies or charges now levied, assessed or
imposed on real estate and the improvements thereon,
there shall be levied, assessed and imposed a tax,
assessment, levy, imposition or charge, wholly or
partially as a capital levy or otherwise, on the rents
received therefrom, or measured by or based in whole or
in part upon the Leased Premises and the Site and
imposed upon Landlord, then all such taxes, assessments,
levies, impositions or charges or the part thereof so
measured or based, shall be deemed to be included within
the term "Impositions" for the purposes hereof. In
addition to the foregoing, the term "Impositions" shall
include any new tax of a nature not presently in effect,
but which may be hereafter levied, assessed, or imposed
upon Landlord or all or any portion of the Property, if
such tax shall be based on or arise out of the
ownership, use or occupation of all or any portion of
the Property.
Tenant's
Proportionate
Share: 100%
Operating
Expenses: The term "Operating Expenses" shall mean the aggregate
expenses reasonably incurred by Landlord for the
following: utilities consumed by the Property
(including, without limitation, full costs for heating
the Building) to the extent the same are not being paid
for directly by Tenant;
3
<PAGE>
all insurance obtained by Landlord relating to or
otherwise in connection with its ownership or the
operation, rental, or management of the Property (the
foregoing to include, without limitation, the insurance
which the Landlord is required to maintain pursuant to
Section 5.5 of the Lease, any rent loss
-----------
insurance (for a period not to exceed twenty-four
months), and any insurance required by Landlord's
Mortgagee (provided the same is customarily required by
mortgage lenders making loans on comparable properties
but the foregoing shall not include environmental
insurance); and all expenses incurred by Landlord in
connection with the performance of Landlord's
obligations set forth in Article 6A below but only to
the extent provided in said Article 6A.
----------
Landlord's
Mortgagee: Any party holding a mortgage on the Property, including
the Leased Premises, given as security for indebtedness
owed by the Landlord to the holder of the mortgage of
whom Tenant is given notice in writing.
1.2 Effect of Reference to Definitions. Any reference in this Lease to any of
----------------------------------
the terms defined above shall be deemed, to the extent possible, to mean and
include all aspects of the definition set forth above for such term.
1.3 Exhibits. The exhibits listed in this Section and attached to this Lease
--------
are incorporated by reference and are a part of this Lease.
Exhibit A: Description of Land
Exhibit B: Description of Leased Premises
Exhibit C: Description of the Work
Exhibit D: List of Environmental Site Assessment Reports referred to
in Article 18
Exhibit E: GZA Scope of Work for Asbestos Remediation
ARTICLE 2 - LEASED PREMISES, TERM AND COMMENCEMENT OF TERM
-----------------------------------------------
2.1A Landlord. The obligations of Bishop/Clark Associates Limited Partnership
--------
and Bishop 108 Associates Limited Partnership as Landlord under this Lease are
joint and several and neither entity's performance as Landlord under this Lease
shall be excused for the failure of the other entity to perform its obligations
as Landlord under the Lease.
2.1 Leased Premises. Landlord hereby leases to Tenant, subject to and with the
---------------
benefit of
4
<PAGE>
the terms, covenants, conditions and provisions of this Lease, the Leased
Premises, together with the right to use the Site as set forth in Section 1.1
-----------
above and all easements, rights or privileges necessary in connection with the
use of the Leased Premises for the Permitted Uses.
2.2 Term. TO HAVE AND TO HOLD the Leased Premises for the Original Lease Term
----
commencing on the Term Commencement Date, subject to the terms, covenants,
agreements and conditions contained in this Lease.
ARTICLE 3 - RENT, ITS DETERMINATION, COMMENCEMENT AND METHOD OF PAYMENT
-----------------------------------------------------------
3.1 Rent. Tenant covenants and agrees to pay, during the Lease Term, to Bishop
----
108 Associates Limited Partnership as agent for both entities comprising the
Landlord, or to such other person as Bishop 108 Associates Limited Partnership
by written notice instructs Tenant to make such payments for Landlord's benefit
and account, without demand (except as otherwise herein specifically provided),
at the Original Address of Landlord or at such other place as Landlord may by
written notice to Tenant direct, commencing with the Term Commencement Date
(except to the extent any of the initial rent installments have been paid prior
to the Term Commencement Date, in which case Tenant will receive appropriate
credits for such payments), Base Rent and Additional Rent (collectively, "Rent")
payable as set forth below.
3.2 Base Rent.
---------
3.2.1 Base Rent Tenant shall pay Base Rent as follows (subject to
---------
Tenant's option to reduce the amount of Base Rent by self-funding the Tenant's
Allowance as set forth in Article 16 below):
----------
(a) Lease Years 1-5: For the period commencing on the Term
---------------
Commencement Date and continuing through and including the last
day of the fifth (5th) Lease Year, the Base Rent shall be at the
annual rate of Seven Hundred Seventy-One Thousand Seven Hundred
Eighty Dollars ($771,780.00) and shall be payable in equal monthly
installments, in advance, each in the amount of Sixty -Four
Thousand Three Hundred Fifteen Dollars ($64,315.00). Said annual
rate of Base Rent was calculated by multiplying Nine Dollars
($9.00) by the number of square feet of rentable space in the
Leased Premises (which the parties irrevocable agree is 84,420
square feet of rentable floor space) and adding Twelve Thousand
Dollars ($12,000); and
(b) Lease Years 6-10: For the remainder of the Original Lease Term, the
----------------
Base Rent shall be at the annual rate of Eight Hundred Fifty-Six
Thousand Two Hundred Dollars ($856,200.00) and shall be payable in
equal monthly installments, in
5
<PAGE>
advance, each in the amount of Seventy-One Thousand Three Hundred
Fifty and 00/100 Dollars ($71,350.00). Said annual rate of Base Rent
was calculated by multiplying Ten Dollars ($10.00) by the number of
rentable square feet in the Leased Premises (which the parties
irrevocable agree is 84,420 square feet of rentable floor space) and
adding Twelve Thousand Dollars ($12,000.00).
The Base Rent shall be paid in advance on the first day of each full
calendar month of the Lease Term, and pro rata, in advance, for any portion of a
calendar month included at the beginning or end of the Lease Term with 1/30 of a
monthly payment being due for each day of a partial month, payable on the first
day of such partial month.
3.2A TIF Agreement; Reduction in Base Rent. Tenant shall have the right to
-------------------------------------
seek, at the Tenant's expense, a "TIF" agreement with the Town of Framingham
(the "Town") to reduce the real estate taxes assessed against the Property.
Landlord shall cooperate with Tenant in Tenant's efforts to obtain such a TIF
Agreement provided that Landlord shall not be subjected to any liability for
the payment of any costs or expenses in connection therewith, and Tenant shall
indemnify and save harmless Landlord from any such costs and expenses. If,
pursuant to a TIF agreement entered into by the Town and the Tenant, the Town
reduces the real estate taxes the Town bills against the Property so that such
taxes are less than the Base Amount which the Town would have otherwise billed
to the Landlord, then the Landlord shall give the Tenant a credit towards the
payment of Base Rent which is equal to the amount of such reduction. Such
credit shall be given to the Tenant in equal installments contemporaneously with
the period of time during which the actual bills for the real estate taxes
assessed against the Property as so reduced are due and payable by the Landlord.
(For example, assume that for fiscal year 1999 (that is July 1, 1999 - June 30,
2000) a TIF agreement is entered into by the Town and the Tenant pursuant to
which the Town reduces the real estate taxes the Town bills against the Property
so that such taxes are $1,200 less than the Base Amount which would have been
otherwise billed to the Landlord. Assume further that the payment for the first
bill for said fiscal year which reflects such a reduction is due on October 1,
1999. In this example, the Tenant would begin receiving a credit towards the
payment of the Base Rent in the amount of $100 (being 1/12th of $1,200)
commencing with the Base Rent payment due on October, 1, 1999 and continuing
monthly thereafter through and including the Base Rent payment due on September
1, 2000.) If the period of time for which the Tenant is entitled to receive
such credits towards the payment of Base Rent exceeds the Term, the Landlord
will accelerate the final credits so that the Tenant receives the benefit of all
such credits by the end of the Term.
3.3 Additional Rent. In addition to the Base Rent, Tenant shall also pay during
---------------
the Lease Term, as Additional Rent, the following, each such amount to be paid
on the later to occur of (i) the first day of the next calendar month after such
amount is requisitioned and (ii) ten (10) business days after such amount is
requisitioned, except as otherwise stated:
(1) Tenant's Proportionate Share of all increases in the amount of real
estate taxes
6
<PAGE>
imposed, assessed or levied upon the Property by the Town of
Framingham, Massachusetts (the "Town") over the "Base Amount." The
"Base Amount" shall be the amount of the real estate taxes first
imposed, assessed or levied upon the Property by the Town in the
first fiscal year (July 1 -June 30) for which the assessment date
(the prior January 1) first occurs after the Term Commencement Date
without regard to any reduction in the real estate taxes levied on
the Property by the Town pursuant to any TIF agreement between the
Tenant and the Town. (Section 3.2A above addresses how such a
reduction is passed on to the Tenant by way of a credit towards the
payment of Base Rent.) All such payments to be made when due, but in
any event prior to any date on which interest or penalties would
begin to accrue if such real estate tax bill is not paid. Landlord
shall forthwith send to Tenant any bills received by Landlord for
such real estate taxes together with the calculation of any increase
over the Base Amount; and
(2) Tenant's Proportionate Share of all Impositions (other than the
real estate taxes addressed in Subsection (1) above) imposed,
--------------
assessed, levied or confirmed upon the Property (including, without
limitation, any and all penalties, interest, recapture amounts and
all other amount imposed, assessed, levied or confirmed upon all or
any portion of the Property in connection with any breach, default
or violation of any TIF agreement by the Tenant). All such payments
to be made when due, but in any event prior to any date on which
interest or penalties would begin to accrue on account of such
Impositions if not paid. Landlord shall forthwith send Tenant any
bills received by Landlord for Impositions; and
(3) Tenant's Proportionate Share of all Operating Expenses.
Notwithstanding the foregoing, it is agreed that, in the event
Landlord is required to pay into escrow with Landlord's Mortgagee an amount to
allow Landlord's Mortgagee to pay real estate taxes on the Property, any other
Impositions, or any Operating Expenses (including, without limitation, insurance
premiums) directly to the assessing or billing authority, then Landlord or
Landlord's Mortgagee may direct Tenant to pay certain portions of the Additional
Rent directly to Landlord's Mortgagee on a monthly (or less frequent basis)
rather than as set forth above.
Notwithstanding anything contained herein to the contrary, all
monetary obligations of Tenant under this Lease, except for the obligation to
pay Base Rent, shall be deemed obligations to pay Additional Rent, unless such
presumption is repugnant to the context.
3.4 Payment of Estimated Operating Expenses. If notified by Landlord, Tenant
---------------------------------------
shall make estimated monthly payments to Landlord to cover Tenant's
Proportionate Share of Operating Expenses that are expected to be incurred
during the current calendar year and each subsequent calendar year thereafter
falling entirely or partly within the Lease Term. The amount of such monthly
payments shall be determined as follows: on the Term Commencement Date and at
the beginning of each calendar year thereafter, Landlord shall submit to Tenant
a statement setting
7
<PAGE>
forth Landlord's reasonable estimates (based on costs of which Landlord is aware
and other reasonable assumptions of Landlord) of the amount of Operating
Expenses that are expected to be incurred during such calendar year, and the
computation of Tenant's Proportionate Share of such anticipated Operating
Expenses. Tenant shall pay to Landlord on the first day of each month following
receipt of such statement an appropriate amount to amortize on a monthly basis
Tenant's Proportionate Share of the anticipated Operating Expenses, with
appropriate adjustments if any period includes less than one (1) full month. If
at any time during the Lease Term Landlord in Landlord's reasonable discretion
determines it appropriate to revise the estimates of Operating Expenses which
have been submitted, then Landlord may submit such revised estimates to Tenant,
and then commencing with the next monthly payment to be made by Tenant,
appropriate adjustment shall be made to the amount being paid by Tenant on
account of Tenant's Proportionate Share of anticipated Operating Expenses.
Within ninety (90) days after the expiration of each calendar year during the
Lease Term, Landlord shall submit to Tenant a statement certifying (i) Tenant's
Proportionate Share of the actual Operating Expenses incurred during the
preceding calendar year, (ii) the aggregate amount of the estimated payments, if
any, made by Tenant on account thereof, and (iii) any credit to which Tenant is
entitled. Tenant shall deduct the overpayment from its next estimated payment or
payments for Operating Expenses for the then current year unless the overpayment
exceeds 10% of the actual payments, in which event the Landlord shall refund the
same to Tenant within thirty days of submitting the statement to Tenant. If
Tenant's actual liability for such Operating Expenses exceeds the estimated
payments, if any, made by Tenant on account thereof, then Tenant shall pay to
Landlord within thirty days the total amount of such deficiency as Additional
Rent due hereunder.
Tenant's liability for Tenant's Proportionate Share of the Operating
Expenses for the last calendar year falling entirely or partly within the Lease
Term shall survive the expiration of the Lease Term. Similarly, Landlord's
obligation to refund to Tenant the excess, if any, of the amount of Tenant's
actual liability therefor shall survive the expiration of the Lease Term.
Tenant or an independent, certified public accountant designated by Tenant
shall have the right, during regular business hours and after giving ten (10)
days' advance written notice to Landlord, to inspect, copy, and audit Landlord's
books and records relating to the Operating Expenses billed during any calendar
year falling within the Lease Term for a period of one (1) year following the
receipt by Tenant of any annual statement submitted pursuant to this Section.
If as a result of such audit it becomes clear that an error was made in the
calculation of Tenant's Proportionate Share of Operating Expenses, then an
appropriate adjustment shall be made promptly.
3.5 Lease to be Deemed Net. Tenant shall pay to Landlord the Base Rent and
----------------------
Additional Rent, free of any off-sets or deductions of any kind except as
provided for herein.
3.6 Tenant's Right to Seek Abatement. Tenant shall have the right to seek a
--------------------------------
reduction in the valuation of the Leased Premises assessed for tax purposes
and to contest in good faith by appropriate proceedings, at Tenant's
expense, the amount or validity in whole or in part of any
8
<PAGE>
Imposition or of the method by which any Imposition is calculated, assessed or
imposed; and may defer payment thereof if allowed by law, provided that (i)
Tenant shall provide Landlord with security reasonably satisfactory to Landlord
to assure payment of contested items; and (ii) Tenant shall immediately pay such
contested item or items if the protection of all or any portion of the Property
or of the Landlord's interest therein from any lien or claim shall, in the
reasonable judgment of Landlord, require such payment. Landlord shall not be
required to join in any proceedings referred to in Section 3.6 hereof unless the
-----------
provisions of any law, rule or regulation at the time in effect shall require
that such proceedings be brought by or in the name of Landlord, in which event
Landlord shall join in such proceedings or permit the same to be brought in its
name. Landlord shall cooperate with Tenant in Tenant's efforts to obtain any
such contest or proceeding described above provided that Landlord shall not be
subjected to any liability for the payment of any costs or expenses in
connection with any such proceedings, and Tenant shall indemnify and save
harmless Landlord from any such costs and expenses.
3.7 Landlord's Right to Seek Abatement. If Tenant does not exercise (or does
----------------------------------
not intend to exercise) its right set forth in Section 3.6 above, then the
-----------
Landlord shall have the right to seek such a reduction and make such a tax
contest. Tenant shall cooperate with Landlord in any such tax contest provided,
however, that Tenant shall not be subjected to any liability for the payment of
any costs or expenses in connection with any such proceedings, and Landlord
shall indemnify and save harmless Tenant from any such costs and expenses.
3.8 Abatements Generally. To the extent to which any tax refund payable as
---------------------
a result of any proceeding which Landlord or Tenant may institute, or payable by
reason of compromise or settlement of any such proceeding, may be based upon a
payment made by Tenant, then: (i) Tenant shall be authorized to collect the
same (or the appropriate portion thereof) from the taxing authority making the
refund, subject, however, to Tenant's obligation to reimburse Landlord forthwith
for any expense incurred by Landlord in connection therewith; and (ii) if,
despite the authorization given to the Tenant in (i), the taxing authority
granting the tax refund pays the tax refund to the Landlord, then the Landlord
shall be deemed to have received the Tenant's portion of such tax refund in
trust for the Tenant and the Landlord shall forthwith, after receiving such tax
refund, pay to the Tenant the amount of such tax refund to which the Tenant is
entitled after deducting therefrom any expense incurred by Landlord in
connection therewith so that the Tenant receives the same amount that the Tenant
would have received under (i) of this Section if the tax refund had been paid
directly to the Tenant and the Tenant had reimbursed the Landlord for expenses
incurred by Landlord.
3.9 Tax Credits and Deductions for Tenant Work. The Tenant is entitled to
------------------------------------------
all investment tax credits and abandoned building deductions for the Tenant Work
offered by the Town and the Commonwealth of Massachusetts to the extent
permitted by applicable law and the Landlord will not claim the same unless
applicable law does not allow the Tenant to claim such tax credits.
3.10 Prepaid Rent. Tenant has paid to Landlord One Hundred Thousand Dollars
------------
($100,000.00), representing a prepayment of Base Rent to be applied as a credit
towards the first payment(s) of
9
<PAGE>
Base Rent due hereunder.
ARTICLE 4 - UTILITIES AND SERVICES
----------------------
Landlord represents and warrants, to the best of Landlord's actual
knowledge, that the Property is served by water, sewer, electricity and
telephone which is supplied to the Property by lines coming directly from public
ways or from easements serving the Property (in which case, no additional
easements are needed). As part of the Base Building Improvements provided for
pursuant to Article 16 below, the Landlord shall cause all the connections
----------
coming into the Building for such utilities to be in good working order. Tenant
shall make arrangements with appropriate utility or service companies for the
supply of utilities including (to the extent available) water, sewer, electric,
gas, telephone and other utilities or services used or consumed on the Property
and shall promptly pay all costs with respect to same, such payments to be made,
to the extent possible, directly to the proper authorities charged with
collecting the same, the foregoing to include all charges for such utilities or
services. Except as otherwise specifically provided herein, Landlord shall be
under no obligation to furnish any utilities or services to the Property
(including the Leased Premises) and shall not be liable for any interruption or
failure in the supply of any such utilities or services not presently available
to the Leased Premises unless due to the Landlord's gross negligence or willful
misconduct.
ARTICLE 5 - INSURANCE
---------
5.1 Required Coverage. Tenant covenants and agrees with Landlord that during
-----------------
the Lease Term the following insurance shall be obtained by Tenant and carried
at Tenant's sole expense:
(a) Tenant's comprehensive public liability insurance insuring and
indemnifying Tenant, Landlord, and Landlord's Mortgagee against liability for
injury to persons and damage to property which may be claimed to have occurred
upon the Property (including, without limitation, the Leased Premises) or the
sidewalks, ways and other real property adjoining the Property and covering all
Tenant's obligations under this Lease and with limits at least as high as the
amounts respectively stated below, or such higher limits in any case as may
reasonably be required in case of increase in risk or as may be customarily
carried in Massachusetts by prudent occupants of similar property, as determined
by Landlord in its reasonable discretion: $3,000,000 for property damage,
$3,000,000 for injury or death of one person, and $5,000,000 for injury or death
of more than one person in any single accident.
(b) Workmen's Compensation covering all Tenant's employees, contractors and
agents working on the Premises.
(c) Any rent loss insurance (for a period not to exceed twenty-four
months), and any insurance required by Landlord's Mortgagee (provided the same
is customarily required by mortgage lenders making loans on comparable
properties) but the foregoing shall not include
10
<PAGE>
environmental insurance.
5.2 Writing and Disposition of Insurance Policies. All insurance required under
---------------------------------------------
Section 5.1 above shall be written with companies reasonably satisfactory to
- -----------
Landlord and in forms customarily in use from time to time in the Greater Boston
area. Tenant shall furnish the Landlord with duplicates of said policies or
certificates of insurance (provided that such certificates are on a form which
is binding on the insurance company issuing the insurance and which is otherwise
acceptable to Landlord's Mortgagee), and said policies shall (i) name Landlord
and Landlord's Mortgagee as additional insured, as their respective interests
may appear, and (ii) provide that the coverage thereunder may not lapse or be
canceled without twenty (20) days prior written notice to Landlord, Landlord's
Mortgagee and Tenant.
5.3 Mutual Waiver of Subrogation. Landlord and Tenant each hereby releases the
----------------------------
other, its officers, directors, employees and agents, from any and all liability
or responsibility (to the other or anyone claiming through or under them by way
of subrogation or otherwise) for any loss or damage to property covered by valid
and collectible insurance, even if such loss or damage shall have been caused by
the fault or negligence of the other party, or anyone for whom such party may be
responsible. However, this release shall be applicable and in force and effect
only with respect to loss or damage (a) actually recovered from an insurance
company and (b) occurring during such time as the releasor's insurance policies
shall contain a clause or endorsement to the effect that any such release shall
not adversely affect or impair said policies or prejudice the right of the
releasor to recover thereunder. Landlord and Tenant each agrees that any fire
and extended coverage insurance policies will include such a clause or
endorsement as long as the same shall be obtainable without extra costs, or, if
extra cost shall be charged therefor, so long as the other party pays such extra
cost. If extra cost shall be chargeable therefor, each party shall advise the
other party and of the amount of the extra cost, and the other party, at its
election, may pay the same, but shall not be obligated to do so.
5.4 Blanket Policies. Nothing contained herein shall prevent Tenant from taking
----------------
out insurance of the kind and in the amounts provided for herein under a blanket
insurance policy or policies covering properties other than the Property,
provided however, that any such policy or policies of blanket insurance (a)
shall specify therein, or Tenant shall furnish Landlord with the written
statement from the insurers under such policy or policies, specifying the amount
of the total insurance allocated to the Property, which amounts shall not be
less than the amounts required herein, and (b) amounts so specified shall be
sufficient to prevent any of the insured from being a co-insurer within the
terms of the applicable policy or policies, and provided further, however, that
any such policy or policies of blanket insurance shall, as to the Property,
otherwise comply as to endorsements and coverage with the provisions herein.
5.5 Landlord's Insurance Covenants. Landlord covenants and agrees that during
------------------------------
the Lease Term it shall obtain at Tenant's expense (as Tenant's Proportionate
Share of Operating Expenses) the following insurance:
11
<PAGE>
(i) all risk insurance against damage by fire or other casualty in an
amount at least equal to the replacement costs of the Leased Premises, all
Tenant Work and all fixtures (other than trade fixtures) in the Leased Premises
as reasonably determined from time to time by Landlord or (at Landlord's
election or upon Tenant's request) by appraisal made at the expense of Tenant by
an accredited insurance appraiser approved by Landlord. As for any fixture
installed by Tenant (other than trade fixtures), such fixture shall be added to
said all risk insurance provided that Tenant installed the fixture in compliance
with the terms of this Lease and Tenant provided to the Landlord, upon the
completion of the installation, a written notice which stated that such fixture
must be added to said insurance and which contained such information on the
fixture (including, without limitation, the fixture's replacement value) as
Landlord's insurance carrier may require. The deductible for said insurance may
not exceed $1,000 without the Tenant's prior written consent; and
(ii) Landlord's comprehensive public liability insurance for injury to
persons and damage to property which may be claimed to have occurred upon the
Property or the sidewalks, ways and other real property adjoining said Property
and covering all Landlord's obligations under this Lease and with limits at
least as high as the amounts respectively stated below: $3,000,000 for property
damage, $3,000,000 for injury or death of one person, and $5,000,000 for injury
or death of more than one person in any single accident.
ARTICLE 6 - TENANT'S ADDITIONAL COVENANTS
-----------------------------
Tenant covenants and agrees during the Lease Term and such further time as
Tenant occupies the Leased Premises or any part thereof:
6.1 Performing Obligations. To perform fully, faithfully and punctually all of
----------------------
the obligations of Tenant set forth in this Lease; and to pay when due Rent and
all charges, rates and other sums which by the terms of this Lease are to be
paid by Tenant.
6.2 Use. To use the Leased Premises only for the Permitted Uses, and for no
---
other purposes.
6.3 Maintenance and Repair. At Tenant's expense, and except for reasonable wear
----------------------
and tear and damage from fire or other casualty, to keep the Property
(including, without limitation, all interior and exterior glass, all systems
serving the Leased Premises, and all parking areas, driveways, walkways and
landscaped areas serving or appurtenant to the Property) clean, neat, properly
maintained and in good order, repair and condition, and to arrange for, or enter
into contracts regarding the provision of such services as are necessary to do
so (including, without limitation, janitorial services and the removal of
rubbish and other wastes from the Property electric lighting to the exterior of
the Building, parking areas, driveways, and walkways serving the Property,
landscaping of the Site, and the removal of snow and ice from all parking areas,
driveways, and walkways serving the Property) and to keep the Property in as
good condition, order and repair as the same are at the Term Commencement Date
or thereafter may be put, reasonable wear and use
12
<PAGE>
and damage by fire or other casualty only excepted, it being understood that the
foregoing exception for reasonable wear and use shall not relieve Tenant from
the obligation to keep the Property in good order, repair and condition
including, without limitation, all necessary and ordinary non-structural
repairs, replacements and the like, except as otherwise explicitly set forth in
the Lease. Tenant also agrees to abide by reasonable rules and regulations which
may be adopted by Landlord from time to time. Notwithstanding the foregoing, the
Landlord shall be responsible for (a) the maintenance, repair and replacement
obligations set forth in Article 6A below; and (b) if any repair or replacement
to be performed by Tenant hereunder is required because of a defect in the Work
arising within one (1) year of the Substantial Completion of the Work and the
Tenant gives the Landlord written notice of such defect within said one year
then Landlord shall be obligated to perform such repair or replacement at the
Landlord's sole cost and expense (and not as part of the Operating Expenses).
6.4 Compliance with Laws. Except for the Landlord's compliance responsibilities
--------------------
set forth elsewhere in this Lease and Tenant's compliance responsibilities
regarding Hazardous Materials which are governed exclusively by Article 18
----------
below, the Tenant shall, at Tenant's expense, be responsible for complying
promptly with all present and future laws, ordinances, orders, rules,
regulations and requirements of all federal, state and municipal governments,
departments, commissions, boards and officials, foreseen and unforeseen,
ordinary as well as extraordinary, which may be applicable to the Property or to
Tenant's use, occupancy or presence in or at the Property, except that the
Tenant may defer compliance so long as the validity of any such law, ordinance,
order, rule, regulation or requirement shall be contested by Tenant in good
faith and by appropriate legal proceedings, and:
(a) If by the terms of such law, ordinance, order, rule, regulation or
requirement, compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the incurrence of any lien, charge or liability
or any kind against all or any portion of the Property and without subjecting
Tenant or Landlord to any liability, civil or criminal, for failure so to comply
therewith, Tenant may delay compliance therewith until the final determination
of such proceeding, or
(b) If any lien, charge or civil liability would be incurred by reason of
any such delay, Tenant nevertheless may contest as aforesaid and delay as
aforesaid, provided that such delay would not subject Landlord to criminal
liability or fine, and Tenant (i) furnishes to Landlord security, reasonably
satisfactory to Landlord, against any loss or injury by reason of such contest
or delay, and (ii) prosecutes the contest with due diligence.
6.5 Payment for Tenant's Work. To pay promptly when due the entire cost of any
-------------------------
work to the Property undertaken by Tenant so that the Property shall at all
times be free of liens for labor and materials; promptly to clear the record of
any notice of any such lien; to procure all necessary permits and before
undertaking such work; to do all of such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements; and to save Landlord harmless and indemnified from all injury,
loss, claims or damage to any
13
<PAGE>
person or property occasioned by or growing out of such work.
6.6 Indemnity. To save Landlord harmless and indemnified from, and to defend
---------
Landlord against, all injury, loss, claims or damage (including reasonable
attorneys' fees) to any person or property while on the Leased Premises unless
arising from any omission, fault, negligence or other misconduct of Landlord, or
its agents, servants, employees, or contractors; to save Landlord harmless and
indemnified from, and to defend Landlord against, all injury, loss, claims or
damage (including reasonable attorneys' fees) to any person or property
occasioned by any act, omission, neglect or default of Tenant or Tenant's
agents, servants, employees, contractors, guests, invitees or licensees while on
the Site, or on the roads or property adjacent to the Site.
6.7 Personal Property at Tenant's Risk. That all personal property, equipment,
----------------------------------
inventory and the like from time to time upon the Property shall be at the sole
risk of Tenant; and that Landlord shall not be liable for any damage which may
be caused to such property or the Leased Premises or any other part of the
Property or to any person for any reason including, without limitation, the
bursting or leaking of or condensation from any plumbing, cooling or heating
pipe or fixture except if caused by Landlord's gross negligence or willful
misconduct.
6.8 Payment of Landlord's Cost of Enforcement. To pay on demand Landlord's
-----------------------------------------
expenses, including reasonable attorneys' fees, incurred in enforcing any
obligation of Tenant under this Lease or in curing any default by Tenant under
this Lease, provided that Landlord is successful in enforcing such obligation or
has a right under this Lease to cure such default.
6.9 Yield Up. At the termination of this Lease, peaceably to yield up the
--------
Leased Premises and the Property clean and in good order, repair and condition,
reasonable wear and tear and damage by fire or casualty excepted; and at
Tenant's option, to remove any and all of Tenant's trade fixtures, business
equipment and furniture from the Leased Premises, provided however, that Tenant
-------- -------
shall restore any damage caused by such removal and provided further that if
-------- -------
Tenant fails so to restore the Leased Premises, then Tenant shall pay all of
Landlord's costs to make such restoration.
6.10 Subordination. Upon the request of Landlord, to execute and deliver all
-------------
such instruments as may reasonably be requested to subordinate this Lease to any
mortgages or deeds of trust securing notes or bonds executed by Landlord and to
all advances made thereunder and to the interest thereon and all renewals,
replacements and extensions thereof, provided that the mortgagee or trustee
--------
shall agree to recognize this Lease in the event of foreclosure if Tenant is not
in material default beyond the expiration of any applicable grace period allowed
herein for the cure of such default and provided further that the mortgagee or
trustee shall not (a) be bound by the payment of rent to any prior landlord
(including Landlord) made more than 30 days in advance; (b) be subject to any
offsets or defenses Tenant might have against any prior landlord (including this
Landlord); (c) be liable for the refund of any security deposit made by Tenant
to any prior landlord (including this Landlord) unless such mortgagee or trustee
obtains possession thereof; (d) be liable for any act or omission of any
landlord (including this Landlord); (e) be bound by Article
-------
14
<PAGE>
16 or any other provision in this Lease which obligates the Landlord to prepare
- --
the Leased Premises and the Property for Tenant's occupancy; (f) be bound by any
amendment or modification to the Lease entered into without the consent of such
mortgagee or trustee. Any such mortgagee or trustee may at any time subordinate
its mortgage or deed of trust to this Lease, without Tenant's consent, by notice
in writing to Tenant and thereupon this Lease shall be deemed prior to such
mortgage or deed of trust without regard to their respective dates of execution,
delivery and recording; and in that event such mortgagee or trustee shall have
the same rights with respect to the Lease as though it had been executed and
delivered (and notice thereof recorded) prior to the execution and delivery and
recording of the mortgage or deed of trust.
6.11 Estoppel Certificates. From time to time, for delivery to a prospective
---------------------
purchaser or mortgagee of the Leased Premises or Building or to any assignee of
any mortgage of the Property, upon not less than ten (10) days prior written
request by Landlord, to execute, acknowledge and deliver to the Landlord a
statement in writing certifying: (a) that this Lease is unamended (or, if there
have been any amendments, stating the amendments); (b) that it is then in full
force and effect, if that be the fact; (c) the dates to which Rent and any other
payments to Landlord have been paid; (d) any defenses, offsets and counterclaims
which Tenant has knowledge of at the time of the execution of said statement
with respect to Tenant's obligation to pay Rent and to perform any other
obligations under this Lease or that there are none, if that be the fact; and
(e) such other data as may reasonably be requested. Any such statement may be
relied upon by such prospective purchaser or mortgagee of the Property, or
portion thereof, or any assignee of any mortgagee of the Property, or portion
thereof.
6.12 Nuisance. At all times during the Lease Term and such further time as the
--------
Tenant occupies the Leased Premises, not to injure, overload, deface or
otherwise harm the Property; nor commit any nuisance; nor to do or suffer any
waste to the Property; nor permit the emission of any objectionable noise or
odor; nor make any use of the Property which is contrary to any law or ordinance
or which will invalidate any insurance policy or other applicable legal
requirement covering the Building or any portion thereof; nor handle, store, or
dispose of Hazardous Materials except as may be permitted by Article 18 below.
----------
6.13 Changes and Alterations. Tenant shall have no authority, without the
-----------------------
express written consent of Landlord (which consent shall not be unreasonably
withheld or delayed) to alter, remodel, reconstruct, demolish, add to, improve
or otherwise change the Leased Premises, except that Tenant shall have such
authority, without the consent of Landlord, to make repairs to the Premises and
do such things as are appropriate to comply with the obligations imposed on
Tenant under other provisions of this Lease.
Tenant shall not construct or permit any other alterations, installations,
additions or improvements to the Leased Premises or the Property (including,
without limitation, any exterior signs, satellite dishes, antennas, generators
and exterior equipment) ("Alterations") without having first submitted to
Landlord plans and specifications therefor for Landlord's approval, which
approval shall not be unreasonably withheld or delayed provided that:
15
<PAGE>
(i) if the improvement involves a sign or will otherwise be visible
from the exterior then the improvement must be compatible with the architectural
and aesthetic qualities of the Building and the Site and, as with any
Alteration, must be in compliance with all applicable legal requirements
(including, without limitation, the zoning ordinance and building code of the
Town) ; and
(ii) the improvement must be non-structural and have no adverse effect
on the plumbing, heating (and cooling), mechanical, electrical or other systems
or services in the Building, and the improvement (except for signs) must be
entirely within the Leased Premises; and
(iii) the change, when completed will not materially adversely affect
the value of the Building; and
(iv) Tenant demonstrates to Landlord's satisfaction that the
improvement will be made in accordance with applicable legal requirements using
good quality materials and good quality construction practices and will not
result in any liens on the Property; and
(v) as soon as such work is completed, Tenant will have prepared and
provide Landlord with "as-built" plans (in form reasonably acceptable to
Landlord) showing all such work; and
(vi) Tenant will comply with any rules reasonably promulgated by
Landlord in connection with the going of any work, and if requested by Landlord,
Tenant will obtain and maintain Builder's Risk insurance in connection with such
work.
Tenant shall have the right to make minor alterations from time to time in
the interior of the Leased Premises without obtaining Landlord's prior written
consent therefor, provided that all of such changes conform to all of the above
requirements in all respects, and further provided that Tenant provides Landlord
with a written description of such change (and such other data as Landlord may
request) not later than 30 days after each such alteration is made, and further
provided that the aggregate cost of such alterations may not exceed the
"Threshold Amount" in any twelve month period. The "Threshold Amount" shall be
$25,000 for the first Lease Year and, thereafter, the Threshold Amount shall be
increased on each anniversary of the Term Commencement Date by the same
proportion (expressed as a percentage) of increase in the "Index" from the
amount of the "Index" existing as of the Term Commencement Date. The "Index"
shall mean the Consumer Price Index for Greater Boston - All Consumers published
by the United States Department of Labor.
ARTICLE 6A - LANDLORD'S ADDITIONAL COVENANTS
-------------------------------
Landlord covenants and agrees during the Lease Term:
16
<PAGE>
6A.1 Landlord's Maintenance, Repair and Replacement Obligations.
-----------------------------------------------------------
(a) To repair, maintain and replace the structural components of the
Building including the roof, but specifically excluding interior and exterior
---------
glass, so as to keep them in good condition and repair, reasonable wear and use
and damage by fire or other casualty only excepted. As part of the Base
Building Improvements, the Landlord shall replace the roof at the Landlord's
expense. Thereafter, the cost of maintaining and repairing the roof (but not
the replacement thereof which shall be Landlord's responsibility at its sole
expense) shall be part of the Operating Expenses to the extent that Landlord was
not reimbursed for such costs by any manufacturer or installer guaranties and
Tenant shall pay Tenant's Proportionate Share thereof. All costs incurred by
Landlord in performing its responsibilities under this subsection (a) for the
--------------
other structural components of the Building shall be at Landlord's expense and
shall not be part of the Operating Expenses unless such repair, maintenance or
replacement is due to damage caused by Tenant or Tenant's agents, servants,
employees, contractors, guests, invitees or licensees, in which case such costs
shall be paid for by Tenant; and
(b) To be responsible for the capital replacement of the air
conditioning and other systems serving the Building, in circumstances where any
such system cannot reasonably be repaired or according to prudent building
management practices should be replaced (except in any case where such
replacement is necessitated due to Tenant's failure to maintain the system
properly). The costs of such capital replacements shall be included in the
Operating Expenses to the extent that Landlord was not reimbursed for such costs
by any manufacturer or installer guaranties, and Tenant shall be responsible for
the payment of Tenant's Proportionate Share thereof, provided that such capital
replacement costs shall be amortized over the reasonable useful life of the
replacement item and Tenant shall be responsible only for those portion of such
costs allocable to periods during the Lease Term.
(c) if any repair or replacement to be performed by Tenant under
Section 6 above is required because of a defect in the Work arising within one
- ---------
(1) year of the Substantial Completion of the Work and the Tenant gives the
Landlord written notice of such defect within said one year then Landlord shall
be obligated to perform such repair or replacement at the Landlord's sole cost
and expense (and not as part of the Operating Expenses).
Landlord shall never be liable for damages caused by its failure to
make any such repairs, replacements or maintenance, provided that Landlord has
used reasonable efforts to attempt to have such repair, replacement or
maintenance done, after having been notified by Tenant that such repair,
replacement or maintenance must be done promptly and that Tenant will be damaged
by the failure to make or perform such repairs, replacements or maintenance
promptly.
6A.2 Landlord's Obligations Regarding Compliance With Laws. At Landlord's
-----------------------------------------------------
expense and not as part of the Operating Expenses, to cause the Leased Premises
to be in compliance with all laws ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments departments,
commissions, boards and officials which are in effect as of the Term
17
<PAGE>
Commencement Date and which are applicable to the Leased Premises as of the Term
Commencement Date (the "Pre-Existing Governmental Requirements") and to obtain
all permits and approvals required therefor under the Pre-Existing Governmental
Requirements provided, however, that Landlord shall not be responsible for any
non-compliance caused in any way by the Tenant Work, any other work done to the
Leased Premises or changes made to the Leased Premises (other work or changes
done by Landlord, its agents, servants, employees, or contractors) or Tenant's
use, occupancy or presence in, on or at the Leased Premises (except for the As
of Right Uses defined in Section 16.2 below). Notwithstanding the foregoing,
------------
Landlord's responsibilities regarding Hazardous Materials are governed
exclusively by Article 18 below. In addition, the Landlord shall be responsible
----------
for performing the Landlord's maintenance, repair and replacement
responsibilities set forth in Section 6A1 above in compliance with all present
-----------
and future laws, ordinances, orders, rules, regulations and requirements of all
federal, state and municipal governments, departments, commissions, boards and
officials, foreseen and unforeseen, ordinary as well as extraordinary, which may
be applicable to the Leased Premises and the cost of such compliance shall be at
Landlord's expense (and not part of the Operating Expenses) unless the law being
complied with went into effect or became applicable to the Leased Premises after
the Term Commencement Date, in which case such cost shall be part of the
Operating Expenses and Tenant shall be responsible for the payment of Tenant's
Proportionate Share thereof provided that any capital replacement costs shall be
amortized over the reasonable useful life of the replacement item and Tenant
shall be responsible only for those portion of such costs allocable to periods
during the Lease Term.
6A.3 Payment of Tenant's Cost of Enforcement. To pay on demand Tenant's
---------------------------------------
reasonable out-of-pocket expenses, including reasonable attorneys' fees,
incurred in enforcing any obligation of Landlord under this Lease or in curing
any default by Landlord under this Lease, provided that Tenant is successful in
enforcing such obligation or has a right under this Lease to cure such default.
ARTICLE 7 - QUIET ENJOYMENT
---------------
Landlord covenants that Tenant on paying the Rent and performing
Tenant's obligations under this Lease shall peacefully and quietly have, hold
and enjoy the Leased Premises throughout the Lease Term or until it is
terminated as in this Lease provided without hindrance by Landlord or by anyone
claiming by, through or under Landlord.
ARTICLE 8 - DAMAGE AND EMINENT DOMAIN
-------------------------
8.1 Fire and Other Casualty. In the event that, at any time during the term
-----------------------
hereof (including any extended term), the Leased Premises are totally damaged or
destroyed by fire or other casualty or damaged so as to render them or a
material portion thereof untenantable, then there shall be a
18
<PAGE>
just and proportionate abatement of the Rent payable hereunder, until the Leased
Premises are made suitable for Tenant's occupancy. In the event of any
destruction or damage to the Leased Premises caused by fire or other casualty,
Landlord shall proceed at its expense (except that Tenant shall promptly fund
any insurance deductible) and with reasonable diligence to repair and restore
the Leased Premises to substantially the same condition they were in immediately
prior to such casualty. Notwithstanding the foregoing, if the Landlord, in its
reasonable discretion, determines that either (i) timely restoration is not
possible or practical and more than forty percent (40%) of the Leased Premises
has been damaged or destroyed; or (ii) that there are or will be insufficient
insurance proceeds available to accomplish timely restoration of the Leased
Premises (provided that Landlord has maintained the all risk insurance on the
Leased Premises as provided for in Section 5.5); or (iii) the
-----------
Landlord's Mortgagee will not authorize the release of insurance proceeds to pay
for the restoration of the Leased Premises, then Landlord shall have the right
to terminate this Lease by written notice given to Tenant within sixty (60) days
after the Landlord receives notice from the Tenant of the occurrence of any
destruction or damage to the Leased Premises by fire or other casualty. In the
event that the Landlord has not terminated this Lease as provided for in the
preceding sentence, then the Landlord shall use reasonable diligence to repair
and restore the Leased Premises to substantially the same condition they were in
immediately prior to such destruction or damage to the Leased Premises. If the
Landlord has not commenced the repair or restoration of the Leased Premises
within ninety (90) days after the Landlord receives notice from the Tenant of
the occurrence of such destruction or damage or, after such commencement, the
Landlord is not proceeding with reasonable diligence to repair or restore the
Leased Premises (subject to the funding of the insurance proceeds, the payment
of the insurance deductible by the Tenant and force majeure) then the Tenant may
terminate this Lease by sending written notice to the Landlord. In the event the
Leased Premises have not been restored to a condition substantially suitable for
their intended purpose within one hundred eighty (180) days after the Landlord
receives notice from the Tenant of such destruction or damage to the Leased
Premises, then either Landlord or Tenant may terminate this Lease by written
notice given to the other within fifteen (15) days following such one hundred
eighty (180) day period, (provided, however, that in the case of a notice of
termination coming from Tenant, Tenant must give its notice of termination to
Landlord before the Leased Premises are so restored). If Landlord sends a notice
of termination as aforesaid, then Tenant may, within one week of receiving such
notice, give the Landlord a written notice extending the time period for such
restoration by an additional ninety days (90) (provided that Tenant must have
promptly funded to Landlord the insurance deductible); in which case the Lease
Term shall automatically be extended, without the necessity of further action by
any party, for a period equal to the time Rent abates beyond one hundred eighty
(180) days from the date the Landlord received notice from the Tenant of such
destruction or damage to the Leased Premises. In the event the Leased Premises
have not been restored to a condition substantially suitable for their intended
purpose within said ninety (90) additional days, then either Landlord or Tenant
may terminate this Lease by written notice given to the other within fifteen
(15) days following such ninety (90) day additional period (provided that, in
the case of a notice of termination coming from Tenant, such notice must also be
sent before the Leased Premises has been so restored) In the event that, during
the last two (2) years of the Lease Term the Leased Premises are totally damaged
or destroyed by fire or other casualty or damaged so as
19
<PAGE>
to render them or a material portion thereof untenantable, then either Landlord
or Tenant may terminate this Lease by written notice given to the other party
within sixty (60) days after the Landlord receives notice from the Tenant of
such total damage or destruction of the Leased Premises by the occurrence of
fire or other casualty.
8.2 Eminent Domain. Landlord reserves for itself all rights to any damages or
--------------
awards with respect to the Leased Premises and the leasehold estate hereby
created by reason of any exercise of the right of eminent domain, or by reason
of anything lawfully done in pursuance of any public or other authority; and by
way of confirmation Tenant grants and assigns to Landlord all Tenant's rights to
such damages so reserved, except as otherwise provided herein. Tenant covenants
to execute and deliver any instruments confirming such assignment as Landlord
may from time to time reasonably request. If all the Leased Premises are taken
by eminent domain, this Lease shall terminate when Tenant is required to vacate
the Leased Premises or such earlier date as the Tenant is required to begin the
payments of rent to the taking authority. If a partial taking by eminent domain
results in so much of the Leased Premises or the Site being taken as to render
the Leased Premises or the Site or a material portion of the Leased Premises or
the Site unsuitable for Tenant's continued use and occupancy (including, without
limitation, if so many of the parking spaces on the Site are taken so as to
render Tenant's use of the Leased Premises not in compliance with the Town's
zoning by-laws or so as to result in there not being enough parking spaces for
Tenant's employees), as reasonably determined by Landlord in its reasonable
discretion, either Landlord or Tenant may elect to terminate this Lease as of
the date when the Tenant is required to vacate the portion of the Leased
Premises so taken or as of the date that Tenant is required not to use the
material portion of the Site so taken, by written notice to the other given not
more than ninety (90) days after the date on which Tenant or Landlord, as the
case may be, receives notice of the taking. If a partial taking by eminent
domain does not result in such portion of the Leased Premises or Site as
aforesaid being taken, then this Lease shall not be terminated or otherwise
affected by any exercise of the right of eminent domain. Whenever any portion of
the Leased Premises shall be taken by any exercise of the right of eminent
domain, and if this Lease shall not be terminated in accordance with the
provisions of this Section 8.2, Landlord shall, at its expense, proceeding with
-----------
all reasonable dispatch, provided sufficient condemnation proceeds are available
therefor (or, if not, provided Tenant, in its sole discretion, provides
additional funds needed above the amount of the condemnation proceeds available)
do such work as may be required to restore the Leased Premises or what remains
thereof (not including Tenant's trade fixtures, business equipment and
furniture) as nearly as may be to the condition they were in immediately prior
to such taking, and Tenant shall at its expense, proceeding with all reasonable
dispatch, do such work to its trade fixtures, business equipment and furniture,
as may be required. A just proportion of the Rent payable hereunder, according
to the nature and extent of the taking shall be abated from the time Tenant is
required to vacate that portion of the Leased Premises taken. If the Premises
have not been restored to a condition substantially suitable for their intended
purpose within one hundred twenty (120) days of said taking, Tenant may elect to
terminate this Lease by written notice to Landlord sent within fifteen (15) days
following such one hundred twenty (120) day period (provided that Tenant sends
such written notice prior to such restoration being completed).
20
<PAGE>
ARTICLE 9 - DEFAULTS BY TENANT AND REMEDIES
-------------------------------
9.1 The Condition. If any default by Tenant continues, in case of payment of
-------------
Rent or other monetary payments due hereunder for more than five (5) days after
notice thereof to Tenant (provided, however, that Tenant shall be entitled to
only two (2) such notices during each calendar year and if any subsequent
default of payment of Rent or other monetary payment continues for more than
five (5) days, Landlord shall have all the rights set forth herein without the
need of any notice), or in the case of a non-monetary default for more than
thirty (30) days after written notice thereof to Tenant and such additional
time, if any, as is reasonably necessary to cure the default provided Tenant has
commenced cure within such thirty (30) day period and is diligently prosecuting
such cure to completion; or if Tenant becomes insolvent, makes any assignment
for the benefit of creditors, commits any act of bankruptcy or files a petition
under any bankruptcy or insolvency law; or if such a petition filed against
Tenant is not dismissed within ninety (90) days; or if a receiver or similar
officer becomes entitled to Tenant's interest in this Lease and it is not
returned to Tenant within ninety (90) days; or if Tenant's interest in this
Lease is taken on execution or other process of law in any action against
Tenant; then Landlord may immediately or at any time thereafter and without
demand or further notice make entry and repossess the Leased Premises as of
Landlord's former estate, without prejudice to any other remedies, and thereupon
this Lease shall terminate; and in case of such termination, or termination by
legal proceedings for default, Landlord may remove all of Tenant's property from
the Leased Premises and store the same in any public warehouse or other suitable
location all at the expense and risk of Tenant.
9.2 Reimbursement of Landlord's Expenses. In the case of termination of this
------------------------------------
Lease pursuant to Section 9.1, Tenant shall reimburse Landlord for all expenses
-----------
arising out of such termination, including without limitation, all costs
incurred in collecting amounts due from Tenant under this Lease (including
reasonable attorneys' fees, costs of litigation and the like); all expenses
incurred by Landlord in attempting to relet the Premises or parts thereof
(including advertisements, brokerage commissions, Tenant's allowances, lease
inducements, costs of preparing space, and the like); and all Landlord's other
reasonable expenditures necessitated by the termination. The reimbursement from
Tenant shall be due and payable immediately from time to time upon notice from
Landlord that an expense has been incurred, without regard to whether the
expense was incurred before or after the termination.
9.3 Damages. Landlord may elect by written notice to Tenant within four months
-------
following such termination to be indemnified for loss of Rent by a lump sum
payment representing the then present value of the amount of Rent which would
have been paid in accordance with this Lease for the remainder of the Lease Term
minus the then present value of the aggregate fair market rent payable for the
Leased Premises for the remainder of the Lease Term (if less than the Rent
payable hereunder), estimated as of the date of the termination, and taking into
account reasonable projections of vacancy and time required to re-lease the
Leased Premises (The "Lump Sum Election"). (For the purposes of calculating the
Rent which would have been paid hereunder for the lump sum payment calculation
described herein, the last full year's Additional Rent under this
21
<PAGE>
Lease plus four percent (4%) compounded annually is to be deemed to be
Additional Rent for each year thereafter. The Federal Reserve discount rate (or
equivalent) plus 150 basis points shall be used in calculating present values.)
Should the parties be unable to agree on a fair market rent, the matter shall be
submitted, upon the demand of either party, to the Boston, Massachusetts office
of the American Arbitration Association, with a request for arbitration in
accordance with the rules of the Association by a single arbitrator who shall be
an MAI appraiser with at least ten years experience as an a appraiser of
suburban commercial real estate in the Eastern Massachusetts area. The parties
agree that a decision of the arbitrator shall be conclusive and binding upon
them. Should Landlord fail to make the election provided for in this Section
-------
9.3, Tenant shall indemnify Landlord for the loss of Rent by a payment at the
- ---
end of each month which would have been included in the Lease Term, representing
the difference (to be ascertained monthly) between the Rent which would have
been paid in accordance with this Lease and the rent actually derived from the
Leased Premises by Landlord for such month (the amount of rent deemed derived
shall be the actual amount less any portion thereof attributable to Landlord's
reletting expenses described in Section 9.2 which have not been reimbursed by
-----------
Tenant thereunder).
In lieu of full recovery by Landlord of all sums payable under all the
foregoing provisions of this Section 9.3 and provided Landlord has not made the
-----------
Lump Sum Election, Landlord may by written notice to Tenant within six (6)
months after termination under any of the provisions contained in Section 9.1
-----------
and before such full recovery, elect to recover, and Tenant shall thereupon pay,
as liquidated damages under this Section 9.3, an amount equal to the lesser of
-----------
(i) the aggregate of the Rent for the balance of the Lease Term had it not been
terminated or (ii) the aggregate thereof for the 12 months ending one year after
the termination date, plus in either case the amount of Rent of any kind accrued
and unpaid at the time of termination and less the amount of any recovery by
Landlord under the foregoing provisions of this Section 9.3 up to the time of
-----------
payment of such liquidated damages. Liquidated damages hereunder shall not be
in lieu of any claims for reimbursement under Section 9.2.
------------
9.4 Mitigation. Landlord shall use commercially reasonable efforts to relet
----------
the Leased Premises which efforts shall be subject to the reasonable
requirements of Landlord to lease to high quality tenants and to develop the
Leased Premises in a harmonious manner with an appropriate mix of uses, tenants,
floor areas and terms of tenancies, and the like. It is agreed that hiring a
reputable leasing broker to lease the premises and cooperating in good faith
with such broker shall satisfy the requirement Landlord use commercially
reasonable efforts to relet.
9.5 Claims in Bankruptcy. Nothing herein shall limit or prejudice the right of
--------------------
Landlord to prove and obtain in a proceeding for bankruptcy, insolvency,
arrangement or reorganization, by reason of the termination, an amount equal to
the maximum allowed by the statute 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 is greater to, equal to, or less than the amount of the loss or
damage which Landlord has suffered.
9.6 Late Charge. If any payment of Rent, or other payment due from Tenant to
-----------
Landlord is
22
<PAGE>
not paid within five (5) days after notice thereof to Tenant or, if Landlord has
already given Tenant one (1) notice of Rent or other monetary payments being due
hereunder in that calendar year, then within five (5) days of being due,
Landlord may, at its option, without notice and in addition to all other
remedies hereunder, impose a late charge on Tenant equal to 1% of the amount in
question for each month (prorated for any partial month) during which said
delinquency continues provided that no late charge will be imposed for Base Rent
payments less than five days late up to one time in any calendar year. Such late
charge shall constitute Additional Rent hereunder payable upon demand.
9.7 Landlord's Right to Cure Defaults. Landlord may, but shall not be
---------------------------------
obligated to cure, at any time any default by Tenant under this Lease other than
the payment of Base Rent. In curing such defaults, Landlord may enter upon the
Leased Premises and take such action thereon as may be necessary to effect such
cure. In the case of an emergency threatening serious injury to persons or
property, Landlord may cure such default without notice. All costs and expenses
incurred by Landlord in curing a default, including reasonable attorneys' fees,
together with interest thereon at the rate of fifteen (15%) percent per annum
from the day of payment by the Landlord, shall be paid by Tenant to Landlord on
demand.
9.8 Effect of Waivers of Default. No consent or waiver, express or implied, by
----------------------------
Landlord to or of any covenant, condition or duty of Tenant shall be construed
as a consent or waiver by Landlord to or of any other breach of the same or any
other covenant, condition or duty. No consent or waiver, express or implied, by
Tenant to or of any covenant, condition or duty of Landlord shall be construed
as a consent or waiver by Tenant to or of any other breach of the same or any
other covenant, condition or duty.
ARTICLE 10 - ASSIGNMENT AND SUBLETTING
-------------------------
10.1 Definitions. As used in this Article 10, the terms "assignment" and
----------- ----------
"sublease" shall mean any assignment of all or any portion of or interest in
this Lease, any sublease or license of the Leased Premises or any portion
thereof, any occupancy of the Leased Premises by someone other than the Tenant,
or any transfer of Tenant's interest in this Lease by operation of law, merger
or consolidation of Tenant into any other firm or corporation, or the transfer
or sale of a controlling interest in Tenant, whether by sale of its capital
stock or otherwise. As used in this Article 10, the terms "assignee" and
----------
"sublessee" shall mean any assignee of all or any portion of or interest in this
Lease, any sublessee or licensee of the Leased Premises or any portion thereof,
any occupant of the Leased Premises or any transferee of Tenant's interest in
this Lease by operation of law, merger or consolidation of Tenant into any firm
or corporation or the transferee or buyer of a controlling interest in Tenant,
whether by sale of capital stock or otherwise.
10.2 Limitation on Assignments and Subleases. Tenant shall not make an
---------------------------------------
assignment or enter
23
<PAGE>
into a sublease without the Landlord's prior written consent which consent will
not be withheld or delayed unreasonably except under circumstances where Tenant
is in default of any covenant in this Lease beyond applicable grace and cure
periods (if any). In the event that Tenant is in default of any covenant of this
Lease beyond applicable grace and cure periods (if any), such consent may be
withheld in Landlord's absolute discretion until Tenant is no longer in default.
Thereafter, as long as Tenant is not in default of any covenant in this Lease
beyond applicable grace or cure periods, if any, Landlord's consent to such
assignment or sublease shall not be withheld or delayed unreasonably.
It is agreed that in requesting Landlord's consent to any assignment or
sublease, Tenant shall provide such information regarding the proposed assignee
or sublessee and the proposed assignment or sublease as Landlord may reasonably
request. Tenant shall pay to Landlord, as Additional Rent, Landlord's
reasonable legal fees and other expenses incurred in connection with any
proposed assignment or sublease, including fees for review of documents and
investigations of proposed assignees or sublessees.
Notwithstanding the foregoing, but not in limitation of any other provision
hereof, the prior consent of Landlord shall not be required in the case of an
assignment or sublease to (i) any successor to Tenant by merger or acquisition
of substantially all of Tenant's assets or stock or (ii) any entity controlling,
controlled by or under common control with Tenant; provided, however, that, in
each such case, Landlord shall be notified in writing by Tenant of any such
assignment or sublease.
In the event of any assignment or sublease it is understood and agreed that
one-half of all "Excess Rent" shall be paid by Tenant to Landlord provided,
however, that, in the case of any assignment or sublease permitted by the
preceding paragraph, no Excess Rent shall be due to Landlord (a) for any
assignment or sublease under clause (i) of the preceding paragraph or (b) in the
case of any assignment or sublease under clause (ii) of the preceding paragraph
for any period of time while the assignee or sublessee controls, is controlled
by or under common control with Tenant. "Excess Rent" is defined as all amounts
paid to Tenant by an assignee or sublessee after deducting from such amounts the
Rent due for the space in the Leased Premises subject to such assignment or
sublease and reasonable and customary expenses actually paid by the Tenant in
connection with the such assignment or sublease (including, without limitation,
reasonable attorneys' fees and brokerage commissions, allowance and
inducements).
The consent by Landlord to any assignment or sublease shall not be
construed as a waiver or release of Tenant from any and all liability for the
performance of all covenants and obligations to be performed by Tenant under
this Lease, nor shall the collection or acceptance of rent from any assignee or
sublessee constitute a waiver or release of Tenant from any of its liabilities
or obligations under this Lease. Landlord's consent to any assignment or
sublease shall not be construed as a consent with respect to any subsequent
assignment or sublease. The approval process for any subsequent assignment or
sublease shall be as set forth above. For any period during which Tenant is in
default with respect to the payment of Rent, Tenant hereby assigns to
24
<PAGE>
Landlord the rent due from any assignee or sublessee of Tenant and hereby
authorizes each assignee or sublessee to pay said rent directly to Landlord.
ARTICLE 11 - NOTICES
-------
All notices, consents, approvals, or other communication required by the
provisions of this Lease to be given to Landlord or Tenant shall be in writing
and shall be hand delivered or given by registered or certified mail or by
Federal Express or other recognized overnight courier, and addressed as follows
(or to such other address as the addressee shall have last designated by notice
to the other party):
If to Landlord: at the Original Address of the Landlord set forth in
Section 1.1
-----------
With a copy to: Richard D. Gass, Esq.
Dionne & Gass
73 Tremont Street
Boston, Massachusetts 02108
And with further
copies to: The Guarantors at the following addresses if the notice
is being sent pursuant to Article 16.
----------
Lewis Heafitz
67 Berkley Street
West Newton, Massachusetts 02194
Neil Shalom
21A Highland Circle
Needham, Massachusetts 02194
Donald A. Levine
c/o Levco, Inc.
Rosemary Office Center
Suite E
Needham, MA 02194
If to the Tenant: at the Original Address of Tenant set forth in Section
-------
1.1 above
---
With a copy to: William R. O'Reilly, Jr., Esq.
25
<PAGE>
Hale & Dorr
60 State Street
Boston, Massachusetts 02109.
If to Guarantors: At the addresses of the Guarantors set forth above.
The customary receipt shall be conclusive evidence of compliance with this
Article 11. Notice shall be deemed given when delivered or delivery refused.
- ----------
ARTICLE 12 - NOTICE OF LEASE
---------------
Tenant agrees that it will not record this Lease. Landlord and Tenant
shall, upon the request of either, execute, acknowledge, and deliver a
recordable notice of this Lease. If this Lease is terminated before the
expiration of the Lease Term, Landlord and Tenant shall execute and deliver an
instrument in form suitable for recording acknowledging the date of termination
of this Lease.
ARTICLE 13 - APPLICABLE LAW, SEVERABILITY, CONSTRUCTION
------------------------------------------
This Lease shall be governed by and construed in accordance with the laws
of Massachusetts and, if any provisions of this Lease shall to any extent be
invalid, the remainder of this Lease, and the application of such provisions in
other circumstances, shall not be affected thereby. This Lease may be amended
only by an instrument in writing executed by Landlord and Tenant. The titles of
the several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease.
ARTICLE 14 - SUCCESSORS AND ASSIGNS, ETC.
----------------------------
14.1 It is understood and agreed that the covenants and agreements of the
parties hereto shall run with the land and that no covenant or agreement of
Landlord contained in this Lease, expressed or implied, shall be binding upon
Landlord except in respect of any breach or breaches thereof committed during
the lease Term and prior to or during Landlord's seisin and ownership of the
Leased Premises except that any mortgagee or trustee or any grantee taking title
to the Property through such mortgagee or trustee shall not be liable for any
breach or breaches of the Lease committed prior to such mortgagee's, trustee's
or grantee's seisin and ownership of the Leased Premises. If Landlord acts as a
Trustee or Trustees of a trust in making this Lease only the estate for which
Landlord acts shall be bound hereby, neither any such Trustee executing this
Lease as Landlord nor any shareholder or beneficiary of such trust shall be
personally liable for any of the covenants or agreements of Landlord expressed
herein or implied hereunder or otherwise because of anything arising from or
connected with the use and occupation of the Leased Premises by Tenant.
Reference in this Lease to "Landlord" or to "Tenant" and all expressions
26
<PAGE>
referring thereto, shall mean the person or persons, natural or corporate, named
herein as Landlord or as Tenant, as the case may be, and the heirs, executors,
administrators, successors and assigns of such person or persons, and those
claiming by, through or under them or any of them, unless repugnant to the
context. If Tenant is a partnership or a firm of several persons, natural or
corporate, the obligations of each person executing this Lease as Tenant shall
be joint and several. Each party shall provide to the other upon execution of
this Lease evidence that the person who signs this Lease for such party is duly
authorized to do so.
14.2 Except for the guaranties set forth in Section 16.10, it is further
-------------
understood and agreed that Tenant shall look solely to the estate and property
of the Landlord in the Leased Premises for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) requiring the
payment of money by the Landlord in the event of any default or breach by
Landlord with respect to any of the terms, covenants and conditions of this
Lease to be observed or performed by the Landlord and any other obligations of
Landlord created by or under this Lease, and no other property or assets of the
Landlord or of its partners, beneficiaries, co-tenants, shareholders or
principals (as the case may be) shall be subject to levy, execution or other
enforcement procedures for the satisfaction of Tenant's remedies.
ARTICLE 15 - LANDLORD'S ACCESS
-----------------
Landlord and its authorized agents, employees, subcontractors and
representatives shall have the right to enter the Leased Premises at any time
during emergencies (Landlord agrees to use reasonable efforts to notify Tenant
of any such emergency) and at all reasonable times with prior notice for any of
the following purposes: (a) to determine whether the Leased Premises are in
good condition and whether Tenant is complying with its obligations under this
Lease; (b) to do any necessary maintenance and to make such repairs,
alterations, improvements or additions in or to the Leased Premises or the
Building of which the Leased Premises are a part as Landlord has the right or
obligation to perform under this Lease, as Landlord may be required to do or
make by law, or as Landlord may from time to time deem necessary or desirable;
(c) to exhibit the Leased Premises to prospective tenants during the last nine
(9) months of the term of this Lease or during any period while Tenant is in
material default under this Lease beyond any applicable notice and cure period,
if any; and (d) to show the Leased Premises to prospective lenders, brokers,
agents, buyers or persons interested in an exchange, at any time during the term
of this Lease.
If, at any time during the last month of the Term of this Lease, Tenant
shall have removed all of Tenant's property from all or any portion(s) of the
Leased Premises, Landlord may immediately enter and alter, renovate and decorate
the same, and such acts shall have no effect upon Tenant's remaining obligations
and covenants under this Lease.
ARTICLE 16 - BASE BUILDING IMPROVEMENTS
--------------------------
AND TENANT WORK
---------------
27
<PAGE>
16.1 Definitions.
------------
16.1.1 Definition of "Work".
---------------------
As used in this Lease, the term "Work" shall mean the construction of the
improvements and the performance of the work which is described on Exhibit C
----------
attached hereto. Exhibit C consists of the following:
---------
a. Four page document entitled "Allocation Between Base Building and
Tenant Work" dated August 29, 1997 (the "August 29 Schedule");
b. A memorandum dated November 10, 1997 to Levco, Attn: C. Kibbee from
the architects, Frank DiMella and John Becker (the "Architect's
Memorandum"); and
c. The following plans prepared by DiMella Shaffer Associates, Inc.
("DiMella Shaffer") and referred to in the Architect's Memorandum
described above (collectively, the "Plans"):
L-1.0 Guaranteed Site Plan dated November 5, 1997 (hereinafter the
"Guaranteed Site Plan")
L-1.1 Site Plan - Alternate 1 dated November 5, 1997 (hereinafter the
"Alternate 1 Site Plan")
A-1.1 First Floor Plan dated November 10, 1997
A-1.2 Second Floor Plan dated November 10, 1997
A-4.0 Elevations dated October 20, 1997
A-5.0 Clark Street View dated October 20, 1997
The Work consists of "Guaranteed Site Plan Work" and "Alternate 1 Site Plan
Work" as those terms are defined below.
16.1.2 "Guaranteed Site Plan Work" and "Alternate 1 Site Plan Work".
--------------------------------------------------------------
The Guaranteed Site Plan Work is described in the section of the Architect's
Memorandum entitled "Site Improvements (as indicated on L - 1.0 Guaranteed Site
Plan)" and is shown on the Guaranteed Site Plan. The Alternate 1 Site Plan Work
is described in the section of the Architect's Memorandum entitled "Site
Improvements (as indicated on L - 1.1 Site Plan Alternate 1)" and is shown on
the Alternate 1 Site Plan.
16.1.3 "Base Building Improvements" and "Tenant Work".
------------------------------------------------
In addition, the Guaranteed Site Plan Work and the Alternate 1 Site Plan Work
have been further divided into "Base Building Improvements" and "Tenant Work".
The Base Building Improvements are described in the August 29 Schedule as "Base
Bld." and are further described in the Architect's Memorandum and shown on the
Plans. The Tenant Work is described in the August 29 Schedule as "Tenant Work"
and is shown on the Plans.
28
<PAGE>
16.2 "As of Right Work" and "As of Right Uses."
------------------------------------------
The Landlord represents, warrants, and covenants that the Guaranteed Site Plan
Work can be done as a matter of right, without need for any zoning relief,
subject to compliance with applicable building codes and other state laws.
Section 16.9.3 below sets forth the Tenant's rights if a building permit for the
- --------------
Guaranteed Site Plan Work can not be obtained. The Landlord represents,
warrants, and covenants that the Property can be used for the uses described in
the section of the Architect's Memorandum entitled "Uses" (the "As of Right
Uses") as a matter of right and that, as a matter of right, Tenant is entitled
to a certificate of occupancy for the Building for the As of Right Uses.
The Landlord acknowledges and agrees that the above representations,
warranties and covenants are a material inducement for Tenant entering into this
Lease, that Tenant is relying upon the same, and that, notwithstanding the
definition of "Permitted Uses" set forth in Section 1.1 above or any other
-----------
section of this Lease, the Landlord is solely responsible for ensuring that the
Tenant has the right to use the Property for the As of Right Uses.
16.3 Landlord's Obligations to Perform the Work; Guaranty of Work.
------------------------------------------------------------
16.3.1 The Landlord shall renovate the Property for the Tenant by
performing the Guaranteed Site Plan Work and, if the Alternate 1 Site Plan is
approved by the Town, the Alternate 1 Site Plan Work. Notwithstanding the
foregoing, as for any and all portions of the Guaranteed Site Plan Work which
are Base Building Improvements and which may be duplicated by or inconsistent
with the Alternate 1 Site Plan Work which are Base Building Improvements, the
Landlord shall give the Tenant a choice at the time Landlord is preparing to do
such duplicative or inconsistent work of either (i) having the Landlord perform
such work at the Landlord's cost at the Guaranteed Site Plan Work stage and then
having the Landlord perform the duplicative or inconsistent work at the
Alternate 1 Site Plan Work stage at the Tenant's cost (notwithstanding Section
-------
16.6 or anything else contained in this Lease to the contrary); or (ii) having
- ----
the Landlord defer the performance of such work pending approval of the
Alternate 1 Site Plan by the Planning Board of the Town, in which case the
deferred work shall automatically be deemed to be excluded for the purpose of
determining Substantial Completion and Landlord's compliance with Performance
Dates (notwithstanding Sections 16.9 or anything else contained in this Lease to
-------------
the contrary). If the Tenant chooses option (ii) above, the Tenant shall have
the right to later change its decision and give the Landlord written notice to
pursue option (i) instead but, in such a case, the work that had been deferred
will continue to be excluded for the purpose of determining Substantial
Completion and Landlord's compliance with Performance Dates.
16.3.2 Landlord covenants and represents that the Work shall be
completed in a good and workmanlike manner, using new materials except where
otherwise stated in Exhibit C, and in compliance with all applicable laws
---------
(except that Landlord makes no covenant or representation as to the compliance
with laws of the Tenant Work Plans and Specifications or any material or other
design or plan for the Tenant Work provided by Tenant or anyone acting for or on
behalf of
29
<PAGE>
Tenant).
16.3.3 Landlord guaranties that the Work will be free of defects for a
period of one year after Substantial Completion.
16.3.4 Except as set forth in Section 6A.2, Section 18.3 and this
------------ ------------
Section 16.3, the Property is being delivered to Tenant in "as is" condition.
- ------------
16.4 Architect, Plans and Specifications.
------------------------------------
Landlord and Tenant agree to use DiMella Shaffer as the architect for the Work
provided, however, that Landlord and Tenant each reserve the right to change, at
any time, to another architect reasonably acceptable to the other party if such
party desiring the change is not reasonably satisfied with DiMella Shaffer due
to a material default by DiMella Shaffer in the performance of its obligations.
The Base Building Improvements shall be performed pursuant to certain final
plans and specifications to be developed by Landlord and approved by Tenant
("Base Building Plans and Specifications") which approval shall not be
unreasonably withheld or delayed if said final plans are consistent with the
description and plans for the Base Building Improvements set forth in Exhibit C.
---------
During the course of construction, any shop drawings, change orders or other
modifications which constitute a material change in the Base Building Plans and
Specifications must be approved by Tenant which approval shall not be
unreasonably withheld or delayed. The Tenant Work shall be performed pursuant to
certain plans and specifications to be developed by Tenant and approved by
Landlord (the "Tenant Work Plans and Specifications") which approval shall not
be unreasonably withheld or delayed if said final plans and specifications are
consistent with the description and plans for the Tenant Work set forth in
Exhibit C. During the course of construction, any shop drawings, change orders
- ---------
or other modifications which constitute a material change in the Tenant Work
must be approved by Landlord which approval shall not be unreasonably withheld
or delayed. Landlord and Tenant agree to reasonably coordinate the Base
Building Improvements and the Tenant Work. The Landlord and the Tenant agree to
use reasonable efforts to approve the final Base Building Plans and
Specifications by January 5, 1998 and the final Tenant Work Plans and
Specifications by February 15, 1998.
16.5 Selection of the Contractor. The Landlord shall select the contractor to
----------------------------
perform the Base Building Improvements and Tenant Work subject to the approval
of the Tenant which approval shall not be unreasonably withheld or delayed
provided, however, that Tenant may withhold approval if (i) the bid for the
Tenant Work submitted by the contractor selected by Landlord is higher than the
bid for the Tenant Work made by a contractor invited by Tenant to make a bid for
the Work and (ii) the total bid for all the Work is no higher than the total bid
for all the Work submitted by the contractor selected by the Landlord. Tenant
shall be entitled to have access to all written bids, subcontractor lists,
pricing and other materials in Landlord's possession which are relevant to
Tenant making an informed decision regarding the selection of the contractor and
the Landlord will give the Tenant prior notice and a reasonable opportunity to
participate in all formal contractor interviews and meetings. In the bids
submitted by contractors, the cost of the Tenant
30
<PAGE>
Work must either be a fixed price or cost plus with a guarantied maximum and, in
either case, the change order pricing (i.e. overhead and profit on change
orders) must be specified in the bid approved by Tenant pursuant to this Section
-------
16.5. Landlord and Tenant agree to use reasonable efforts to have a contractor
- -----
selected by Landlord and approved by Tenant by January 15, 1998 recognizing that
the selection and approval of the contractor will occur at a later date if the
final Tenant Work Plans and Specifications have not been approved prior to said
date. As stated in Section 16.4 above, the Landlord and the Tenant have agreed
------------
to use reasonable efforts to approve the final Tenant Work Plans and
Specifications by February 15, 1998. The failure to so approve the final Tenant
Work Plans and Specifications by the earlier date of January 15, 1998 will not
be deemed to be a Tenant Delay. Tenant shall approve the final form of the
contract to be entered into with the selected contractor, which approval shall
not be unreasonably withheld or delayed.
16.6 Payment of Costs.
----------------
16.6.1 Payment of Costs of Work. For all of the Work, the Landlord agrees
------------------------
to pay for the following:
(i) all out-of-pocket costs and expenses incurred by Landlord to third
parties for the architectural work, engineering work, construction
and installation of the Base Building Improvements;
(ii) all out-of-pocket costs and expenses incurred by Landlord to third
parties for the construction and installation of the Tenant Work
(other than the Work described in (iii) below) up to a maximum
aggregate amount for (i) and (ii) of One Million Six Hundred Eighty-
Eight Thousand Four Hundred and 00/100 Dollars ($1,688,400.00)
("Tenant's Allowance"); and
(iii) As for any Work to be done in connection with the heating,
ventilating and air conditioning system other than the Base Building
Work, the Landlord and Tenant shall split the third party out-of-
pocket costs and expenses incurred by Landlord for such work on a
50/50 basis until Landlord and Tenant have each paid Fifty Thousand
Dollars ($50,000.00) and, thereafter, Tenant shall be solely
responsible for the payment of such costs and expenses for the
remainder of said work. Tenant's portion of the cost of said work
may be charged against the Tenant's Allowance.
Tenant agrees to pay for all cost and expenses of the Tenant Work in excess of
Tenant's Allowance.
16.6.2 Invoices; Payments. Tenant may send invoices to Landlord for all
------------------
Tenant's out-of-pocket expenses for architectural and engineering fees incurred
by Tenant in connection with the Tenant Work and Landlord shall pay such fees
and charge the payment against the Tenant's Allowance for the Work. As for all
other amounts to be paid by Tenant for the Work,
31
<PAGE>
Landlord shall bill Tenant for such amounts after Landlord has funded all of the
amounts to be paid by the Landlord pursuant to Section 16.6.1 above. Tenant
--------------
agrees to pay all such amounts promptly upon being billed therefor and such
amounts may be paid at one time or from time to time in separate payments if
Landlord so requests; provided that Tenant shall not pay for any work until it
is actually installed. It is agreed that all such amounts payable by Tenant in
connection with the Work shall be deemed Additional Rent under this Lease.
16.7 Tenant's Self-Funding Option. Notwithstanding anything contained herein to
----------------------------
the contrary, Tenant may elect, by sending written notice to Landlord within
thirty (30) days of the date that this Lease is executed by Landlord and Tenant,
to self fund the Tenant's Allowance; in which case, the annual rate of Base Rent
for the Original Term set forth in Section 3.2 above will be reduced by Two and
-----------
11/100 Dollars ($2.11) per rentable square foot of the Leased Premises (with the
parties irrevocable agreeing that the Leased Premises contains 84,420 square
feet of rentable floor space).
16.8 Substantial Completion "Substantial Completion" shall be deemed to occur
----------------------
when Landlord has received a Certificate of Occupancy for the Building and a
certificate from the architect who has been overseeing the Work certifying that
the Guaranteed Site Plan Work (except for all Guaranteed Site Plan Work which
may have been deferred at the request of Tenant pursuant to Section 16.3 above)
------------
has been substantially completed. A punch list shall be developed by Landlord
and Tenant, and all punch list items (except for any Guaranteed Site Plan Work
which may have been deferred at the request of Tenant pursuant to Section 16.3
above) shall be completed to the reasonable satisfaction of Tenant within 30
days of Substantial Completion subject to force majeure and Tenant Delays.
16.9 Performance Dates; Remedies.
----------------------------
16.9.1 Performance Dates, Tenant Delay and Force Majeure Definitions. The
-------------------------------------------------------------
"Permit Performance Date," "Substantial Completion Date," and "Outside Date" (as
those terms are defined below) are the "Performance Dates." "Tenant Delay" shall
mean any delay in the Guaranteed Site Plan Work caused, directly or indirectly,
by any act or omission of Tenant or anyone acting by or on behalf of Tenant
(including, without limitation, any architect or engineer in his or her capacity
of working for Tenant). If a delay in the Guaranteed Site Plan Work is caused by
Landlord and Tenant, only the portion of such delay attributable to the Tenant
shall constitute a Tenant Delay. "Force majeure" shall include all matters
beyond the reasonable control of Landlord but shall not include financial
difficulties of the Landlord or any Guarantor or work stoppages or strikes due
to non-payment by Landlord or the Guarantors. If the force majeure event is the
insolvency of the contractor or any subcontractor or material default by the
contractor or any subcontractor under its applicable contract or subcontract,
then the Landlord shall use reasonable efforts to replace the insolvent or
defaulting contractor or subcontractor. Landlord shall use reasonable efforts to
give the Tenant prompt written notice of any and all force majeure events and
Tenant Delays, and the Landlord cannot extend any calendar date set forth below
for a Performance Date because of force majeure or a Tenant Delay unless the
Landlord has given the
32
<PAGE>
Tenant prompt written notice of the force majeure or Tenant Delay causing the
extension and, in any event, such notice shall be prior to the calendar date
which is being extended together with the Landlord's reasonable estimate of the
extension required because of the force majeure or Tenant Delay. Any extension
for force majeure or a Tenant Delay shall be only as long as is reasonably
necessary to compensate for the delay caused by the force majeure or Tenant
Delay.
16.9.2 Scheduled Completion Date. Landlord shall use reasonable efforts
-------------------------
to achieve Substantial Completion by September 1, 1998 or earlier if the Tenant
requests an earlier date and if Substantial Completion is not achieved by the
applicable date, the Landlord shall thereafter continue to use reasonable
efforts to achieve Substantial Completion unless and until the Lease is
terminated or the Tenant exercises the self-help right set forth in Section
-------
16.9.4(b) below. If Tenant requests an earlier date then Tenant shall be deemed
- ---------
to have waived any right to wait until September 1, 1998 to have the Term
Commencement Date occur, Landlord shall be under no obligation to incur overtime
costs or any other special, additional or extraordinary costs to achieve
Substantial Completion by such earlier date, and such earlier date shall not
change the Performance Dates in any way.
16.9.3 Permit Performance Dates. At the Landlord's sole cost and expense,
the Landlord shall (i) promptly file for and obtain by March 1, 1998, as such
date may be extended for Tenant Delays, (the "Base Building Permit Performance
Date") a building permit as required by the Town to construct the Guaranteed
Site Plan Work which is classified on Exhibit C as being Base Building
---------
Improvement Work ( the "Base Building Permit"); and (ii) promptly file for and
obtain by March 31, 1998, as such date may be extended for Tenant Delays, (the
"Tenant Work Building Permit Performance Date") a building permit as required by
the Town to construct the Guaranteed Site Plan Work which is classified on
Exhibit C as being Tenant Work ( the "Tenant Work Building Permit"). The Base
- ---------
Building Permit and the Tenant Work Building Permit are hereinafter collectively
referred to as the "Building Permits." In addition, the Landlord shall, at the
Landlord's sole cost and expense, promptly file by January 30, 1998, as such
date may be extended for Tenant Delays, an application with the Planning Board
of the Town for the approval of the Alternate 1 Site Plan (the "Site Plan
Application Filing Date"). At the Landlord's sole cost and expense, the Landlord
shall use reasonably diligent efforts to have the Planning Board of the Town
approve the Alternate 1 Site Plan; such efforts to include, without limitation,
defending any appeal challenging the approval of the Alternate 1 Site Plan if
approval is given. Notwithstanding anything which may be construed to the
contrary, the Tenant acknowledges and agrees that the Site Plan Application
Filing Date is a filing date only and Landlord is not making any
representations, warranties or guaranties that the Alternate 1 Site Plan will be
approved by the Planing Board of the Town. The Base Building Permit Performance
Date, the Tenant Work Building Permit Performance Date, and the Site Plan
Application Filing Date are hereinafter collectively referred to as the "Permit
Performance Dates." The Tenant shall cooperate with the Landlord in obtaining
the Building Permits and the Planning Board's approval of the Alternate 1 Site
Plan. Without limiting the generality of the cooperation between Landlord and
Tenant, the Tenant agrees, promptly after each request from Landlord, to provide
Landlord with all information regarding Tenant and Tenant's operations as
Landlord may need to file for and obtain
33
<PAGE>
the Building Permits and such other information, if any, needed for the approval
process for the Alternate 1 Site Plan. Notwithstanding the foregoing, the Tenant
shall not be liable for the payment of any costs or expenses in connection with
obtaining the Building Permits or applying for the approval of the Alternate 1
Site Plan. In the event that the Base Building Permit is not obtained by the
Base Building Permit Performance Date, the Tenant Work Building Permit is not
obtained by the Tenant Work Building Permit Performance Date, or the application
to approve the Alternate 1 Site Plan is not filed with the Planning Board of the
Town by the Site Plan Application Filing Date, then the Tenant shall have the
right to terminate this Lease by giving Landlord written notice of such
termination within fifteen (15) days of the Permit Performance Date which was
missed; whereupon the Landlord shall refund to the Tenant all pre-paid Base Rent
and pay all of the out-of-pocket architectural and engineering costs incurred by
the Tenant to third parties in connection with the Tenant Work as of the date of
said termination (including, without limitation, the fees of the architect,
DiMella Shaffer) and refund to Tenant all amounts (if any) that Tenant may have
paid to Landlord for the Work pursuant to Section 16.6.2 above; whereupon this
--------------
Lease shall terminate and the parties shall have no further recourse against one
another.
16.9.4 Failure to Meet Substantial Completion Date.
--------------------------------------------
If Substantially Completion is not achieved by November 1, 1998 as such
date may be extended for force majeure and Tenant Delays (the "Substantial
Completion Date") then the Tenant shall have the right to elect to exercise one
of the following remedies by sending written notice to the Landlord and the
Guarantors within fifteen (15) days of the Substantial Completion Date:
(a) to have the Landlord continue to construct the Work, in which case the
Landlord must give a credit to the Tenant towards the payment of Base
Rent. Such credit shall be two days' worth of free Base Rent (at the
rate of Base Rent set for the first Lease Year) for each day after the
Substantial Completion Date that Substantial Completion was not
achieved for a reason other than force majeure or Tenant Delay; or
(b) Tenant shall have the right (but not the obligation) to exercise self-
help to complete the Work and Tenant shall have the right to offset
against the payment of Base Rent the reasonable out-of-pocket costs
and expenses incurred by Tenant to third parties in connection with
the Tenant taking over the Landlord's obligation to complete
construction and installation of the Work and interest on funds
advanced by Tenant to pay for such costs and expenses at the rate of
nine percent (9%) per annum but excluding all amounts which Tenant was
to pay if Landlord performed the Work (the "Off-Set Amount").
Notwithstanding the foregoing, Tenant agrees that Tenant's off-set
right shall be limited so that in no event shall Tenant pay less Base
Rent in any month than the lesser of the following: (a) the amount of
Base Rent necessary to pay principal and interest payments to the
holder of the first mortgage on the Leased Premises, if any, with a
thirty (30) year amortization period at the interest rate being then
charged by such holder pursuant to the loan documents
34
<PAGE>
executed in connection with such first mortgage; and (b) Base Rent
which will fully repay Tenant for the Off-Set Amount by the scheduled
expiration of the Original Lease Term. Prior to Tenant off setting any
amount of Base Rent, Tenant shall provide Landlord with written notice
of the Off-Set Amount together with reasonably detailed documentation
supporting the calculation of the Off-Set Amount. In addition, Tenant
shall promptly provide Landlord with such other information regarding
the calculation of the Off-Set Amount as Landlord may reasonably
request from time to time and Landlord or an independent, certified
public accountant designated by Landlord shall have the right, during
regular business hours and after giving ten (10) days' advance written
notice to Tenant, to inspect and audit Tenant's books and records
relating to the Off-Set Amount. If as a result of such audit, it
becomes clear that an error was made in the calculation of the Off-Set
Amount, then an appropriate adjustment shall be made promptly. If
Tenant exercises the self-help right set forth above, Landlord shall
assign to Tenant all of Landlord's rights under and to all plans and
specifications, construction contracts, architect contracts and all
other contracts which Landlord has in connection with the Work subject
to any prior rights which Landlord may have previously assigned to any
mortgage lender.
If the Tenant fails to elect a remedy by the Substantial Completion Date as
aforesaid, then the Tenant shall be deemed to have elected the remedy set forth
in Subsection (a) above. If the Tenant elects the self-help right set forth in
--------------
subsection (b) as aforesaid, the Tenant shall not have any rights under
- --------------
subsection (a) above or under Section 16.9.5 or Section 16.9.6 below.
- -------------- -------------- --------------
16.9.5 Failure to Meet Outside Date because of Force Majeure. If,
-----------------------------------------------------
because of force majeure, Substantial Completion is not achieved by March 1,
1999 as the same may be extended for Tenant Delays (the "Outside Date"), then
the Tenant shall have the right to terminate this Lease by giving Landlord
written notice of such termination within fifteen (15) days of the Outside Date;
whereupon the Landlord shall refund to the Tenant all pre-paid Base Rent, this
Lease shall terminate and the parties shall have no further recourse against one
another. Notwithstanding the foregoing, this Section shall be null and void and
of no force and effect if Tenant elected the self-help right set forth above.
16.9.6 Failure to Meet Outside Date for a Reason Other than Force
----------------------------------------------------------
Majeure or Tenant Delay. If Substantial Completion is not achieved by the
- -----------------------
Outside Date for a reason other than force majeure (with Tenant Delays already
being taken into account to determine the Outside Date) then, in addition to the
Tenant's right to terminate the Lease and receive a refund of all pre-paid Base
Rent as set forth above, the Landlord shall refund to the Tenant all amounts
paid by the Tenant to the Landlord for the Work pursuant to Section 16.6.2 above
--------------
and the Landlord shall pay damages to the Tenant which shall be liquidated
damages in an amount equal to two days' worth of Base Rent (with the Base Rent
amount being the amount set in this Lease for the first Lease Year) for each day
after the Substantial Completion Date up to and including the Outside Date that
Substantial Completion is not achieved for a reason other than force majeure
provided that
35
<PAGE>
Landlord had used reasonable efforts to achieve Substantial Completion and the
Guarantors have performed their obligations to pay for the portion of the Work
to be funded by the Landlord as set forth below. Notwithstanding the foregoing,
this Section shall be null and void and of no force and effect if Tenant elected
the self-help right set forth above.
16.10 Guaranty. By signing in their individual capacities below, Lewis
--------
Heafitz, Neal Shalom and Donald Levine (collectively, the "Guarantors") hereby,
jointly and severally, individually guaranty (i) the payment for and completion
of the Work by the Landlord pursuant to the terms of this Lease; and (ii) the
payment of liquidated damages to the Tenant by the Landlord pursuant to Section
-------
16.9.6.
- ------
16.11 Other Terms. The Landlord and the Tenant shall upon written notice to
-----------
each other appoint construction representative who shall have the authority to
act on their respective behalf. Tenant shall have reasonable access to the
Leased Premises during all times when the Work is being performed to supervise
the Work provided that such supervision is at Tenant's sole risk and shall not
cause any interference with the progress of the Work. Tenant shall be given
reasonable prior notice and an opportunity to attend all scheduled job meetings.
To the actual knowledge of Landlord, Landlord has delivered to Tenant copies of
all studies of the Property in Landlord's possession. Landlord does not have
any actual knowledge of any defect in the Property other than the matters set
forth in said studies. As used herein, the "actual knowledge" of the Landlord
shall mean to the actual knowledge of Donald A. Levine, Lewis Heafitz, and Neal
Shalom.
ARTICLE 17 - WARRANTY REGARDING BROKER
-------------------------
Tenant warrants that it was introduced to the Leased Premises by the
party or parties named in the Definitions section of this Lease as the "Broker,"
and knows of no other Broker which was involved in this transaction in any way
or is entitled to any brokerage commission or similar fee or charge in
connection with this Lease. Tenant agrees to indemnify Landlord and the Broker
(if any) against any costs incurred by either (including attorneys' fees) if the
foregoing warranty is untrue. Landlord shall be responsible for paying the
commission due the Landlord's Broker pursuant to separate agreements between
Landlord and Landlord's Broker. Landlord's Broker shall be responsible for
paying the commission due Tenant's Broker pursuant to a separate agreement
between Landlord's Broker and Tenant's Broker.
ARTICLE 18 - HAZARDOUS MATERIALS
-------------------
18.1 Tenant shall not (either with or without negligence) cause or permit
the escape, disposal, release or threat of release of any biologically or
chemically active or other Hazardous Materials (as said term is hereafter
defined) on, in, upon or under the Leased Premises or the Site. Tenant shall
not allow the generation, storage, use or disposal of Hazardous Materials in any
manner not sanctioned by law or by the standards prevailing in the industry for
the generation, storage, use
36
<PAGE>
and disposal of Hazardous Materials, nor allow to be brought into the Leased
Premises or on to the Site any Hazardous Materials except for use in the
ordinary course of Tenant's business. Hazardous Materials shall include, without
limitation, any material or substance which is (i) petroleum, (ii) asbestos,
(iii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq. (33 U.S.C.
(S)1321) or listed pursuant to (S)307 of the Federal Water Pollution Control Act
(33 U.S.C. (S)1317), (iv) defined as a "hazardous waste" pursuant to Section
1004 of the Resource Conservation and Recover Act, 42 U.S.C. 6901 et seq. (42
U.S.C. (S)6903), (v) defined as a "hazardous substance" pursuant to Section 101
of the Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. (S)9601 et seq. (42 U.S.C. (S)9601), as amended, or (vi) defined as "oil"
or a "hazardous waste", a "hazardous substance", a "hazardous material" or a
"toxic material" under any other law, rule or regulation applicable to the
Property, including, without limitation, Chapter 21E of the Massachusetts
General Laws, as amended. If any lender or governmental agency shall ever
require testing to ascertain whether or not there has been any release of
Hazardous Materials, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as additional charges but only if the testing
shows a release or threat of release of any Hazardous Materials and such release
or threat of release is as a result of any act or omission of Tenant or any
person acting under Tenant. In addition, Tenant shall execute affidavits,
representations and the like, from time to time, at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials in the Leased Premises and the Site. In all events, Tenant
shall indemnify and save Landlord harmless from any release or threat of release
or the presence or existence of Hazardous Materials on, in, upon, or under the
Leased Premises or the Site if caused by any act or omission of Tenant or any
person acting under Tenant. As used in this Article, the phrase "any person
acting under Tenant" shall include, without limitation, (i) any and all
employees, directors, and officers of Tenant; and (ii) any and all agents,
representatives, contractors, subcontractors, business invitees and guests of
Tenant and their respective employees, directors, officers, agents,
representatives, contractors, subcontractors, business invitees and guests. The
within covenants and indemnity shall survive the expiration or earlier
termination of the Lease Term of this Lease. Landlord expressly reserves the
right to enter the Leased Premises to perform regular inspections.
18.2 Landlord hereby represents and warrants to the Tenant that, to the
best of the Landlord's actual knowledge, as of the date hereof, the Leased
Premises and the Site do not contain any Hazardous Materials other than the
Hazardous Materials disclosed in the reports listed on Exhibit D (copies of
---------
which have been provided to the Tenant), de minimus amounts of Hazardous
Materials which are present in the ordinary course of the operation of the
Property, and Hazardous Materials which are used in the ordinary course of the
construction activities which may occurring on the Property. As used herein, the
phrase "to the actual knowledge of the Landlord" shall mean to the actual
knowledge of Donald A. Levine, Lewis Heafitz, and Neal Shalom. Landlord shall
indemnify and save Tenant harmless from any release or threat of release or the
presence or existence of Hazardous Materials on, in, upon, or under the Leased
Premises or the Site if caused by any act or omission of Landlord or any person
acting under Landlord. As used in this Article, the phrase "any person acting
under Landlord" shall include, without limitation, (i) any and all
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employees, directors, and officers of Landlord; and (ii) any and all agents,
representatives, contractors, subcontractors, business invitees and guests of
Landlord and their respective employees, directors, officers, agents,
representatives, contractors, subcontractors, business invitees and guests.
18.3 As part of the Landlord's obligations under this Lease regarding
compliance with laws, the Landlord shall be responsible to the Tenant (at the
Landlord's expense and not as part of the Operating Expenses) for the
remediation, in compliance with all applicable laws, of any and all Hazardous
Materials which may now or in the future during the Lease Term be present or
released on, in, upon, or under the Leased Premises or the Site provided that
neither the Tenant nor any person acting under the Tenant caused, by any act or
omission, any such presence or release of Hazardous Materials. Without
limiting the generality of the foregoing, prior to and as a condition to
Substantial Completion pursuant to Article 16, the Landlord shall, at the
----------
Landlord's sole expense, complete the asbestos remediation work described on
Exhibit E attached hereto and deliver to the Tenant reasonable evidence from GZA
- ---------
Environmental, Inc. or another qualified environmental site assessment firm of
the completion of such work.
ARTICLE 19 - FIRST EXTENSION TERM
--------------------
19.1 Provided the Lease is then in full force and effect and further
provided that Tenant is not then in default, beyond the expiration of any
applicable grace periods, under any of the terms, covenants or conditions of the
Lease on Tenant's part to be observed or performed, Tenant shall have the option
to extend this Lease and the Lease Term for a first extended term (the "First
Extension Term") of five (5) years commencing on the date next following the
last day of the Original Lease Term and ending, unless sooner terminated
pursuant to the terms, covenants or conditions of the Lease or pursuant to law,
on the day immediately preceding the fifth (5th) anniversary of the commencement
date of the First Extension Term, such option to be exercisable only by written
notice given by Tenant to Landlord at least nine (9) months prior to the
expiration of the Original Lease Term. If Tenant exercises such option in
accordance with the provisions and limitations of this Article, this Lease and
the Lease Term shall be extended for such term upon all of the then applicable
terms, covenants and conditions contained in this Lease, except that the Base
Rent for the entire First Extension Term shall be at an annual rate determined
as set forth below, it being understood that such Base Rent shall be payable in
equal monthly installments, in advance, just as in the case of the Original
Lease Term.
19.2 The Base Rent for the First Extension Term shall be at the greater of
(i) the Base Rent at the end of the Original Lease Term or (ii) ninety-five
percent (95%) of the then fair rental value for the Leased Premises for the
First Extension Term, to be determined as follows: Landlord shall provide Tenant
with Landlord's written designation of what it believes ninety-five percent
(95%) of the fair rental value to be, indicating the Base Rent to be charged for
the First Extension Term, such written designation to be sent to Tenant within
thirty (30) days after receipt by Landlord of
38
<PAGE>
notice of Tenant's exercise of its option with respect to the First Extension
Term. If Tenant disagrees with Landlord's designation and if the parties are
otherwise unable to agree upon the fair rental value of the Leased Premises for
the First Extension Term, then Tenant may initiate the following arbitration
process to determine ninety-five percent (95%) of fair rental value ("Market
Rent") by sending written notice thereof to Landlord within thirty (30) days
after receipt of Landlord's written designation as to Market Rent. If Tenant
fails to initiate this arbitration process as aforesaid, time being of the
essence, then Landlord's designation of Market Rent (as set forth in Landlord's
notice) shall be conclusive. In order to be effective Tenant's notice to
Landlord initiating the arbitration process shall specify the name and address
of the person designated to act as an appraiser on its behalf. Within fourteen
(14) days after the designation of Tenant's appraiser, Landlord shall give
notice to Tenant specifying the name and address of the person designated to act
as an appraiser on its behalf. If Landlord fails to notify Tenant of the
appointment of its appraiser within the time above specified, then the
appointment of the second appraiser shall be made in the same manner as
hereinafter provided for the appointment of a third appraiser in a case where
two appraisers are appointed hereunder and the parties are unable to agree upon
such appointment. The two appraisers so chosen shall meet within ten (10) days
after the second appraiser is appointed, and if, within fifteen (15) days after
the second appraiser is appointed, the two appraisers shall not agree upon a
determination, they shall together appoint a third appraiser. In the event of
their being unable to agree upon such appointment within fifteen (15) days after
the appointment of the second appraiser, the third appraiser shall be selected
by the parties themselves if they can agree thereon with a further period of
fifteen (15) days. If the parties do not so agree, then either party, on behalf
of both and on notice to the other, may request such appointment by the American
Arbitration Association (or any organization successor thereto) in accordance
with its rules then prevailing.
Each party shall pay the fees and expenses of the one of the two original
appraisers appointed by or for such party, and the fees and expenses of the
third appraiser and all other expenses (not including the attorneys fees,
witness fees and similar expenses of the parties which shall be borne separately
by each of the parties) of the arbitration shall be borne by the parties
equally.
If a third appraiser is chosen as provided above, then the three appraisers
shall collectively determine the Market Rent as provided in the last paragraph
of this Section and render a written certified report of their determination to
both Landlord and Tenant within fifteen (15) days after appointment of the third
appraiser if such third appraiser is appointed pursuant to this Section.
Each of the appraisers selected as herein provided shall be real estate
brokers or appraisers and shall have at least ten (10) years experience in the
leasing and renting of office space in first class office buildings in Middlesex
County. In addition, the third appraiser (if any) shall be an independent party
not affiliated in any way with either Landlord or Tenant.
Each of the three appraisers shall indicate his view of ninety-five percent
(95%) of the fair rental value. The number furthest from the middle number
shall be disregarded and the remaining
39
<PAGE>
two numbers shall be averaged. The resulting average shall be deemed to be
ninety-five percent (95%) of the fair rental value for purposes of this
paragraph. If the middle number is equidistant from the two other numbers, the
middle number shall be deemed to be ninety-five percent (95%) of the fair rental
value for the purposes of this paragraph. Tenant may cancel its exercise of this
option to extend the term of this Lease, if Tenant is dissatisfied with the
determination of Market Rent through the foregoing arbitration process. In order
to cancel its exercise of this option as aforesaid, Tenant must send written
notice to Landlord within seven (7) days after the determination by the
appraisers of Market Rent, and in such notice Tenant must state that it is so
canceling its exercise of this extension option.
19.3 Time is of the essence with respect to the exercise of the option
contained herein. Tenant shall not have the right to give any notice exercising
such option after the expiration of the applicable time limitation set forth
herein, and any notice given after such time limitation purporting to exercise
such option shall be void and of no force or effect.
ARTICLE 20 - SECOND EXTENSION TERM
---------------------
20.1 Provided the Lease is then in full force and effect and further
provided that Tenant is not then in default, beyond the expiration of any
applicable grace periods, under any of the terms, covenants or conditions of
this Lease on Tenant's part to be observed or performed, Tenant shall have the
option to extend this Lease and the Lease Term for a second extended term (the
"Second Extension Term") of five (5) years commencing on the date next following
the last day of the First Extension Term and ending, unless sooner terminated
pursuant to the terms, covenants or conditions of the Lease or pursuant to law,
on the day immediately preceding the fifth (5th) anniversary of the commencement
date of the Second Extension Term, such option to be exercisable only by written
notice given by Tenant to Landlord at least nine (9) months prior to the
expiration of the First Extension Term.
20.2 If Tenant exercises such option in accordance with the provisions and
limitations of this Article, this Lease and the Lease Term shall be extended for
such term upon all of the then applicable terms, covenants and conditions
contained in this Lease, except that the Base Rent for the entire Second
Extension Term shall be at an annual rate determined as set forth below, it
being understood that Base Rent shall be payable in equal monthly installments,
in advance, just as in the case of the Original Lease Term. The Base Rent for
the Extension Term shall be at the greater of (i) the Base Rent at the end of
the First Extension Term or (ii) ninety-five percent (95%) of the then fair
rental value for the Leased Premises for the Second Extension Term, to be
determined as follows: Landlord shall provide Tenant with Landlord's written
designation of what it believes ninety-five percent (95%) of the fair rental
value to be, indicating the Base Rent to be charged for the Second Extension
Term, such written designation to be sent to Tenant within thirty (30) days
after receipt by Landlord of notice of Tenant's exercise of its option with
respect to the Second Extension Term. If Tenant disagrees with Landlord's
designation and if the parties are otherwise unable to agree upon ninety-five
percent (95%) of the fair rental value of the Leased Premises for
40
<PAGE>
the Extension Term, then Tenant may initiate the following arbitration process
to determine ninety-five percent (95%) of fair rental value ("Market Rent") by
sending written notice thereof to Landlord within thirty (30) days after receipt
of Landlord's written designation as to Market Rent. If Tenant fails to initiate
this arbitration process as aforesaid, time being of the essence, then
Landlord's designation of Market Rent (as set forth in Landlord's notice) shall
be conclusive. In order to be effective Tenant's notice to Landlord initiating
the arbitration process shall specify the name and address of the person
designated to act as an appraiser on its behalf. Within fourteen (14) days after
the designation of Tenant's appraiser, Landlord shall give notice to Tenant
specifying the name and address of the person designated to act as an appraiser
on its behalf. If Landlord fails to notify Tenant of the appointment of its
appraiser within the time above specified, then the appointment of the second
appraiser shall be made in the same manner as hereinafter provided for the
appointment of a third appraiser in a case where two appraisers are appointed
hereunder and the parties are unable to agree upon such appointment. The two
appraisers so chosen shall meet within ten (10) days after the second appraiser
is appointed, and if, within fifteen (15) days after the second appraiser is
appointed, the two appraisers shall not agree upon a determination, they shall
together appoint a third appraiser. In the event of their being unable to agree
upon such appointment within fifteen (15) days after the appointment of the
second appraiser, the third appraiser shall be selected by the parties
themselves if they can agree thereon with a further period of fifteen (15) days.
If the parties do not so agree, then either party, on behalf of both and on
notice to the other, may request such appointment by the American Arbitration
Association (or any organization successor thereto) in accordance with its rules
then prevailing.
Each party shall pay the fees and expenses of the one of the two original
appraisers appointed by or for such party, and the fees and expenses of the
third appraiser and all other expenses (not including the attorneys fees,
witness fees and similar expenses of the parties which shall be borne separately
by each of the parties) of the arbitration shall be borne by the parties
equally.
If a third appraiser is chosen as provided above, then such the three
appraisers shall collectively determine the Market Rent as provided in the last
paragraph of this Section and render a written certified report of their
determination to both Landlord and Tenant within fifteen (15) days after
appointment of the third appraiser if such third appraiser is appointed pursuant
to this Section.
Each of the appraisers selected as herein provided shall be real estate
brokers or appraisers and have at least ten (10) years experience in the
leasing and renting of office space in first class office buildings in Middlesex
County. In addition, the third appraiser (if any) shall be an independent party
not affiliated in any way with either Landlord or Tenant.
Each of the three appraisers shall indicate his view of ninety-five
percent (95%) of the fair rental value. The number furthest from the middle
number shall be disregarded and the remaining two numbers shall be averaged.
The resulting average shall be deemed to be ninety-five
41
<PAGE>
percent (95%) of the fair rental value for purposes of this paragraph. If the
middle number is equidistant from the two other numbers, the middle number shall
be deemed to be ninety-five percent (95%) of the fair rental value for the
purposes of this paragraph. Tenant may cancel its exercise of this option to
extend the term of this Lease, if Tenant is dissatisfied with the determination
of Market Rent through the foregoing arbitration process. In order to cancel its
exercise of this option as aforesaid, Tenant must send written notice to
Landlord within seven (7) days after the determination by the appraisers of
Market Rent, and in such notice Tenant must state that it is so canceling its
exercise of this extension option.
20.3 Time is of the essence with respect to the exercise of the option
contained herein. Tenant shall not have the right to give any notice exercising
such option after the expiration of the applicable time limitation set forth
herein, and any notice given after such time limitation purporting to exercise
such option shall be void and of no force or effect.
ARTICLE 21 - RIGHT OF FIRST OFFER
---------------------------------
Provided Tenant is not then in default, beyond the expiration of any
applicable grace periods, under any of the terms, covenants or conditions of the
Lease on Tenant's part to be observed or performed, it is agreed that if, at any
time during the Lease Term, Landlord decides to offer the Property for sale to
any third (3rd) party (which does not include any affiliate of Landlord or any
party controlled by or under common control with Landlord), then Landlord will
provide Tenant with a right of first offer, as follows:
Landlord will provide Tenant with written notice (the "Notice of
Sale") indicating that Landlord plans to offer the Property for sale
and setting forth the terms on which Landlord intends to offer the
Property for sale. The terms which Landlord will communicate to Tenant
shall include at least the purchase price which Landlord intends to
ask, the general time frame during which the sale is to be consummated
and such other terms as Landlord has determined at that time shall be
incorporated into the sales arrangements. Tenant shall have the right
for five (5) business days from its receipt of Landlord's written
Notice of Sale to provide Landlord with written notice ("Tenant's
Notice of Election to Purchase") indicating its election to purchase
the Property on the terms being offered by Landlord. Landlord and
Tenant then will have a second (2nd) five (5) business day period to
execute a Purchase and Sale Agreement formalizing the obligations of
both parties on terms and conditions acceptable to both of them.
If Landlord does not receive Tenant's written Notice of Election of
Purchase within five (5) business days after Tenant's receipt of Landlord's
Notice of Sale, or if both Landlord and Tenant have not both signed a Purchase
and Sale Agreement for the purchase and sale of the Property within ten (10)
business days after Tenant's receipt of Landlord's Notice of Sale, then, in
either of such events, Landlord shall be free to offer the Property to any other
prospective purchasers and to negotiate with them with respect to any and all
terms and conditions of sale (including without limitation the purchase price),
and thereafter Landlord shall be free to sell to any other purchaser the
42
<PAGE>
Property on any terms and conditions, free of any claim by Tenant (provided only
that Landlord's dealings with Tenant had been in good faith).
[END OF PAGE]
43
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[PAGE INTENTIONALLY LEFT BLANK]
44
<PAGE>
EXECUTED as an instrument under seal this ____ day of November, 1997.
WITNESS: LANDLORD:
BISHOP/CLARK ASSOCIATES LIMITED
PARTNERSHIP
By: BISHOP/CLARK CORPORATION
the sole General Partner
____________________ By:_________________________________
Donald A. Levine, President
WITNESS: BISHOP 108 ASSOCIATES LIMITED
PARTNERSHIP
By: BISHOP 108 CORPORATION
the sole General Partner
_____________________ By:_________________________________
Donald A. Levine, President
WITNESS: TENANT:
LIFELINE SYSTEMS, INC.
______________________________
By:_________________________________
Name and Title:
[SIGNATURES CONTINUED ON TO NEXT PAGE]
45
<PAGE>
For the purpose of agreeing to the guaranty set forth in Section 16.10
-------------
only, the undersigned, being limited partners of the Landlord, hereby execute
this Lease under seal and waive all surety ship defenses:
WITNESS:
_________________________ ________________________________________
Donald Levine, individually
WITNESS:
________________________________________
__________________________ Lewis Heafitz, individually
WITNESS:
___________________________ ________________________________________
Neal Shalom, individually
Lifeline Lease D6 November 11, 1997
46
<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
-----------------------
47
<PAGE>
EXHIBIT B - PLAN OF THE LEASED PREMISES
48
<PAGE>
EXHIBIT C - THE WORK
The "Work" is described in and shown on the following:
a. Four page document entitled "Allocation Between Base Building and
Tenant Work" dated August 29, 1997 (the "August 29 Schedule"), a copy
of which is attached hereto;
b. A Memorandum dated November 10, 1997 to Levco, Attn: C. Kibbee from the
architects, Frank DiMella and John Becker (the "Architect's
Memorandum"), a copy of which is attached hereto; and
c. The following plans prepared by DiMella Shaffer Associates, Inc.
("DiMella Shaffer") and referred to in the Architect's Memorandum
described above (collectively, the "Plans") which are incorporated
herein by reference but are not attached:
L-1.0 Guaranteed Site Plan dated November 5, 1997 (hereinafter the
"Guaranteed Site Plan")
L-1.1 Site Plan - Alternate 1 dated November 5, 1997 (hereinafter the
"Alternate 1 Site Plan")
A-1.1 First Floor Plan dated November 10, 1997
A-1.2 Second Floor Plan dated November 10, 1997
A-4.0 Elevations dated October 20, 1997
A-5.0 Clark Street View dated October 20, 1997
Notwithstanding any numbers for floor area or any other dimensions shown on
the Plans or set forth in the August 29th Schedule or the Architect's
Memorandum, the Landlord and the Tenant irrevocable agree that, for the purpose
of this Lease, the size of the Leased Premises is 84,420 square feet of rentable
floor space. Nothing set forth in the Architect's Memorandum shall limit the
portion of the Premises which the Tenant may devote to office use, to the extent
permitted by applicable law.
49
<PAGE>
EXHIBIT D
LIST OF ENVIRONMENTAL REPORTS REFERRED TO IN ARTICLE 18
1. Letter from Donald J. Redpath, Associate Principal of GZA
GeoEnvironmental, Inc., to Mr. Charles Kibbee dated September 19, 1997
2. Report entitled "Level I Environmental Site Assessment and Limited
Subsurface Investigation, 108 Clark Street, Framingham, Massachusetts"
dated July 16, 1996 and prepared by Rizzo Associates, Inc. for Richard
Scherr
3. Report entitled "Environmental Site Assessment 108 Clark Street,
Framingham, Massachusetts" dated January 1987 and prepared by Goldberg-
Zoino Associates, inc. for Pension Benefit Fund, Inc.
50
<PAGE>
EXHIBIT E
GZA SCOPE OF WORK FOR ASBESTOS REMEDIATION
51
<PAGE>
Exhibit 10.45
LIFELINE SYSTEMS, INC.
SECOND AMENDMENT
TO REVOLVING CREDIT AGREEMENT
This Second Amendment (this "Amendment") dated as of December 31, 1997
---------
amends the Revolving Credit Agreement dated as of November 30, 1995, as amended
by the First Amendment to Revolving Credit Agreement dated as of November 29,
1996 (as so amended, the "Credit Agreement"), between LIFELINE SYSTEMS, INC.
----------------
(the "Company") and BANKBOSTON, N.A., (formerly known as THE FIRST NATIONAL BANK
-------
OF BOSTON) (the "Bank"). Capitalized terms used herein but not otherwise
----
defined shall have the meanings assigned to them in the Credit Agreement.
WHEREAS, the Company and the Bank have executed the Credit Agreement
providing for a committed revolving credit facility for borrowings by the
Company in amounts up to $4,000,000; and
WHEREAS, the Bank and the Company wish to amend the Credit Agreement to
extend the maturity of the revolving credit facility, on the terms and
conditions set forth below;
NOW, THEREFORE, the Bank and the Company agree as follows:
Section 1. Amendment to the Credit Agreement. The definition of
--------- ---------------------------------
"Termination Date" set forth in Section 1.1 of the Credit Agreement is hereby
----------------
amended by deleting the date "December 31, 1997" set forth therein and
substituting therefor the date "March 31, 1998".
Section 2. Representations and Warranties. To induce the Bank to enter
--------- ------------------------------
into this Amendment, the Company represents and warrants as follows:
(a) The execution and delivery of this Amendment and the performance of the
Credit Agreement as amended hereby and the transactions contemplated hereby are
within the corporate power and authority of the Company and have been authorized
by all necessary corporate proceedings, and do not and will not (a) require any
consent or approval of the stockholders of the Company, (b) contravene any
provision of the charter documents or by-laws of the Company or any law, rule or
regulation applicable to the Company, (c) contravene any provision of, or
constitute an event of default or event that, but for the requirement that time
elapse or notice be given, or both, would constitute an event of default under,
any other agreement, instrument, order or undertaking binding on the Company, or
(d) result in or require the imposition of any Encumbrance on any of the
properties, assets or rights of the Company.
1
<PAGE>
(b) This Amendment, the Credit Agreement as amended hereby and the Note and
all of their respective terms and provisions are the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms except as limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally, and except
as the remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
(c) The execution and delivery by the Company of this Amendment and the
performance by the Company of the Credit Agreement as amended hereby and the
Note and the transactions contemplated herein and therein do not require any
approval or consent of, or filing or registration with, any governmental or
other agency or authority, or any other party.
Section 3. Conditions to Effectiveness. The effectiveness of this
--------- ---------------------------
Amendment is conditioned on the following:
(a) the Company and the Bank shall each have executed and delivered a
counterpart of this Amendment;
(b) the Company shall have delivered to the Bank a certificate of the Clerk
or an Assistant Clerk of the Company with respect to resolutions of the Board of
Directors of the Company authorizing the execution and delivery of this
Amendment and the performance of the Credit Agreement as amended hereby by the
Company and identifying the officers authorized to execute, deliver and take all
other actions required hereunder and thereunder, and providing specimen
signatures of such officers; provided that this condition shall be satisfied if
such certificate is delivered not later than February 6, 1998;
(c) the representations and warranties contained in Section 2 of this
Amendment and Section IV of the Credit Agreement shall be true and correct in
all material respects as of the date hereof as though made on and as of the date
hereof except representations which speak as to a specific date and changes not
in violation of the Credit Agreement; and
(d) no Default under the Credit Agreement shall have occurred and is
continuing.
Section 4. Miscellaneous.
--------- -------------
(a) On and after the date hereof, each reference in the Credit Agreement to
"this Agreement" or words of like import shall mean and be deemed to be a
reference to the Credit Agreement as amended hereby.
2
<PAGE>
(b) Except as amended and modified hereby, the Credit Agreement is in all
respects ratified and confirmed as of the date hereof, and the terms, covenants
and agreements therein shall remain in full force and effect.
(c) This Amendment and the modifications to the Credit Agreement set forth
herein shall be deemed to be a document executed under seal and shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
(d) This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date and the year first above written.
LIFELINE SYSTEMS, INC.
By: ____________________________________
Title:
BANKBOSTON, N.A.
By: _____________________________________
Title:
3
<PAGE>
Exhibit 10.46
OFFER TO LEASE
PREMISES 1.1 The undersigned
CARETEL INC.
(hereinafter called the "Tenant")
hereby offers to lease from
GRADUATE HOLDINGS LIMITED
and SAMUEL SARICK LIMITED
(hereinafter called the "Landlord")
through J.J. BARNICKE LIMITED, Real Estate Broker, those certain premises
(hereinafter called the "Demised Premises") in the building known as 95 Barber
Green Road, Suite 104 and 105, (the "Building"), together with any other
buildings in the development (the "Complex") in the CITY OF NORTH YORK, PROVINCE
OF ONTARIO, which demised premises are shown outlined in red on Schedule "A",
hereto attached, and which Demised Premises contain an area not to exceed 3,150
square feet rentable.
TERM 2. The Lease shall be for a period of five (5) years computed
from the Lease Commencement Date (as hereinafter defined). The
Lease Commencement Date shall be the latter of 1. The date of the
Landlord's certificate specifying that Lease Commencement work
(as defined in Schedule "B" attached hereto) has been
substantially completed, or 2. January 1, 1995.
RENT 3.1 Yielding and Paying therefor yearly and every year during
the Term hereby granted the following sum of lawful money of
Canada as an annual minimum rental (the "Minimum Rental"),
without deduction, abatement or set-off, together with additional
rental reserved in the Lease:
3.11 The Minimum Rental for the whole term shall be Twelve
Thousand six hundred ($12,600) plus G.S.T. per annum payable
in equal consecutive monthly installments of One thousand
and fifty dollars ($1,050) plus G.S.T., on the first day of
each month during such Period, based on a rate of Four
Dollars ($4.00) per square foot per annum.
3.12 The rental area of the leased premises, and any other area
of the building of which the leased premises forms a part, which
is required to be measured for the purpose of any calculation
pursuant to this Offer, and any lease shall be measured in
accordance with the method set out in the Lease. The decision of
the Landlord's architect shall be final and binding, and the rent
and any other amounts payable by the Tenant to the Landlord shall
be adjusted pursuant to such final area measurement, and shall be
made retroactive to the commencement date.
RENTAL AND
SECURITY
DEPOSIT 4. The Landlord acknowledges receipt of a deposit in the amount
of $2,100 plus 7% G.S.T., representing two months Minimum Rent,
of which the sum of $11,123.50 is to be applied against the last
month's Minimum Rent when the same falls due and the remainder
against the first month's Minimum Rent when the same falls due.
In the event that this Offer is not accepted the deposit shall be
returned to the Tenant without interest or deduction.
1
<PAGE>
Not withstanding the above, the Tenant shall occupy the Leased
Premises totally Rent Free from November 1, 1994 to December 1,
1994 (the "Rent Free Period").
RENEWAL 5. Landlord covenants with Tenant that if Tenant duly and
regularly pays the rent and performs all of the covenants,
provisos and agreements on the part of Tenant to be paid and
performed in the Lease, and provided the Tenant is not then in
default under the terms of the Lease, Landlord, at the expiration
of the Term and upon Tenant's written request, mailed by
registered post, return receipt requested, to, or delivered to,
Landlord and received by Landlord at lease nine (9) months prior
to the expiration of the Term, grant to Tenant a renewal lease of
the Demised Premises on an "as is" basis for a further term of
five (5) years upon the same terms and conditions except as to
further renewal term and except to Minimum Rent, which Minimum
Rent is to be the then fair market Minimum Rent on a net carefree
basis (the "Renewal Minimum Rent") for the Demised Premises at
the commencement of the renewal term. If the parties are unable
to agree as to Renewal Minimum Rent, such Renewal Minimum Rent
shall be determined by arbitration. It is agreed that whether
such Renewal Minimum Rent is agreed upon or determined by
arbitration, such Renewal Minimum Rent shall in no event provide
for a Minimum Rent in an amount less than the Minimum Rent, for
the last year of the Term. Pending agreement of the parties as
to, or as to the determination by arbitration of the Renewal
Minimum Rent, Tenant shall continue to pay the Minimum Rent for
the last year of the Term, and upon agreement or determination by
arbitration as aforesaid shall commence to pay the Renewal
Minimum Rent retroactive to the commencement of the renewal term.
Any underpayments by the Tenant shall be adjusted retroactive to
the commencement of the renewal term.
COMMON
DRIVEWAY
AND
PARKING 6. The Tenant shall have the right at all times with others
entitled thereto (subject to the right of the Landlord from time
to time in its discretion to be reasonably exercised to designate
those parts of the parking areas which are to be utilized by the
Tenant) to use the common driveways and parking areas appurtenant
thereto, provided that the Landlord shall have the right to make
such changes, improvements or alterations as the Landlord may,
from time to time, decide in respect of the common outside areas,
including the right to change the location and layout of the
parking areas.
IMPOSSIBILITY
OF
PERFORMANCE 7. It is understood and agreed that whenever and to the extent
that Landlord shall be unable to fulfill or shall be delayed or
restricted in the fulfillment of any obligation hereunder in
respect of the supply or provision of any service or utility or
by the doing of any work or the making of any repairs by reason
of being unable to obtain the material, goods, equipment, service
or labour required to enable it to fulfill such obligation, or by
reason of any Statute, Law or Order in Council, or any regulation
or Order passed or made pursuant thereto, or by reason of the
Order or Direction of any Administrator, Comptroller, Board,
Governmental Department or Office, or other authority required
thereby, or by reason of any other cause beyond its control,
whether of the foregoing character or not, Landlord shall be
relieved from the fulfillment of such obligation and Tenant shall
not be entitled to compensation of any inconvenience, nuisance or
discomfort thereby occasioned.
USE OF
PREMISES 8. The Demised Premises shall not be used for any purpose other
than: offices and monitoring centre and electronic equipment
maintenance.
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NET LEASE 9. It is the intention of this Offer to Lease that the Lease to
be signed by Tenant shall be a net carefree Lease to Landlord and
without limiting the generality of the foregoing, Tenant shall be
required to pay the following charges and expenses in addition to
Minimum Rent.
a. all realty taxes and all other assessments and duties,
including local improvements, levied against Tenant's
leasehold improvements and the Demised Premises, including
business taxes, capital taxes and value added taxes;
b. it's proportionate share of all realty taxes, an all other
assessments and duties, including local improvements, levied
against the building, or the complex, if applicable, in
which the Building forms a part and the lands adjacent
thereto;
c. all water, gas and electric rates, and insurance premiums
with respect to the Demised Premises;
d. its proportionate share of all costs with respect to the
maintenance, operation, repair, replacement and upkeep of
the Building, or the Complex, if applicable, in which the
Building forms a part and the common areas including,
without limiting the generality of the foregoing, all
insurance placed from time to time by Landlord in connection
therewith together with an administrative fee of fifteen
percent of the aggregate of all such costs, described in
this paragraph 10(d); and
e. all charges for heating and air-conditioning the Demised
Premises (charges will be prorated if the unit serves more
than one premise).
REPAIR 10. Tenant covenants to repair the Demised Premises (reasonable
wear and tear, damage by fire, lightning and tempest and repair
to inherent structural defects in the Demised Premises not caused
or contributed to by Tenant only excepted).
ASSIGNMENT
SUBLET 11. Tenant shall not assign the Lease or sublet or part with
possession of all or part of the Demised Premises without the
prior written consent of Landlord, which consent, subject to
Landlord's right to terminate the Lease, shall not be
unreasonably withheld. There shall be no change in the effective
voting control of Tenant without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.
SIGNS 12. The Landlord shall provide the Tenant with identification
posted on any directory boards in the Building denoting
tenancies. The Landlord will provide the Tenant with the Building
standard suite number on or beside entrance doors. The Tenant
may, upon receiving the Landlord's approval, such approval not
unreasonably withheld, install an identification sign on or
beside its entrance door provided no holes are drilled into the
door. All further signage is subject to the Landlord's consent,
which consent may be unreasonably withheld and subject to
obtaining all municipal consents.
ALTERATIONS 13.1 Tenant shall not undertake any alterations in or to the
Demised Premises or any part thereof without obtaining the prior
written consent of the Landlord which consent shall not be
unreasonably withheld, provided any alterations shall be made by
contractors approved by the Landlord and provided further that
such consent may be withheld if Landlord has not received plans
showing the proposed alterations and requisite permits
authorizing such alterations. No alterations of a structural
nature may be undertaken. Tenant shall forewith pay as additional
rent, all fines, costs and expenses incurred by Landlord in
connection with Tenant's failure to obtain all requisite permits.
13.2 All Tenant's mechanical work to be done by Landlord's
mechanical contractor at Landlord's expense as per Schedule "B".
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13.5 All electrical work that requires access into
Landlord's electrical room shall be completed by Landlord's
electrician at Tenant's expense, provided such costs are
competitive and the work is other than that outlined in
Schedule "B".
WINDOW
COVERINGS 14. In the event the Tenant chooses to place window
coverings upon the interior of the windows of the Demised
Premises, they shall be of such material and style as
approved by Landlord for the entire Building. The window
coverings installed shall remain the property of the
Landlord.
STRUCTURAL
REPAIRS 15. Landlord covenants during the Term of the Lease to
make structural repairs at his own expense save as otherwise
provided, to the exterior walls, foundation and structure of
the Building, or the Complex, if applicable, excluding the
roof of the Building, or the Complex, if applicable, caused
by structural defects or weaknesses. Provided, however, any
structural damage caused or contributed by the misconduct or
negligence of Tenant, its agents, servants, invitees or
those for whom Tenant is at law responsible shall be
repaired by Landlord at the expense of Tenant.
STANDARD LEASE
FORM 16. Tenant and the Indemnifier, if any, shall execute and
Tenant shall deliver to Landlord within fifteen (15) days
after receipt thereof by Tenant, Landlord's standard form of
Lease incorporating the terms herein set forth subject to
reasonable amendments proposed by the Tenant's solicitor.
LANDLORD'S
WORK 17.1 Landlord shall complete the work described in Schedule
"B", attached hereto at Landlord's cost (Landlord's Work at
Landlord's Cost).
17.4 The Tenant will not bring upon the Demised Premises or
any part thereof any machinery, equipment, article or thing
that by reason of its weight, size or use might damage the
floors of the Demised Premises, and that if any damage is
caused to the Demised Premises by any machinery, equipment,
article or thing or by overloading or by any act, neglect or
misuse on the part of the Tenant or any of its servants,
agents or employees or any person having business with the
Tenant, the Tenant will forthwith repair the same or pay to
the Landlord the cost of making good the same.
ROOF OPENING 18. The Tenant shall not install any exhaust hood or
exhaust duct work through the roof of the Leased Premises or
the Development. The Landlord will provide all openings on
the roof of the Leased Premises and structural supports, in
such locations as designated on the Tenant's Plans as
approved by the Landlord for the purpose of the installation
of the Tenant's heating, ventilation and air-conditioning
system, all at tenant's sole cost and expense, without mark-
up, but including any of the Landlord's engineering fees and
costs.
ENTRY BY
LANDLORD 19. The Tenant acknowledges the Landlord's advice that the
Landlord may be maintaining in and about the Demised
Premises, utility meters, sprinkler lines and or riser
stations, electrical and mechanical distribution
installations which may be required in order to service not
only the Demised Premises but other parts of the Building of
which the Demised Premises form a part. In this regard, the
Tenant agrees that it shall be lawful, for the Landlord and
its agents to enter upon the Demised Premises in order to
carry out such repairs to such installations as may be
required and in order to facilitate the utilization of
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such installations for the benefit of tenants occupying
other portions of the building of which the demised premises
form a part.
REGISTRATION 21. Tenant covenants and agrees not to register this Offer
to Lease or notice thereof at any time and, if registered by
Tenant for whatever reason, Landlord shall have the option
to terminate the Agreement resulting from the acceptance of
this Offer to Lease. Tenant shall not register the Lease.
However, Tenant may register a Notice of Lease for the
purpose of registration, provided such Notice of Lease shall
describe the parties, the Demised Premises, the Term of the
Lease and any renewals. Such Notice of Lease shall be
prepared by Tenant's solicitors, and shall be subject to the
prior written approval of Landlord and its solicitors, at
Tenant's expense and shall be registered at Tenant's
expense.
NO
REPRESENTATION 22. It is agreed that there are no covenants,
representations, agreements, warranties or conditions in any
way relating to the subject matter of the Offer to Lease,
whether expressed or implied, collateral or otherwise,
except those set forth herein.
NO
ASSIGNMENT
OF THIS
AGREEMENT 23. The Agreement resulting from the acceptance of this
Offer to Lease shall not be assigned by or otherwise
transferred by Tenant.
TIME OF
ESSENCE 24. Time shall be of the essence.
LANDLORD'S
ACCEPTANCE 25. This Offer shall be irrevocable by Tenant and shall be
open for acceptance by Landlord for two (2) days from the
date of submission hereof, after which time, if not
accepted, this offer shall be null and void and all monies
paid hereunder shall be returned to the Tenant as aforesaid.
26. Schedules A and B form part of this Offer to Lease.
IN WITNESS WHEREOF, the parties have executed and sealed
this Offer.
DATED at North York this 1st day of September, 1994
SIGNED, SEALED AND DELIVERED ) CARETEL INC.
in the presence of: ) per:
)
)
)
) /s/ Leonard Wechsler
-----------------------------------------
) AUTHORIZED SIGNING OFFICER
The Landlord accepts the above Offer to Lease
this 13th day of September, 1994, and agrees to pay J.J. BARNICKE LIMITED a fee
of $6,700.00 plus G.S.T. upon the Tenant taking possession of the Premises.
) GRADUATE HOLDINGS LIMITED
)
)
) (Landlord)
) Per /s/ Sam Young
-----------------------------------------
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AUTHORIZED SIGNING OFFICER
The Tenant acknowledges receipt of a fully executed Offer to Lease this ___ day
of 1994.
CARETEL INC
per:
___________________________________
AUTHORIZED SIGNING OFFICER
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SCHEDULE "A"
This schedule contains a diagram which is the floor plan.
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SCHEDULE "B"
Landlord shall at his own expense perform the following work prior to November
1, 1994:
1. Install 28-ounce commercial grade carpet rated for 10 year use by
manufacturer on all floors except as described in paragraph 2 below.
2. Install VCT tile in workshop, storage, washrooms and vestibule areas.
3. Paint the premises throughout with Tenant's choice of colours.
4. Repair or replace all soiled and broken ceiling tiles and light fixtures
and clean lenses as required.
5. Install vertical blinds on all exterior windows.
6. Install kitchen sink, counter and cupboards as per SCHEDULE "A."
7. Remove electrical distribution panel from present location in Suite 104 and
install inside the Emergency Response Centre ("ERC") subject to review by
our electrician.
8. Construct all walls and supply doors complete with hardware as per
attached preliminary plan (SCHEDULE "A").
9. All walls and floor assemblies of the ERC to be constructed and/or upgraded
to 2-hour fire-rated slab to slab, ceiling 2 1/2" concrete on metal pan, as
is.
10. Install acoustic insulation in workshop wall as noted on SCHEDULE "A.".
11. Walls for the storage room to be constructed on top of the carpeting.
12. Washroom complete with fixtures (2 pc.) to be constructed within ERC and a
six foot counter with cabinets below, next to the washroom.
13. A door leading from expansion office into ERC at the Tenant's option.
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SCHEDULE "C"
MISCELLANEOUS TERMS.
1. See page 1 of offer.
2. The final space plan shall be a revised version of attached Schedule "D,"
such revision to incorporate reasonable changes as proposed by the Tenant's
Architect and as approved by Landlord.
3. The Landlord will not unreasonably withhold its consent if the Tenant
requires the installation of antennae, uninterrupted power supply/
generator, or other equipment and devices necessary to conform to ULC
Standards, to Landlords installation specifications.
4. Landlord to provide 24-hour HVAC to the premises at no additional cost 7
days a week.
5. Tenant to have free access to parking for ten (10) spots.
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Exhibit 10.47
THIS INDENTURE MADE THE 29TH DAY OF JANUARY 1998.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
BETWEEN:
SAMUEL SARICK LIMITED AND
GRADUATE HOLDINGS LIMITED
(hereinafter called the "Landlord")
OF THE FIRST PART;
AND
LIFELINE SYSTEMS (CANADA) INC. AND
LIFELINE SYSTEMS INC.
(hereinafter called the "Tenant")
OF THE SECOND PART.
1. PREMISES
WITNESSETH that in consideration of the rents, covenants and
agreements hereinafter reserved and contained on the part of the Tenant to be
paid, observed and performed, the Landlord does demise and lease unto the Tenant
the Premises, (herein called the "premises"), in the building, (herein called
the "Building"), being municipally known as 95 Barber Greene Road, in the
Borough of North York, comprising approximately 7,822.80 gross square feet of
Rentable Area, being Suite 105 and Suite 112 of the first floor(s) of the
Building as shown outlined in red on the plan attached hereto as Schedule "A".
The exterior face of the exterior wall of the Building is expressly excluded
from the Premises hereby demised.
2. TERM
TO HAVE AND TO HOLD the Premises for and during the Term, (herein
called the "Term") of FIVE (5) years to be computed from the 1st day of April,
1998 and from thenceforth next ensuing and fully to be complete and ended on the
31st day of March, 2003.
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3. RENTAL
The Tenant shall pay from and after the Commencement Date and
throughout the Term, to the Landlord, in lawful money of Canada, without any
prior demand therefor, and without any deduction, abatement, set-off or
compensation whatsoever, as annual minimum Rent (the "Minimum Rent") throughout
the first year of the Term, the sum of Forty-Six Thousand, Nine Hundred and
Thirty-Six Dollars and Eighty Cents ($46,936.80), payable in advance in equal
consecutive monthly instalments of Three Thousand, Nine Hundred and Eleven
Dollars and Forty Cents ($3,911.40); throughout the second year of the Term as
annual Minimum Rent, the sum of Fifty Thousand, Four Hundred and Fifty-Seven
Dollars and Seventy-Six Cents ($50,457.06), payable in equal consecutive monthly
instalments of Four Thousand, Two Hundred and Four Dollars and Seventy-Six Cents
($4,204.76); throughout the third year of the Term as annual minimum rent, the
sum of Fifty-Two thousand, and Twenty-One Dollars and Sixty-Two Cents
($52,021.62), payable in equal consecutive instalments of Four Thousand, Three
Hundred and Thirty-Five Dollars and Fourteen Cents ($4,335.14); throughout the
fourth year of the Term, the sum of Fifty-Three Thousand, Five Hundred and
Eighty-Six Dollars and Eighteen Cents ($53,586.18), payable in equal consecutive
monthly instalments of Four Thousand, Four Hundred and Sixty-Five Dollars and
Fifty-Two Cents ($4,465.52); throughout the fifth year of the term as annual
minimum rent the sum of Fifty-Five Thousand, One Hundred and Fifty Dollars and
Seventy-Four Cents ($55,150.74), payable in equal consecutive monthly
instalments of Four Thousand, Five Hundred and Ninety-Five Dollars and Ninety
Cents ($4,595.90) during the remainder of the Term to the Landlord at Suite 305,
95 Barber Greene Road, Don Mills, Ontario, M3C 2A2 or at such other place as the
Landlord shall hereafter designate, the first of such payments to be made on the
first day of April next. The foregoing rent is based upon an annual rate of Six
Dollars ($6.00) per square foot during the first year of the Term; Six Dollars
and Forty-Five Cents ($6.45) during the second year of the Term; Six Dollars and
Sixty-Five Cents ($6.65) during the third year of the term; Six Dollars and
Eighty-Five Cents ($6.95) during the fourth year of the term; and Seven Dollars
and Five Cents ($7.05) during the remainder of the term of the Rentable Area of
the Premises, and when the Rentable Area of the Premises is calculated by the
Landlord, the rent shall, if necessary, be adjusted accordingly. If the Term
commences on any day other than the first or ends on any day other than the last
day of a month, rent for the fractions of a month at the commencement and at the
end of the Term shall be adjusted pro-rata.
The Landlord acknowledges receipt of Four Thousand, Seven Hundred and Seventy-
Eight Dollars and Eleven Cents ($4,778.11) from the Tenant to be held by the
Landlord as security for the due performance by the Tenant of all its covenants
and obligations on its part herein contained and to be applied to the damages
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resulting from default by the Tenant of any of its covenants and obligations
hereunder or toward the payment or reduction of any claim of the Landlord
against the Tenant.
4. NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease
is a completely carefree net lease to the Landlord, and, except as expressly
herein set out, that the Landlord is not responsible during the Term of the
Lease for any costs, charges, expenses and outlays of any nature whatsoever
arising from or relating to the Leased Premises or the use and occupancy thereof
or to the contents thereof, or the business carried on therein, and the Tenant
shall pay all charges, impositions, costs and expenses of any nature or kind
relating to the Leased Premises, except as expressly herein set out.
5. IN THE LEASE
(a) "Proportionate Share" means the fraction which has as its
numerator the Rentable Area of the Premises in the case of Premises
forming part only of a floor of the Building (the "Additional Area" of
the Premises), and has as its denominator the total Rentable Area of
the Building, whether rented or not, subject only to the adjustments
which follow. The total Rentable Area of the Building shall be
calculated as if the Building were entirely occupied by Tenants
renting full floors. The calculation of the total Rentable Area of the
Building, whether rented or not, shall be determined on completion of
the Building and shall be adjusted from time to time to give effect to
any structural or functional change effecting same. The calculation of
the Rentable Area of the Premises shall be adjusted from time to time
to give effect to any change therein during the Term.
(b) "Rentable Area" in the case of a whole floor of the Building
shall include all area with the outside Building walls and shall be
computed by measuring to the outside surface of the outside Building
walls without deduction for columns and projections necessary to the
building but shall not include stairs and elevators shafts provided by
the Landlord for use in common with other Tenants.
(c) Rentable Area in the case of a part of the floor of the Building
shall include all area occupied by the Tenant and shall be computed by
measuring from the outside surface of the outside Building walls to
the outside surface of corridors or other permanent
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partitions and to the centre of partitions which separate the area
occupied by the Tenant from adjoining Rentable Areas without deduction
for columns and projections necessary to the Building but shall not
include stairs and elevator shafts supplied by the Landlord for use in
common with other Tenants within the area occupied. The Rentable Area
of the Premises (as calculated in accordance with the foregoing
formula shall be increased (such increase being referred to in this
lease as the "Additional Area") by the fraction of the total area of
the corridors, elevator lobbies, service elevator lobbies, toilets,
air conditioning rooms, fan rooms, janitors' closets, telephone and
electrical closets and other closets serving the Premises in common
with other Premises, if any, on such floor, which fraction has as its
numerator the Rentable Area for the Premises (calculated in accordance
with the foregoing formula) and has as its denominator the sum of the
Rentable Areas (prior to the inclusion of the additional area) of such
floor. The lobbies and entrances on the main floor and any other
floor(s) and subservice floors used in common by Tenants shall be
excluded from the foregoing calculations. The "Additional Area" shall
not be utilized in determining the Rentable Area of the Premises for
purposes of establishing basic annual rent under the provisions of
Paragraph 3 hereof.
(d) In determining the Proportionate Share, the Net Rentable Area,
the Rentable Area or the total Rentable Area of the Building, the
Landlord's architect's certificate in that regard shall be final and
binding upon the parties hereto.
6. TAXES AND OPERATING COSTS
(a) Taxes Payable by the Tenant
---------------------------
(i) In this paragraph 6(b), and elsewhere throughout this lease,
"Taxes" means all taxes, rates, duties, levies and assessments
whatsoever whether municipal, parliamentary or otherwise, charged
upon the Building and the land appurtenant thereto or upon the
Landlord on account thereof including municipal taxes for local
improvements but excluding the amount by which Separate School
taxes (if any should be payable) exceed the amounts which would
have been payable for school taxes if no assessment for Separate
Schools had been made an excluding any tax which has been
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attracted by Tenants' improvements and excluding any taxes such
as corporate income, profit and excess profit taxes assessed upon
the income of the Landlord and shall also include any and all
taxes which may in future be levied in lieu of Tax as
hereinbefore defined;
(ii) The Tenant shall pay monthly in advance, or otherwise as the
Landlord directs, in accordance with paragraph 7 and as
additional rent, the Tenant's Proportionate Share of all Taxes.
(b) Tenant's Proportionate Share of Operating Costs
-----------------------------------------------
(i) In this paragraph 6(b), and elsewhere throughout this Lease,
"Operating Costs" means the total amount paid or incurred
regardless of when payable, whether by the Landlord or others on
behalf of the landlord, for operating and maintaining the
Building as a first-class office building, so as to give it high
character and distinction and shall include, without limited the
generality of the foregoing, all monies paid or incurred to
persons, firms, companies, or corporations employed in the
maintenance of the Building (including cost of janitorial
services for offices), all costs of repairs required for such
maintenance, heating costs including the purchase of fuel, gas
and steam for heating or other purposes, and the cost of making
repairs to the heating equipment, elevator maintenance costs, the
cost of providing hot and cold water, the cost of providing
electricity, the cost of washroom supplies, the cost of air
conditioning and window cleaning, fire, casualty, liability and
other insurance, telephone and other public utility costs, the
cost of service contracts with independent contractors,
remuneration to managing agents, the cost of audit fees for the
calculation of rental adjustments under this lease, the total
cost of operating, maintaining, cleaning, supervising, policing,
repairing and replacing the exterior parking areas, common areas,
landscaped areas and facilities, salaries, expenses and costs
applicable to the capital cost or replacement of boilers, heating
apparatus, air conditioning equipment, elevators, elevator
machinery and all other mechanical equipment within the Building
or appurtenances thereto, and all other expenses paid or incurred
by the Landlord in connection with the maintenance, operation and
management of the
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Building and the services connected therewith.
The tenant shall pay their proportionate share of all roof
repairs, but will not be responsible for any share of a total one
hundred percent roof replacement.
(ii) The Tenant shall pay monthly in advance, or otherwise as the
Landlord directs, in accordance with paragraph 7 and as
additional rent, the Tenant's Proportionate Share of Operating
Costs.
7. PAYMENT OF TAXES AND OPERATING COSTS
(a) The amounts payable by the Tenant pursuance to paragraph 6(a)(ii)
and paragraph 6(b)(ii) hereof may be estimated by the Landlord for
such period as the Landlord determines from time to time, and the
Tenant agrees to pay to the Landlord the Tenant's Proportionate Share
as so estimated of such amounts in monthly instalments in advance
during the period as additional rent. Notwithstanding the foregoing,
as soon as bills for all or any portion of the amounts so estimated
are received, the Landlord may bill the Tenant for the Tenant's
Proportionate Share thereof and the Tenant shall pay the Landlord the
amount so billed (less all amounts previously paid by the Tenant on
the basis of the Landlord's estimates) as additional rent within ten
(10) days following receipt by the Tenant of written notice of the
amount owing, if any.
(b) Within a reasonable period of time after the end of the period
for which the estimated payments have been made, the Landlord shall
determine and advise the Tenant of the Taxes and Operating Costs for
such period, together with the calculation of the Tenant's
Proportionate Share of such amounts and costs, and if necessary, and
adjustment shall be made between the parties in the following manner.
If the amount the Tenant has paid is less than the amounts due, the
Tenant shall pay the deficiency to the Landlord as additional rent
within ten (10) days following the receipt by the Tenant of notice of
the amount of the deficiency. If the amount the Tenant has paid is
greater than the amounts due, the Landlord shall refund the excess to
the Tenant within a reasonable period for the time after the
Landlord's determination.
(c) If the term of this lease shall commence, or shall be determined
on a day other than the first or last day
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of the period from time to time adopted by the Landlord in accordance
with paragraph 7(a), The Tenant shall be liable only for a portion of
the amount of the Tenant's Proportionate Share of Taxes and Operating
costs for such period, determined by a per diem basis by dividing the
amount of the Tenant's Proportionate Share of Taxes and Operating
Costs for such period by 365 and multiplying the quotient so obtained
by the number of days in the term falling in the period in questions.
(d) That the Tenant will reimburse the Landlord for each rental year
and at the times and in the manner specified by the Landlord, the
Tenant's Proportionate Share (as hereinafter defined) of the
Landlord's Capital Taxes related to the Building and the full amount
of any taxes in the nature of the business transfer tax, value added
tax, sales tax or any other similar tax levied, rated, charged or
assessed in respect of the Minimum Rent and additional rent payable by
the Tenant under this Lease or in respect of the rental of space by
the Tenant under this Lease. It is agreed and understood that the
Tenant shall reimburse the Landlord for such taxes at the full tax
rate applicable from time to time in respect of the Minimum Rent and
additional rent or the rental of space, without reference to any tax
credits or exemptions available to the Landlord.
8. TENANT'S COVENANTS
(a) Payment of Rent
---------------
to pay rent;
(b) Electric Charges
----------------
to pay the total cost of any replacement of any electrical
lightbulbs, tubes, starters, and ballasts in the Premises. (Provided
that the Landlord shall have the exclusive right to attend to any such
replacement as aforementioned, but at the cost of the Tenant as
aforesaid);
(c) Payment of Business Tax, etc.
-----------------------------
in each and every year during the Term to pay as additional rent
and discharge within twenty (20) days after same shall become due and
payable all Taxes, rates, duties and assessments and other charges
that
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may be levied, rated, charged, or assessed against or in respect of or
attributable by the Landlord to all improvements, equipment and
facilities of the Tenant on or in the Premises (whether installed by
the Tenant or the Owner or Landlord on behalf of the Tenant) and every
Tax and licence fee in respect of any and every business carried on
thereof or therein in respect of the use or occupancy thereof by the
Tenant (and any and every sub-tenant or licensee), whether such Taxes,
rates, duties, assessments and licence fees are charged by any
municipal, parliamentary school or other body during the Term hereby
demised, and will indemnify and keep indemnified the Landlord from and
against payment of all loss, costs, charges and expenses occasioned
by, or arising from any and all such Taxes, rates, duties,
assessments, licence fees and any and all Taxes which may in future be
levied in lieu of such Taxes, and any such loss, costs, charges and
expenses suffered by the Landlord may be collected by the Landlord as
rent with all rights of distress and otherwise as reserved to the
Landlord in respect of rent in arrears. The Tenant further covenants
and agrees that upon written request of the Landlord the Tenant will
promptly deliver to it for inspection receipts for payment of all
Taxes, rates, duties, assessments and other charges in respect of all
improvements, equipment and facilities of the Tenant on or in the
Premises which were due and payable up to one (1) month prior to such
request, and in any event will furnish to the Landlord if requested by
the Landlord evidence of payments satisfactory to the Landlord before
the 21st day of January in each year covering payments for the
preceding year. If the Tenant or any subtenant or licensee of the
Tenant shall elect to have the Premises or any part thereof assessed
for separate school Tax is ascertained, any amount by which the amount
of the separate school taxes exceed the amount with would have been
payable for school Taxes had such election not been made;
(d) and to repair, reasonable wear and tear and damage by fire,
lightning and tempest only excepted, and that the Landlord may enter
and view the state of repair and that the Tenant will repair according
to notice in writing, reasonable wear and tear and damage by fire,
lightning and tempest only excepted; and that the Tenant will leave
the Premises in good repair, reasonable wear and tear and damage by
fire, lightning and tempest only excepted; provided that if the Tenant
neglects to make such repairs within a reasonable time after notice,
the landlord may, at its option, make such repairs at the expense of
the Tenant, and in any
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and every such case the Tenant covenants with the Landlord to pay to
the Landlord forthwith as additional rent, all sums which the Landlord
may have expended in making such repairs, and shall not have
previously received from the Tenant; and provided further that the
making of any repairs by the Landlord shall not relieve the Tenant
from the obligation to repair;
(e) Repair Where Tenant At Fault
----------------------------
if the Building,including the Premises, the elevators,boilers,
engines, pipes and other apparatus (or any of them) used for the
purpose of heating or air-conditioning the Building or operating the
elevators, or if the water pipes, drainage pipes, electric lighting or
other equipment of the Building or the roof or outside walls of the
Building get out of repair or become damaged or destroyed through the
negligence, carelessness or misuse of the Tenant, its servants,
agents, employees or anyone permitted by it to be in the Building, or
through it or them in any way stopping up or injuring the heating
apparatus, elevators, water pipes, drainage pipes or other equipment
or part of the building, the expense of the necessary repairs,
replacements or alterations shall be borne by the Tenant who shall pay
the same to the Landlord forthwith on demand;
(f) Assigning or Subletting
-----------------------
and will not assign or sublet without leave; provided that prior
to the Tenant entering into any Agreement to assign or sublet it shall
notify the Landlord in writing of its intention to do so and shall
request the Landlord's consent to such assignment or subletting and
the Landlord shall then have the right exercisable within thirty (30)
days after such notice to cancel and terminate this lease if the
request is to assign or sublet all of the Premises or, if the request
is to sublet a portion of the Premises only, the Landlord shall have
the right to cancel and terminate this lease with respect to such
portion and the rent payable by the Tenant under this lease shall be
abated proportionately. If the Landlord so exercises such right, the
Tenant shall surrender possession of the entire Premises or the
portion which is the subject of the right, as the case may be not less
than sixty (60) days and not more than one hundred and twenty (120)
days following the Landlord's notice of exercise of its right
hereunder in accordance with all the provisions of this lease relating
to the surrender of the premises
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at the expiration of the Term. If the Landlord shall not exercise its
right to cancel this lease as hereinbefore set forth then the
Landlord's consent to such request shall not be unreasonably withheld.
In no event shall any assignment or subletting to which the Landlord
has consented release or relieve the Tenant from its obligations fully
to perform all of the Terms, covenants, and conditions of this lease;
If the Tenant intends to effect a transfer of all or any part of the
Leased Premises or this Lease, in whole or in part, or of any estate
or interest hereunder, then and so often as such event shall occur,
the Tenant shall give prior written notice to the Landlord of such
intent, specifying therein the name of the proposed transferee and
shall provide such information with respect thereto, including,
without limitation, information concerning the principals thereof and
as to any credit, financial or business information relating to the
proposed transferee as the Landlord requires, and the Landlord shall,
within fifteen (15) days thereafter, notify the Tenant in writing
either, that (a) it consents or does not consent to the transfer, or
(b) it elects to cancel this Lease in preference to the giving of such
consent. If the Landlord elects to cancel this Lease, as aforesaid,
the Tenant shall notify the Landlord in writing within fifteen (15)
days thereafter of the Tenant's intention either to refrain from such
transfer or to accept the cancellation of this Lease. If the Tenant
fails to deliver such notice within such period of fifteen (15) days,
this Lease will thereby be terminated upon expiration of the said
fifteen (15) day period. If the Tenant advises the Landlord it intends
to refrain from such transfer, then, the Landlord's right to cancel
this Lease as aforesaid shall become null and void in such instance.
Notwithstanding the foregoing, the Landlord's right to terminate shall
not apply in connection with an assignment or subletting to any entity
which controls, is controlled by or is under common control with the
Tenant, or to any successor in connection with a corporate
reorganization or sale of all or substantially of the Tenant's stock
or assets.
(g) Rules and Regulations
---------------------
that the Tenant and its employees and all persons visiting or
doing business with them on the Premises shall be bound by and shall
observe and perform the Rules and Regulations attached to this lease
and any
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further and other reasonable Rules and Regulations made hereafter by
the Landlord of which notice in writing shall be given to the Tenant
and all such Rules and Regulations shall be deemed to be incorporated
in and form part of this lease;
(h) that:
(i) the Premises will be used only for the purpose of offices,
twenty-four hour monitoring centre and electronic equipment
maintenance and storage and for no other purpose; provided the
Tenant in the use and occupation of the demised Premises and in
the prosecution or conduct of any business therein shall comply
with all requirements of all laws, orders, ordinances, rules and
regulations of any governmental authority and with any direction
or certificate of occupancy issued pursuant to any law by any
public officer or officers; the Premises will not be used or
caused or permitted to be used for the purpose of any bankrupt,
liquidation or auction sale; and that the Tenant will not carry
on or permit to be carried on therein any other trade or
business, and that the Tenant will not do or omit or permit to be
done or omitted upon the Premises anything which shall cause the
rate of insurance upon the Building to be increased and that if
the rate of insurance on the Building shall be increased by
reason of the use made of the Premises or by reason of anything
done or omitted or permitted to be done or omitted by the Tenant
or by anyone permitted by the Tenant to be upon the Premises, the
Tenant will pay to the Landlord the amount of such increase; and
(ii) if any insurance policy upon the Building shall be cancelled
by the insurer by reason of the use or occupation of the Premises
or any part thereof by the Tenant or by any assignee or subtenant
of the Tenant or by anyone permitted by the Tenant to be upon the
Premises the Landlord may at its option determine this lease
forthwith by leaving upon the Premises notice in writing of its
intention so to do and thereupon rent and any other payments for
which the Tenant is liable under this lease shall be apportioned
and paid in full to the date of such determination and the Tenant
shall immediately deliver up possession of the Premises to the
Landlord and the Landlord may re-enter and take possession of the
same;
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(i) Observance of Law
-----------------
to comply with all provisions of law including without limitation
federal and provincial legislative enactments, Building By-laws, and
any other governmental or municipal regulations which relate to the
partitioning, equipment, operation and use of the leased Premises, and
to the making of any repairs, replacements, alterations, additions,
changes, substitutions or improvements of or to the Premises. And to
comply with all police, fire and sanitary regulations imposed by any
federal, provincial or municipal authorities or made by fire insurance
underwriters, and to observe and obey all governmental and municipal
regulations and other requirements governing the conduct of any
business conducted in the Premises.
(j) Waste and Nuisance
------------------
not to do or suffer any waste, or damage, disfiguration or injury
to the Premises or the fixtures and equipment thereof permit or suffer
any overloading of the floors thereof; and not to use or permit to be
used any part of the Premises for any dangerous, noxious or offensive
trade or business and not to cause or maintain any nuisance in, at or
on the Premises;
(k) Entry by Landlord
-----------------
to permit the Landlord, its servants or agents to enter upon the
Premises at any time and from time to time for the purpose of
inspecting and making repairs, alterations or improvements to the
Premises or to the Building, and Tenant shall not be entitled to
compensation for any inconvenience, nuisance or discomfort occasioned
thereby;
(l) Indemnification of Landlord
---------------------------
the Tenant will indemnify and save harmless the Landlord from any
and all liabilities, fines, suits, claims, demands, costs and actions
of any kind or nature whatsoever to which the Landlord shall or may
become liable for, or suffer by reason of any branch violation or non-
performance by the Tenant of any covenant, term or provision hereof,
or by reason of any injury, loss, damage or death resulting from,
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occasioned to or suffered by any person or persons, or any property by
reason of any act, neglect or default on the part of the Tenant, or
any of its agents, customers, employees, servants, contractors,
licensees or invitees, in or about the Premises or any part thereof;
such indemnification in respect of any such breach, violation, non-
performance, damage to property loss, injury or death occurring during
the term of this lease shall survive any termination of this lease,
anything in this lease to the contrary notwithstanding.
(m) Exhibiting Premises
-------------------
to permit the Landlord or its agents to exhibit the Premises to
prospective Tenants during normal business hours of the last twelve
months of the Term;
(n) Alterations, etc.
-----------------
that the Tenant will not make or erect in or to the Premises any
installations, alterations, additions or partitions without submitting
plans and specifications to the Landlord and obtaining the landlord's
prior written consent in each instance; such work shall if the
landlord so elects be performed by employees of or contractors
designated by the Landlord; in the absence of such election, such work
may be performed with the Landlord's consent in writing given prior to
letting of contract, by contractors engaged by the Tenant, but in each
case only under written contract approved in writing by the Landlord
and subject to all conditions which the Landlord may impose; the
Tenant shall submit to the landlord's supervision over construction
and promptly pay to the Landlord or the tenant's contractors as the
case may be, when due, the cost of all such work and of all materials,
labour and services involved therein and of all decoration and all
changes in the Building, its equipment or services, necessitated
thereby. Notwithstanding anything herein contained, the landlord may
require that the Tenant upon expiration of the Term shall restore the
Premises to the condition they were in previous to such alterations
and additions. Without limiting the generality of any of the
foregoing, any work performed by or for the Tenant shall be performed
by competent workmen whose trade union affiliations are not
incompatible with those of any workmen who may be employed in the
Building by the Landlord, its contractors or subcontractors;
(o) Liens
-----
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if any Mechanic's or other liens or Order for the payment of
money shall be filed against the Premises by reason of, or arising out
of any labour or material, work or service furnished to the Tenant or
to anyone claiming through the Tenant, the Tenant shall, within
fifteen (15) days after notice to the Tenant of the filing thereof,
cause the same to be discharged by bonding, deposit, payment, Court
Order or otherwise. The Tenant shall defend all suits to enforce such
lien or Order whether against the Tenant or the Landlord at the
Tenant's own expense. The Tenant hereby indemnifies the Landlord
against any expense or damage as a result of such lien or Order.
(p) Interior Walls
--------------
that the Tenant will not deface or mark any part of the said
Building and Will not permit any hole to be drilled or made or nails,
screws, hooks or spikes to be driven in the interior walls, doors or
floors or stone or brick work of the said Building or any
appurtenances thereof without the written consent of the Landlord;
(q) Signs
-----
that the Tenant will not paint, place, affix, inscribe or display
on any of the windows of the Building, or on any part of the outside
of the said Building whatever, or inside of the said Building, any
sign, picture, direction, lettering, advertisement or notice without
the written consent of the Landlord. The Landlord will prescribe a
uniform pattern of identification signs for Tenants to be placed on
the outside of doors leading into the Premises of Tenants of part
floors. The Tenant on ceasing to be the Tenant of the Premises will,
before leaving them, cause any sign, advertisement or notice as
aforesaid to be removed or obliterated at its own expense and in a
workmanlike manner. The Tenant shall be entitled to have its name show
upon the directory board of the Building but the Landlord shall in its
sole discretion design the style of such identification and allocate
the space on the directory board for each Tenant;
(r) Name of Building
----------------
not to refer to the Building by any name other than that
designated from time to time by the Landlord nor use the name of the
Building for any purpose other than that of the business address of
the Tenant;
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(s) Glass
-----
the Tenant shall pay the cost of replacement with as good quality
and size of any glass broken on the Premises during the continuance of
this lease, unless such breakage is not the result of any act of
contractors, licensees or invitees;
(t) Certificates
------------
the Tenant agrees that it will at any time and from time to time
upon not less than ten (10) days' prior notice executed and deliver to
the Landlord a statement in writing certifying that this lease is
unmodified and in full force and effect (or, if modified stating the
modifications and that the same is in full force and effect as
modified), the amount of the annual rental then being paid hereunder,
the dates to which the same, by instalments or otherwise, and other
charges hereunder have been paid, and whether or not there is any
existing default on the part of the Landlord of which the Tenant has
notice.
9. QUIET ENJOYMENT
THE LANDLORD covenants with the Tenant for quiet enjoyment.
10. LANDLORD COVENANTS
THE LANDLORD further covenants with the Tenant as follows:
(a) Heating and Air Conditioning
----------------------------
to heat and/or air condition the Premises with heating and air
conditioning equipment or appliances in such manner as to keep the
Premises reasonably warm and air conditioned, as the case may be, for
the reasonable and comfortable use thereof by the said Tenant, its
employees, servants and agents, 24 hours a day 7 days a week, but in
case the boilers, engines, pipes or other apparatus or any of them
used in effecting the heating and/or air conditioning of the said
Premises at any time become incapable of heating and/or air
conditioning the said Premises as aforesaid or be damaged or
destroyed, the Landlord shall have a reasonable time within which to
repair such damage or
15
<PAGE>
replace such boilers, engines, pipes or apparatus or any of them, and
the Landlord shall replace or repair the said boilers, engines pipes
or other apparatus with reasonable speed. The consequential damages or
for damages for personal discomfort or illness by reason of the breach
or this covenant;
(b) Elevator
--------
to furnish, except when repairs are being made, passenger
elevator service during normal business hours and limited elevator
service at other times; operator less automatic elevator service, if
made available, shall be deemed "elevator service" within the meaning
of this paragraph; and to permit the Tenant and the employees of the
Tenant to have free use of such elevator service in common with others
but the Tenant and such employees and all other persons using the same
shall do so at their sole risk and under no circumstances shall the
Landlord be held responsible for any damage or injury happening to any
person while using the same or occasioned to any person by any
elevator or any of its appurtenances;
(c) Access
------
to permit the Tenant and the employees of the Tenant and all
persons lawfully requiring communication with them to have the use at
all reasonable times in common with others of the main entrance and
stairways and corridors leading to the Premises;
(d) Washrooms
---------
to permit the Tenant and the employees of the Tenant in common
with others entitled thereto to use the washrooms in the Building on
the floor(s) in which the Premises are situated;
(e) Janitor Services
----------------
to cause when reasonably necessary from time to time the floors
of the Premises to be swept and cleaned and the desks, tables and
other furniture of the Tenant to be dusted; and to cause when
reasonably necessary from time to time, but not more than once in
every two month period, the windows of the Premises to be washed, but
with the exception of the obligation to cause such work to be done,
the Landlord shall not be responsible for any act of omission or
commission on the part of the person or persons employed to perform
such work;
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<PAGE>
such work shall be done at the Landlord's direction and without
interference by the Tenant, its servants or employees; the Tenant
agrees that any such authorized representative shall have free access
to the Premises;
11. FIXTURES
PROVIDED that the Tenant may remove its fixtures if all rent due or to
become due is fully paid; provided further, however, that all installations,
alterations, additions, partitions and fixtures other than trade or Tenant's
fixtures in or upon the Premises, whether placed there by the Tenant or the
Landlord, shall be the Landlord's property upon the termination of this Lease
without compensation therefor to the Tenant and shall not be removed from the
Premises at any time either during or after the Term. Notwithstanding anything
herein contained the landlord shall be under no obligations to repair or
maintain the Tenant's installations, alterations, additions, partitions and
fixtures or anything in the nature of a leasehold improvement made or installed
by the tenant; and further notwithstanding anything herein contained the
Landlord shall have the right upon the termination of this lease by affluxion of
time or otherwise to require the Tenant to remove its installations,
alterations, additions, partitions and fixtures or anything in the nature of a
leasehold improvement made or installed by the Tenant and to make good any
damage caused to the Premises by such installation or removal.
IT IS UNDERSTOOD AND AGREED that the Landlord will not unreasonably
withhold its consent if the Tenant requires the installation of antennae,
uninterrupted power supplies/generators or other equipment and devices necessary
to conform to ULC or other standards for the effective operation of its
business, subject to the Landlord's reasonable installation specifications, all
at the Tenants cost including any engineering or other costs incurred by the
Landlord.
12. FIRE
PROVIDED, and it is hereby expressly agreed that if and whenever
during the Term hereby demised the Building of which the Premises form a part
shall be destroyed or damaged by fire, lightning or tempest, or any of the
perils normally insured against under the provisions of standard extended
coverage fire insurance policies, then, and in every such event:
(a) If the damage or destruction of the building of which the
Premises form a part renders seventy-five percent (75%) or more of the
said Building wholly unfit
17
<PAGE>
for occupancy, the Landlord may, at its option, terminate this lease
by giving to the Tenant notice in writing of such termination, in
which event, this lease and the Term hereby demised shall cease and be
at an end as of the date of such destruction or damage, and the rent
and all other payments for which the Tenant is liable under the Terms
of this lease shall be apportioned and paid in full to the date of
such destruction or damage.
(b) If the damage or destruction to the said Building is such that
the portion of the Building hereby demised is rendered wholly unfit
for occupancy or it is impossible or unsafe to use and occupy it an if
in either event the damage, in the opinion of the Landlord, to be
given to the Tenant within twenty-five (25) days of the happening of
such damage or destruction, cannot be repaired with reasonable
diligence within one hundred and twenty (120) days from the happening
of such damage or destruction, then either the Landlord or the Tenant
may, within five (5) days next succeeding the giving of the Landlord's
opinion as aforesaid terminate this lease by giving to the other
notice in writing of such termination, in which even this lease and
the Term hereby demised shall cease and be at an end as of the date of
such destruction or damage and the rent and all other payments for
which the Tenant is liable under the terms of this lease shall be
apportioned and paid in full to the date of such destruction or
damage; in the event that neither the Landlord nor the Tenant so
terminate this lease, then the Landlord shall repair the said Building
with all reasonable speed and the rent hereby reserved shall abate
from the date of the happening of the damage until the damage shall be
made good to the extent of enabling the Tenant to use and occupy the
Premises;
(c) If the damage be such that the portion of the said Building
hereby demised is wholly unfit for occupancy, or if it is impossible
or unsafe to use or occupy it but if in either event the damage, in
the opinion of the Landlord, to be given to the Tenant within twenty-
five (25) days from the happening of such damage, can be repaired with
reasonable diligence within one hundred and twenty (120) days from the
happening of such damage, then the rent hereby reserved shall abate
from the date of the happening of such damage until the damage shall
be made good to the extent of enabling the Tenant to use and occupy
the Premises and the Landlord shall repair the damage with all
reasonable speed.
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<PAGE>
(d) If in the opinion of the Landlord the said damage can be made
good as aforesaid within one hundred and twenty (120) days of the
happening of such destruction or damage and the damage is such that
the portion of the Building demised is capable of being partially used
for the purposes for which it is hereby demised, then until such
damage has been repaired, the rent shall abate in the proportion that
the part of the portion of the Building demised is rendered unfit for
occupancy bears to the whole of the said portion of the Building
demised and the Landlord shall repair the damage with all reasonable
speed.
13. PUBLIC LIABILITY
That the Landlord shall not in any event whatsoever be liable or
responsible in any way for any personal injury or death that may be suffered or
sustained by the Tenant or any employee of the Tenant or any other person who
may be upon the Premises or for any loss or damage or injury to any property
belonging to the Tenant or to its employees or to any other person while such
property is on the Premises and, in particular, (but without limiting the
generality of the foregoing) the Landlord shall not be liable for any damage to
any such property caused by steam, water, rain or snow which may leak into,
issue or flow from any part of the said building or adjoining premises or from
the water, steam, sprinkler or drainage pipes or plumbing works of the same or
from any other place or quarter or for any damage caused by or attributable to
the condition or arrangement of any electrical or other wiring or for any damage
by anything done or omitted to be done by any Tenant.
14. IMPOSSIBILITY OF PERFORMANCE
It is understood and agreed that whenever and to the extent that the
Landlord shall be unable to fulfil, or shall be delayed or restricted in the
fulfilment of any obligation hereunder in respect of the supply or provision of
any service or utility or the doing of any work or the making of any repairs by
reason of being unable to obtain the material goods, equipment, service, utility
or labour required to enable it to fulfil such obligation or by reason of any
statute, law or order-in-council or any regulation or order passed or made
pursuant thereto or by reason of the order or direction of any administrator,
controller or board, or any governmental department or officer or other
authority, or by reason of not being able to obtain any permission or authority
required thereby, or by reason of any other cause beyond its control whether of
the foregoing character or not, the
19
<PAGE>
Landlord shall be relieved from the fulfilment of such obligation and the Tenant
shall not be entitled to compensation for any inconvenience, nuisance or
discomfort thereby occasioned.
15. DEFAULT OF TENANT
PROVIDED and it is hereby expressly agreed that if an whenever the
rent hereby reserved or any part thereof shall not be paid on the day appointed
for payment thereof, whether lawfully demanded or not, or in case of breach or
non-observance or non-performance of any of the covenants, agreements, provisos,
conditions or Rules and Regulations on the part of the Tenant to be kept,
observed or performed, or in case the Premises shall be vacated or remain
unoccupied for fifteen (15) days or in case the Term shall be taken in execution
or attachment for any cause whatever, then and in every such case, it shall be
lawful for the Landlord thereafter to enter into and upon the Premises or any
part thereof in the name of the whole and the same to have again, repossess and
enjoy as of its former estate, anything in this lease contained to the contrary
notwithstanding other than proviso to this paragraph 15: PROVIDED that
notwithstanding anything to the contrary this paragraph 15 contained, the
Landlord shall not at any time have the right to re-enter and forfeit this Lease
by reason of the Tenant's default in the payment of the rent reserved by this
Lease, unless and until the Landlord shall have given to the tenant at lease
five (5) business days written notice of its intention so to do an setting forth
the default complained of and the Tenant shall have the right during such five
(5) business days to cure any such default in payment of rent.
16. BANKRUPTCY, ETC.
PROVIDED FURTHER that in case without the written consent of the
Landlord the Premises shall be used by any other person than the Tenant or for
any other purpose than that for which the same were let or in case the Termor
any of the goods and chattels of the Tenant shall be at any time seized in
execution or attachment by any creditor of the Tenant or the Tenant shall make
any assignment for the benefit of the creditors or any bulk sale or become
bankrupt or insolvent or take the benefit of any Act now or hereafter in force
for bankrupt or insolvent debtors, or, if the Tenant is a corporation and any
order shall be made for the winding-up of the Tenant, or other terminations of
the corporate existence of the Tenant, then in any such case this Lease shall,
at the option of the Landlord cease and determine and the Term shall immediately
become forfeited and void and the then current month's rent and the next ensuing
three (3) months' rent shall immediately become due and be paid and the Landlord
may re-enter and take possession of the Premises as though the Tenant or other
20
<PAGE>
occupant(s) of the Premises was or were holding over after the expiration of the
Term without any right whatsoever.
17. DISTRESS
The Tenant waives and renounces the benefit of any present or future
statute taking away or limiting the Landlord's right of distress, and covenants
and agrees that notwithstanding any such statute none of the goods and chattels
of the Tenant on the Premises at any time during the Term shall be exempt from
levy by distress for rent in arrears.
18. RIGHT OF RE-ENTRY
The Tenant further covenants and agrees that on the Landlord becoming
entitled to re-enter upon the Premises under any of the provisions of this
Lease, the Landlord, in addition to all others rights, shall have the right to
enter the Premises as the agent of the Tenant either by force or otherwise,
without being liable for any prosecution therefor and to relet the Premises as
the agent of the Tenant, and to receive the rent therefore and as the agent of
the Tenant to take possession of any furniture or other property on the Premises
and to sell the same at public or private sale without notice and to apply the
proceeds of such sale and any rent derived from re-letting the Premises upon
account of the rent under this Lease, and the Tenant shall be liable to the
Landlord for the deficiency, if any.
19. RIGHT OF TERMINATION
The Tenant further covenants and agrees that on the Landlord becoming
entitled to re-enter upon the Premises under any of the provisions of this
Lease, the Landlord, in addition to all other rights, shall have the right to
determine forthwith this lease and the Term by leaving upon the Premise notice
in writing of its intention so to do, and thereupon rent and any other payments
for which the Tenant is liable under this Lease shall be computed, apportioned
and paid in full to the date of such determination of this Lease, and the Tenant
shall immediately deliver up possession of the Premises to the Landlord, and the
Landlord may re-enter and take possession of the same.
20. NON-WAIVER
No condoning, excusing or overlooking by the Landlord of any default,
breach or non-observance by the Tenant at any time or times in respect of any
covenant, proviso or condition herein
21
<PAGE>
contained shall operate as a waiver of the Landlord rights hereunder in respect
of any continuing or subsequent default, breach or non-observance, or so as to
defeat or affect in any way the right of the Landlord herein in respect of any
such continuing or subsequent default or breach, and no waiver shall be inferred
from or implied by anything done or omitted by the Landlord save only express
waiver in writing. All rights and remedies of the Landlord in this Lease
contained shall be cumulative and not alternative.
21. RECOVERY OR ADJUSTMENTS
The Landlord shall have (in addition to any other right or remedy of
the Landlord) the same rights and remedies in the event of default by the Tenant
in payment of any amount payable by the Tenant hereunder, as the Landlord would
have in the case of default in payment of rent; all such payments required to be
made by the Tenant under the Terms of this Lease shall be deemed rent, the
arrears of such payments shall bear interest at the rate of two percent (2%) per
month.
22. OVER-HOLDING
If the Tenant shall continue to occupy the Premises after the
expiration of this Lease with or without the consent of the Landlord, and
without any further written agreement, the Tenant shall be a monthly Tenant
shall be a monthly Tenant at the monthly rental herein mentioned on the terms
and conditions herein set out except as the length of the tenancy.
23. REGISTRATION
THE TENANT covenants and agrees with the Landlord that the Tenant will
not register this Lease in this form in the Registry Office or the land Titles
Office. If the Tenant desires to make a registration for the purpose only of
giving notice of this Lease, then the parties hereto shall contemporaneously
with the execution of this Lease execute a short form thereof solely for the
purpose of supporting an application for registration of notice thereof.
24. PARKING
(a) Subject to the provisions of this paragraph, the Tenant shall
have the right, at all times, with others entitled thereto, to use the
common driveways and the parking areas appurtenant thereto, provided
that the
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Landlord shall have the right to make such changes and improvements or
alterations as the Landlord may, from time to time, decide in respect
of the common outside areas, including the right to change the
location of layout of the parking areas.
(b) Tenant shall utilize only those parking spaces designated by the
Landlord in the parking area and the Landlord reserves unto itself the
right, from time to time, to relocate such designated parking spaces
within the parking areas or prohibit the Tenant from utilizing such
parking areas as are so designated for other tenants, upon notice in
writing by the Landlord to the Tenant; provided it is understood and
agreed that save for assigning numbers to such spaces and designating
to the Tenant three (3) parking spots reserved and located outside the
tenants rear door, the Landlord shall have no obligation whatever to
police such parking area nor ensure exclusivity with respect thereto.
(c) All parking places shall be subject to this Lease and the
reasonable rules and regulations made by the Landlord, where
applicable from time to time.
25. RENEWAL
Landlord covenants with Tenant that if Tenant duly and regularly pays
the rent and performs all of the covenants, provisos and agreements on the part
of Tenant to be paid and performed in the Lease, and provided the Tenant to be
paid and performed in the Lease, and provided the Tenant is not then in default
under the terms of the Lease, Landlord, at the expiration of the Term, and upon
Tenant's written request, mailed by registered post, returned receipt requested,
to, or delivered to, Landlord and received by Landlord at least nine (9) months
prior to the expiration of the Term, grant to Tenant a renewal lease of the
Demised Premises on an "as is" basis for a further term of Five (5) years, upon
the same terms and conditions except as to further renewal term and except as to
Rent, which Rent is to be the then fair market Rent on a net carefree basis (the
"Renewal Rent") for the Demised Premises at the Commencement of the renewal
term. If the parties are unable to agree as to Renewal Rent, such Renewal Rent
shall be determined by arbitration. It is agreed that whether such Renewal Rent
is agreed upon or determined by arbitration, such Renewal Rent shall in no
event provide for a Rent plus percentage rent, if any, in an amount less than
the Rent, for the last year of the Term, which is Five ($5.00) Dollars plus the
balance of amortized leasehold costs. Pending agreement of the parties as to,
or as to the determination by arbitration of the Renewal Rent, Tenant shall
continue to pay the Rent for the
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last year of the Term, and upon agreement or determination by arbitration as
aforesaid shall commence to pay the Renewal Rent retroactive to the commencement
of the renewal term. Any underpayment by the Tenant shall be adjusted
retroactive to the commencement of the renewal term.
If the Tenant after Five (5) years does not wish to renew the lease,
then all of the unpaid portion of their leasehold improvements, in accordance
with the payment schedule attached herewith and defined as Schedule "B" shall
become due and payable immediately.
26. ADJACENT SPACE
The Landlord agrees to provide the Tenant with the opportunity to
lease Suite #110 comprising approximately One Thousand, Six Hundred and Five
(1,605) square fee, at such time as the space becomes available for rental. The
current lease for Suite #110 expires on October 31st, 1998. The lease includes
an option to renew for a further term of Two (2) Years expiring on October 31st,
2000. The Landlord will not allow any further options to renew to this lease,
unless Lifeline Systems (Canada) Inc. does not wish to lease Suite #110 at that
time. Upon receipt of notice from the Landlord or impending availability of
Suite #110, the Tenant will have thirty (30) days to decide. Upon the
expiration of the thirty days after notice no further notification will be
required and if the Tenant has not indicated its binding intention to lease
within such time then this right of "opportunity to lease" shall lapse and be of
no further effect.
27. LEASE ENTIRE AGREEMENT
THE TENANT acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied, collateral or
otherwise forming part of or in any way affecting or relating to this Lease save
as expressly set out in this Lease and that this Lease constitutes the entire
agreement between the Landlord and the Tenant and may not be modified except as
herein explicitly provided, or except by subsequent agreement in writing of
equal formality hereto executed by the Landlord and the Tenant.
28. SUBORDINATION
PROVIDED that upon the request of the landlord this Lease and
everything herein contained shall be deemed to be subordinate to any charge or
charges from time to time created by the Landlord with respect to the Building
of which the Premises
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form part, by way of mortgage, and the Tenant hereby covenants and agrees that
it will promptly, at any time and from time to time, as required by the Landlord
during the Term hereof, execute all documents and give all further assurances to
this proviso as may be reasonably required to effectuate the postponement of its
rights and privileges hereunder to the holder or holders of such charge(s).
29. NOTICE
ANY NOTICE required or contemplated by any provisions of this Lease
shall be given in writing enclosed in a sealed envelope addressed, in the case
of notice to the Landlord to it at Suite 305, 95 Barber Greene Road, Don Mills,
Ontario, M3C 2A2 and in the case of notice to the Tenant to it at the postage
prepaid. The time of giving of such notice shall be conclusively deemed to be
the second business day (Saturdays, Sundays and Statutory Holidays excluded)
after the day of such mailing. Such notice shall also be sufficiently given if
and when the same shall be delivered, in the case of notice to the Tenant, to it
personally or to an executive officer of the Tenant, to it personally or to an
executive officer of the Tenant if the Tenant is a corporation. Such notice, if
delivered, shall be conclusively deemed to have been given and received at the
time of such delivery. If in this Lease two or more persons are named as
Tenant, such notice shall also be sufficiently give if and when the same shall
be delivered personally to any one of such persons. Provided that either party
may, by notice to the other, from time to time designate another address in
Canada to which notices mailed more than ten (10) days thereafter shall be
addressed.
30. CAPTIONS
THE CAPTIONS appearing in this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge the
scope or meaning of this Lease nor any of the provisions hereof.
31. EFFECT OF LEASE
THIS INDENTURE and everything herein contained shall extend to and
bind and may be taken advantage of by the respective heirs, executors,
administrators, successors and assigns, as the case may be of each and every of
the parties hereto, subject to the granting of consent by the landlord as
provided in paragraph 8(f) to any assignment or sublease, and where there is
more than one Tenant or there is a female party or a corporation, the provisions
hereof shall be read with all grammatical changes
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thereby rendered necessary and all covenants shall be deemed joint and several.
32. Words importing the singular number only shall include the plural and
vice versa, and words importing the masculine gender shall include the feminine
gender and words importing persons shall include firms and corporations and vice
versa.
IN WITNESS WHEREOF the parties hereto have executed this indenture.
SIGNED, SEALED AND DELIVERED ) SAMUEL SARICK LIMITED
in the Presence of: ) (Landlord)
)
)
) Per: ___________________________
)
) GRADUATE HOLDINGS LIMITED
) (Landlord)
)
)
) Per: ___________________________
)
) LIFELINE SYSTEMS (CANADA) INC.
) (Tenant)
)
) Per: ___________________________
)
)
) Per: ___________________________
)
) LIFELINE SYSTEMS INC.
) (Tenant)
Per: ___________________________
Per: ___________________________
26
<PAGE>
RULES AND REGULATIONS FORMING
PART OF THE WITHIN LEASE
1. The sidewalk, entry passages, elevators, fire escapes and common stairways
shall not be obstructed by any of the Tenants or used by them for any other
purpose other than for ingress and egress to and from their respective Premises.
Tenants will not place or allow to be placed in the Building corridors or public
stairways any waste paper, dust, garbage, refuse or anything whatever that would
tend to make them unclean or untidy.
2. The skylights and windows that reflect or admit light into passageways and
common areas of the Building shall not be covered or obstructed by any of the
Tenants, and no awnings shall be put up, without written consent of the
Landlord.
3. The water-closets and other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no seeping,
rubbish, rags, ashes or other substances shall be thrown therein. Any damage
resulting by misuse shall be borne by the Tenant by whom or by whose agents,
servants or employees the same is caused. Tenants shall not let the water run
unless in actual use, nor shall they deface any part of said Building.
4. No Tenant shall do or permit anything to be done in said Premises or bring
or keep anything therein which will in any way increase the risk of fire, or
obstruct or interfere with the rights of other Tenants, or violate or act at
variance with the laws relating to fires or with the regulations of the fire
Department or the Board of Health.
5. Tenants, their clerks or servants, shall not make or commit any improper
noises in the Building, lounge about doors or corridors, or interfere in any way
with other Tenants or those having business with them.
6. Nothing shall be thrown by the Tenants, their clerks or servants out of
windows or doors or down the passages, elevator shafts or skylights of the
Building.
7. No birds or animals shall be kept in or about the Premises nor shall the
Tenants operate or permit to be operated any musical or sound producing
instrument or device inside or outside the Premises which may be heard outside
the Premises.
8. No one shall use the Premises for sleeping apartments or residential
purposes, or for the storage of personal effects or article other than those
required for business purposes.
9. The Landlord shall have the right:
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<PAGE>
(a) to require all persons entering or leaving the Building during such
hours as the Landlord may reasonably determine to identify themselves to a
watchman by registration or otherwise to establish their right to enter or
leave; and
(b) to exclude or expel any peddler or beggar at any time from the
Premises or the Building.
10. All Tenants must observe strict care not to allow their windows to remain
open so as to admit rain or snow, or so as to interfere with the heating of the
Building. Any injury or damage caused to the Building or its appointments,
furnishings, heating and other appliances, or by reason of any other misconduct
or neglect upon the part of the Tenant or any other person or servant subject to
him shall be made good by the Tenant in whose Premises the neglect, interference
or misconduct occurred.
11. It shall be the duty of the respective Tenants to assist and cooperate with
the Landlord in preventing injury to the Premises demised to them respectively.
12. No inflammable oils or other inflammable, dangerous or explosive materials
shall be placed on the outside of window sills or projections.
13. Furniture, effects and supplies shall not be taken into or removed from the
Premises, except at such time and in such manner as may be previously approved
by the Landlord.
14. No bicycles or other vehicles shall be brought within said Building except
in the parking garage.
15. Business machines, filing cabinets, heavy merchandise or other articles
liable to overload, injure or destroy any part of the Building shall not be
taken into it without the written consent of the Landlord and the Landlord shall
in all cases retain the right to prescribe the weight and proper position of all
such articles and the times and routes for moving them into or out of the
Building; the cost of repairing any damage done to the Building by such moving
or by keeping any such articles on the Premises shall be paid by the Tenant.
16. The Tenant shall not place any additional lock upon any door of the
Building without the written consent of the Landlord.
17. The Tenant shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, heating, air conditioning, mechanical or electrical
apparatus or any other part of the Building.
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18. The Tenant shall not install or permit the installation or use of any
machine dispensing goods for sale in the Premises or the Building or permit the
delivery of any food or beverage to the Premises.
19. The Tenant shall not install or permit the installation or use of any
machine dispensing goods for sale in the Premises or the Building or permit the
delivery of any food or beverage to the Premises.
20. The lining of all window drapes facing the interior surface of the exterior
windows shall be subject to the prior approval of the Landlord as to colour and
material and the Tenant shall not hand and will remove any draperies which in
the Landlord's opinion do not conform to any uniform scheme of window coverings
established for the Building.
21. The Landlord shall have the right to make such other and further reasonable
rules and regulations as in its judgement may from time to time needful for the
safety, care, cleanliness and appearance of the Premises and the Building, and
for the preservation of good order therein, and the same shall be kept and
observed by the Tenants,their clerks and servants.
22. The Tenant agrees to the foregoing RULES AND REGULATIONS, which are hereby
made a part of this lease, and each of them, and agrees that for such persistent
infraction of them, or any of them, as may in the opinion of the Landlord be
calculated to annoy or disturb the quiet enjoyment of any other Tenant, or for
gross misconduct upon the part of the, or any one under him, the Landlord may
declare a forfeiture and cancellation of the accompanying lease and may demand
possession of the Premises upon one week's notice.
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<PAGE>
Exhibit 10.48
MASTER AGREEMENT
for
PROFESSIONAL SERVICES
- --------------------------------------------------------------------------------
This Master Agreement ("Agreement") dated ___June 16_____________, 1997 is
entered into between:
"Cambridge" And "Client"
Cambridge Technology Partners Lifeline Systems, Inc.
----------------------------- ----------------------
304 Vassar Street 640 Memorial Drive
----------------- ------------------
Cambridge, MA 02139 Cambridge, MA 02139
-------------------- -------------------
This Agreement describes the terms and conditions under which Cambridge will
provide professional services for Client and supersedes all prior written and
oral understandings between Cambridge and Client. Services will be authorized
via Work Orders issued pursuant to this Agreement.
1. WORK ORDERS
- ---------------
Individual service engagements performed under this Agreement will be defined by
a Work Order in the form of Exhibit A. Work Orders will include a description
of the services to be provided, pricing, payment schedule, special terms and
conditions applicable to the specific Work Order and a Statement of Work (a
Statement of Work outline is provided as Exhibit B; hereafter, each Work Order
and related Statement of Work are referred to collectively as a "Work Order").
Each Work Order, together with the terms of this Agreement, is a separate
contract that will be effective as of the date signed by authorized
representatives of both Cambridge and Client. If any terms of the Work Order
(including the Statement of Work) conflict with the terms of this Agreement, the
terms of the Work Order will take precedence. If any term or provision of this
Agreement, or any Work Order, is held invalid or unenforceable for any reason,
the remainder of the provisions of this Agreement and/or Work Order will
continue in full force and effect.
2. EXPENSES
- ------------
In addition to the price identified within each Work Order, Client is
responsible for the following documented expenses incurred by Cambridge while
performing services under this Agreement which have been pre-approved by Client
and which are in accordance with Client's internal expense reimbursement
guidelines: (a) reasonable travel and living expenses of Cambridge personnel,
including but not limited to airfare, mileage, parking, tolls, lodging, auto
rental and per diem, (b) computer communication expenses, (c) shipping expenses
and (d) cost of third party hardware and software. Notwithstanding the
foregoing, except as otherwise set forth in the
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<PAGE>
applicable Work Order, Client shall not be liable for any expenses of Cambridge
in connection with a project in excess of 18% of the fixed project cost stated
on the applicable Work Order. Payment for expenses is due 30 days following
receipt of Cambridge's invoice.
3. INVOICES
- ------------
Unless otherwise indicated in a Work Order, invoices for services and expenses
shall be rendered semi-monthly, or upon completion of the services if the
duration of the Work Order is less than one month. Invoices shall be payable
upon receipt and sent to:
Organization: Lifeline Systems, Inc.
Street Address: 640 Memorial Drive
City, State, Zip: Cambridge, MA 02139
Attention: Richard M. Reich
4. CHANGES
- -----------
(a) Neither this Agreement, nor any Work Order, may be modified or amended
except via written change order signed by an authorized representative of
both parties (a "Change Order"). If Client requests or Cambridge
recommends changes during performance of a Work Order, Cambridge will
provide Client with a written change order proposal setting forth (a) a
description of the proposed change(s), (b) impact on price, (c) impact on
production schedule and (d) a proposed revision of the Statement of Work.
Client may, at its discretion, accept or reject the change order proposal.
A change order proposal will be considered rejected if Client does not
respond to the proposal within ten business days. If accepted, Change
Orders will be effective upon execution by both parties.
(b) Notwithstanding the above, Cambridge may, after consultation with Client,
make minor modifications to software design specifications if such
modifications do not limit, diminish or affect the functional operation or
use of the software or its output, increase Client expense or delay the
production schedule.
5. DELAYS
- ----------
If Cambridge notifies Client in writing that any phase of a Work Order will be
extended because Client materially failed to meet its responsibilities
identified within the Work Order, such delay will constitute a change and,
unless Client instructs Cambridge not to perform such work, Client will pay
Cambridge's standard time and material rates for the extended work (which costs
and fees shall in the aggregate be reasonable). In no other case will Client be
responsible for increased costs or fees resulting from the delay or extension of
any project or service provided by Cambridge.
2
<PAGE>
6. CONTINUATION OF SERVICES
- ----------------------------
In order to maintain the rapid timeframes of a project, it is important to
ensure the continuity from one project phase to the next. To prevent impact to
a project, it may be necessary for Cambridge to continue into the next phase
even if all project related issues have not been fully resolved. An Interim
Agreement in the form of Exhibit C allows Cambridge to maintain the project team
and begin work on the next phase of a project prior to the execution of a formal
Work Order. Under an Interim Agreement duly executed by both parties, Client
pays Cambridge for the services in two week increments plus travel and living
expenses. The Work Order, once in place, will supersede the Interim Agreement
and payments made under the Interim Agreement will be applied to the price
specified in the Work Order.
7. CONFIDENTIALITY
- -------------------
Each party acknowledges that information provided by either party in connection
with this Agreement may contain confidential and proprietary data, and
disclosure of such information may be damaging to the disclosing party. During
the performance of services under this Agreement it may be necessary for either
party to provide the other with certain information considered to be proprietary
or confidential by the disclosing party. Cambridge and Client, their
successors, assignees, officers, directors, employees and agents, agree that
such information will be provided subject to the following terms and conditions:
(a) The term "Information", as used in this section, denotes any and all
technical and business information disclosed in any manner or form
including, but not limited to financial plans and records, marketing plans,
business strategies, trade secrets, present and proposed products, computer
software programs, source code, relationships with third parties, customers
lists, information regarding customers and suppliers, founders, employees,
and affiliates.
(b) Information of the disclosing party will be protected from disclosure to
anyone other than the directors, officers, employees, consultants and
contractors of the receiving party who have a need to have access to such
Information to perform obligations or exercise rights under this Agreement
and who are obligated to maintain the confidentiality of such Information.
Each party will use the same degree of care to protect Information of the
other party as it uses to protect its own Information of like importance,
but no less than a reasonable degree of care.
(c) The disclosing party's Information will be used only as necessary for
performance of the receiving party's obligations under the applicable Work
Order. Neither party will make more copies of the Information than are
necessary.
(d) The receiving party will not have any obligation with respect to any
Information of the
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disclosing party which the receiving party can establish:
(i) is or becomes publicly available through no wrongful act of the
receiving party;
(ii) was lawfully obtained by the receiving party from a third party
without any obligation to maintain the Information as proprietary or
confidential;
(iii) was previously known to the receiving party without any obligation
to keep it confidential; or
(iv) was independently developed by the receiving party without reference
to or reliance on the Information.
Notwithstanding the exceptions contained in Sections 7(d)(iii) and (iv)
above, the Custom Software and all related source code, designs,
documentation and materials shall constitute the confidential Information
of Client.
(e) No license to either parties' Information is either granted or implied by
the disclosure of Information.
(f) Within 14 days of a request by the disclosing party the receiving party
shall return all property including but not limited to documents, records,
tapes, and any other media as well as all copies thereof in its possession
or under its control that contains Information of the disclosing party,
except, with respect to Information of Cambridge, to the extent such
Information is incorporated in a Deliverable.
(g) The duties and obligations to protect Information will survive termination
of this Agreement.
(h) The parties recognize and acknowledge that the Information may have
competitive value and that irreparable damage might result to the
disclosing party if Information is improperly disclosed by the receiving
party to any non-authorized third party. The parties agree that legal
proceedings at law or in equity, including injunctive relief, may be
appropriate in the event of a breach hereof.
8. OWNERSHIP (GENERAL)
- -----------------------
(a) Material first produced or created by Cambridge for Client under any Work
Order shall belong exclusively to Client, and Cambridge shall have no right
to utilize such material for its own use. Cambridge shall retain ownership
of any pre-existing Cambridge materials (such as Training Materials)
identified in writing as such under any Work Order. Cambridge grants to
Client a perpetual, worldwide, non-exclusive, non-transferable license, at
no additional charge, to use such pre-existing materials for Client's
4
<PAGE>
internal business purposes only (it being understood that the foregoing
shall not apply to Cambridge Components-In, which are subject to Exhibit D
below). Access to such pre-existing materials will be restricted to
Client's employees, contractors, agents and consultants who are obligated
to maintain the confidentiality of such materials.
(b) Cambridge shall retain all rights in its proprietary methodologies for
delivery of its Scoping, Rapid Solutions Workshop, Software Design and
Development and Package Implementation services ("Methodology") which may
be used by Cambridge and/or provided by Cambridge to Client during the
course of a Work Order. Client agrees to hold Cambridge's methodologies in
confidence in accordance with the Confidentiality clause of this Agreement.
9. OWNERSHIP (SOFTWARE)
- ------------------------
The categories of software associated with an application development project,
including software ownership and license rights, are defined below.
(a) Custom Software: Software developed or created by Cambridge for Client
under a Work Order, excluding Third Party Software, Cambridge Components-In
and Cambridge Components-Out. Custom Software is owned by the Client.
Cambridge hereby assigns all rights, title and interest in Custom Software
to Client, as it is developed.
(b) Third Party Software: Pre-existing software components owned by a third
party and used in developing the Client software application. Third Party
Software is generally licensed directly from the Third Party to Client.
Cambridge will not use Third Party Software in connection with the
performance of services hereunder without the written consent of Client.
(c) Software Re-Use: Employing a pre-existing software component as a building
block when developing a software application. A detailed explanation of
Cambridge's Software Re-Use Program is provided in Exhibit D. For purposes
of this Agreement, no components will be classified as Cambridge
Components-In or Cambridge Components-Out. In the event the parties agree
to amend this Agreement to provide for "Components-In" or "Components-Out",
this Agreement will also be amended to provide for mutually agreeable
license terms relating thereto.
(i) Cambridge Components-In: Pre-existing Cambridge software components
(or software developed by Cambridge staff not directly involved in
Client's project) used by Cambridge as a development building block in
the Client software application.
(ii) Cambridge Components-Out: Re-usable Cambridge software components
created
5
<PAGE>
during development of the Client software application. A software
component will be deemed to be a "Component-Out" only when Cambridge
and Client have agreed to classify it as such and have acknowledged
this classification in a signed Work Order.
10. ACCEPTANCE OF DELIVERABLES
- -------------------------------
(a) Cambridge shall deliver software, documentation and other materials called
for in the Statement of Work (the "Deliverables") to Client in accordance
with the schedules set forth in the applicable Work Order. Software will
be delivered in executable object code form and fully commented source code
form.
(b) Deliverables will be deemed to have been accepted upon successful
completion of the Acceptance Testing performed at the end of the
Development Phase defined in the applicable Work Order. The Acceptance
Testing procedure will be established jointly by Cambridge and Client
during the Development Phase. The "success" of Acceptance Testing shall be
evidenced by the Client's execution and delivery of the User Acceptance
Test document related thereto. The purpose of this Acceptance Testing is
to determine if the Deliverables conform to their documentation and the
Specifications developed during the Design Phase. If Deliverables do not
so conform, Cambridge will use its best efforts (including devoting all
necessary resources) to cause such software to so conform as soon as
possible. If Cambridge is unable to cause such software to so conform
within thirty (30) days after receipt of notice by Cambridge of such non
conformance (or such additional cure period as Client may authorize instead
of thirty days), Client shall have the right to terminate the Work Order.
In such event, Cambridge will turn over to Client the Deliverables and all
other works in progress "as is" and Cambridge and Client will negotiate in
good faith to determine the value of the services and/or deliverables
provided to Client.
11. WARRANTIES
- ---------------
(a) Cambridge will, at no additional charge to Client, correct Errors reported
by Client during the Warranty Period unless otherwise specified in the
applicable Work Order. An Error is defined as an error in a Deliverable
that prevents the Deliverable from performing in conformance with the
specifications. This warranty covers only corrections to problems with a
Deliverable as designed and developed by Cambridge, in accordance with the
Specifications, and does not cover Cambridge's efforts to perform
enhancements or activities other than the correction of Errors.
Additionally, this warranty does not cover problems caused by third party
software or hardware products, or problems that result from software
changes made by Client without the approval of Cambridge. If, as a result
of service calls placed under this warranty, Cambridge devotes staff time
investigating problems that turn out to be problems other than Errors,
Client will reimburse Cambridge,
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<PAGE>
on a time and materials basis, for such staff time. Cambridge will make
every reasonable effort to minimize and/or mitigate any such additional
charges to Client.
(b) Cambridge further warrants that it will test, as part of its acceptance
testing procedure, using commercially available software, all Deliverables
for computer viruses, trojan horse, worm, time-out or other harmful or
malicious code. Cambridge also warrants, subject to the warranty
restrictions contained in Section 11(a) above, that at the time of
delivery, such Deliverables shall not experience any problems associated
with the change of year from calendar year 1999 to 2000.
12. INDEMNIFICATION
- --------------------
(a) Cambridge shall indemnify, defend and hold Client harmless from and against
any losses, damages, settlements, costs and expenses (including reasonable
attorneys' fees) arising from any claim that a Deliverable infringes or
violates any patent, copyright, trademark, trade secret or other
intellectual or industrial property right of any third party.
(b) Client shall notify Cambridge promptly in writing of any third party action
(and provide information regarding all prior related claims) brought
against Client based on a claim described in Section 12(a) above.
Cambridge shall defend such action at its expense and pay all expenses and
costs attributable to such claim incurred by Client (as they are incurred),
and all settlements and damages awarded against Client in such action or
settlement. Cambridge shall have sole control of the defense of any such
action and all negotiations for its settlement or compromise. Client shall
reasonably cooperate with Cambridge in the defense of such claim, and may
be represented, at Client's expense, by counsel of Client's selection.
(c) In the event that an injunction or restraint is obtained against Client's
use of the Deliverables by reason of infringement or violation of any
patent, copyright, trade secret, trademark or other intellectual or
industrial property right, then Cambridge shall, using best efforts and as
soon as possible following the entry of such injunction or restraint, at no
charge to Client, either (i) procure for Client the right to continue to
use the Deliverables for their intended purposes or (ii) replace or modify
the Deliverables so that it or they become non-infringing (so long as their
functionality is essentially unchanged).
(d) The provisions of Section 12(a)(1) notwithstanding, Cambridge shall not
have any liability to Client to the extent that any claim of infringement
is based upon (a) use of the Deliverables in conjunction with any data,
equipment or software not provided, recommended or authorized by Cambridge,
where the Deliverable would not itself be infringing or otherwise the
subject of the claim or (b) any modification to the Deliverables not made
or approved by Cambridge.
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13. TERM AND TERMINATION
- -------------------------
(a) This Agreement shall remain in effect until terminated in writing by either
party; provided that no such termination shall relieve either party of
their respective obligations under any Work Order in effect at the date of
termination of this Agreement.
(b) Notwithstanding the foregoing, and without limiting such party's rights at
law or in equity, either party may terminate this Agreement, and all
existing Work Orders, if the other party has materially breached this
Agreement or any Work Order and, except as set forth in the next sentence,
such breach has not been cured within thirty (30) days following notice
thereof by the other party.
(c) Notwithstanding the foregoing, Client may, at any time, terminate work
under a Work Order by providing Cambridge with a 30-day written termination
notice. The 30-day notice period will start upon Cambridge's receipt of
the notice. In the event of such termination, Cambridge will cease work
immediately upon receipt of the written notice, and turn over to Client the
Deliverables and all work in progress and Cambridge and Client will
negotiate in good faith to determine the value of the services and/or
deliverables provided to Client and reasonable compensation to Cambridge
for such 30-day notice period.
(d) Upon termination of this Agreement, all rights and obligations of the
parties shall immediately terminate, except as follows:
(1) Upon termination of this Agreement, Cambridge shall provide to Client
all Custom Software and related source code, designs, documentation
and materials, in whatever form they exist;
(2) The provisions of Sections 7, 8, 9, 11, 12, 13, 14, 15, 18 and Exhibit
D shall survive any termination of this Agreement in accordance with
their terms.
14. LIMITATION OF LIABILITY
- ----------------------------
(a) NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, PUNITIVE, EXEMPLARY,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT
OR ANY WORK ORDER, WITH THE EXCEPTION OF THIRD PARTY CLAIMS ARISING UNDER
SECTION 12 ABOVE.
(b) EXCEPT AS STATED IN THIS AGREEMENT, CAMBRIDGE MAKES NO OTHER WARRANTIES
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES AS TO
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8
<PAGE>
15. SOLICITATION OF EMPLOYEES
- ------------------------------
Unless otherwise approved in writing by the other party, for the term of this
Agreement and twelve months beyond, neither party will offer employment to any
employee of the other party or contract with, either individually or through a
third party, any current or former employee of the other party who was involved
with the services provided under this Agreement.
16. INDEPENDENT CONTRACTOR
- ---------------------------
Cambridge is an independent contractor with respect to this Agreement and Client
shall have no responsibility to provide fringe benefits or to withhold taxes
normally withheld from an employee's pay on behalf of Cambridge's employees.
17. TAXES
- ----------
Prices and charges under this Agreement are exclusive of all taxes, including
state and local use, sales, property and similar taxes. Client agrees to pay
such taxes unless Client has provided Cambridge with a valid exemption
certificate or is otherwise exempt.
18. GOVERNING LAW
- ------------------
This Agreement will be governed by the laws of the Commonwealth of
Massachusetts.
19. ASSIGNMENT
- ---------------
Client has selected Cambridge for the performance of the services described
herein based on the understanding that Cambridge alone shall perform such
services. Therefore, Cambridge may not assign or subcontract its rights or
obligations under this Agreement without Client's written consent. Client may
assign its rights and obligations under this Agreement without the consent of
Cambridge.
20. RESTRICTIONS ON PUBLICITY
- ------------------------------
Neither party shall use the name(s), trademark(s), or tradename(s), whether
registered or not, of the other party in publicity releases, press releases or
advertising or in any other public written manner without prior written approval
of the other party, except as may otherwise be required by law.
In witness whereof, the parties have executed this Agreement as of the date
first written above.
CAMBRIDGE TECHNOLOGY PARTNERS CLIENT: LIFELINE SYSTEMS, INC.
9
<PAGE>
By:/s/ Kevin H. Schwartz By: /s/ Richard M. Reich
--------------------- --------------------
Name: Kevin H. Schwartz Name: Richard M. Reich
----------------- ----------------
Title: Director-Contracts Title: Vice President
------------------ --------------
Exhibit A - Sample Work Order
Exhibit B - Sample Statement of Work
Exhibit C - Sample Interim Agreement
Exhibit D - Cambridge Software "Re-Use" Program
10
<PAGE>
MASTER AGREEMENT
EXHIBIT A
SAMPLE WORK ORDER
WORK ORDER
This Work Order is issued pursuant to the Master Agreement for Professional
Services between CAMBRIDGE TECHNOLOGY PARTNERS ("Cambridge") and LIFELINE
SYSTEMS, INC. ("Client") dated ___________.
PROJECT NAME:
- ------------
SCOPE OF SERVICES: Cambridge will provide the services described in the
- -----------------
attached Statement of Work dated ___________.
START DATE: END DATE:
- ----------- --------
PRICE AND PAYMENT SCHEDULE:
- --------------------------
Service Price Payment Amount & Due Date
------- ----- -------------------------
BILLING ADDRESS: refer to the Master Agreement.
- ---------------
WARRANTY TERMS:
- --------------
OTHER SPECIAL TERMS & CONDITIONS:
- --------------------------------
RE-USE COMPONENTS: The following software components are classified as
- -----------------
"Components-In" or "Components-Out" as those terms are defined in the Master
Agreement -
Components-In: 1.
-------------
2.
Components-Out: 1.
--------------
2.
CAMBRIDGE TECHNOLOGY PARTNERS CLIENT: LIFELINE SYSTEMS, INC.
By:__________________________ By:__________________________
Name:________________________ Name:________________________
Title:_______________________ Title:_______________________
11
<PAGE>
MASTER AGREEMENT
EXHIBIT B
SAMPLE STATEMENT OF WORK
PROJECT: Project Name
This Statement of Work ("SOW") dated ___________ describes the services to be
performed by Cambridge Technology Partners ("Cambridge") for _________________
("Client"). The SOW is divided into the following four sections:
A. PROCESS - How Cambridge will perform the work
B. SCHEDULE - Start, end and checkpoint dates
C. CLIENT RESPONSIBILITIES - Client tasks, obligations, etc.
D. DELIVERABLES - Identifiable work product resulting from the
services
A. PROCESS
- -----------
1.
2.
3.
...
B. SCHEDULE
- ------------
The service begins on _____________ and ends on ______________ for a total
duration of _________ weeks.
12
<PAGE>
C. CLIENT RESPONSIBILITIES
- ---------------------------
During this phase Client is responsible for -
1.
2.
3.
...
D. DELIVERABLES
- ----------------
At the completion of this phase, Cambridge delivers -
1.
2.
3.
...
13
<PAGE>
MASTER AGREEMENT
EXHIBIT C
SAMPLE INTERIM AGREEMENT
CLIENT INFORMATION
- ------------------
Client: ________________________________
Client Contact: _____________________________________
Address: _____________________________________
Telephone No.: _____________________________________
PROJECT INFORMATION
- -------------------
Application Name: _____________________________________
Phase/Service: ________________________________
Weekly Billing Rate: _____________________________________
Project Start Date: _____________________________________
Cambridge Contact: _____________________________________
TERMS & CONDITIONS
- ------------------
Cambridge Technology Partners ("Cambridge") and Client hereby enter into this
Interim Agreement ("Agreement") to reserve a Cambridge project team and allow
work to begin on Client's Application while Cambridge and Client resolve
outstanding project related issues. Each party will use its best efforts to
resolve all issues in a timely manner and execute a formal contract document for
the services ("Contract"). Unless otherwise agreed by the parties in writing,
all software, source code, documentation, designs and other materials developed
by Cambridge under this Agreement shall constitute "Custom Software" as defined
in the Master Agreement dated ___________ between Cambridge and Client.
Cambridge will begin work on the Project Start Date and will bill Client at the
Weekly Billing Rate plus travel and living expenses. Cambridge will invoice
Client in two week increments beginning on the Project Start Date. Each payment
shall be due within 10 days of Client's receipt of the invoice. The Contract,
once in place, will supersede this Agreement and all payments
14
<PAGE>
made under this Agreement will be applied to the price specified in the
Contract. Client may cancel this Agreement at any time by providing Cambridge
with two weeks written notice. In the event Client does terminate, the Weekly
Billing Rate will be prorated through the end of the two-week notice period.
This Agreement, once signed, should be forwarded to the Client Contact
identified above and a copy faxed to Cambridge Technology Partners at (617) 374-
2007.
CAMBRIDGE TECHNOLOGY PARTNERS CLIENT: LIFELINE SYSTEMS, INC.
By:__________________________ By:___________________________
Name:________________________ Name:_________________________
Title:_______________________ Title:________________________
15
<PAGE>
MASTER AGREEMENT
EXHIBIT D
CAMBRIDGE SOFTWARE RE-USE PROGRAM
1. WHAT IS CAMBRIDGE SOFTWARE RE-USE
- -------------------------------------
Cambridge uses the technique of "Software Re-Use" whenever the Client agrees it
is the most cost-effective development approach. Cambridge defines Software Re-
Use as "using a pre-existing software component as a building block when
developing a customized software application".
The Cambridge Software Re-Use Program has the following benefits for the Client:
a) Shorter Delivery Time than would be possible if every line of code were
---------------------
written from scratch.
b) Greater Software Reliability because the pre-existing software has already
----------------------------
been used and tested.
c) Greater Potential for Subsequent Re-Use by the Client because the finished
-----------------------------------------------------
software delivered to the Client is designed and developed with Software
Re-Use in mind.
d) Free "Re-Usable Component" Updates for One Year. Cambridge continues to
-----------------------------------------------
improve Components as they are used in other projects. For a period of one
year after the Client's development is complete, Cambridge provides the
Client with any update releases to those reusable software components.
This free service includes updates to both the re-usable components
created during development as well as the re-usable components Cambridge
brings to the development effort.
2. CAMBRIDGE SOFTWARE RE-USE TERMINOLOGY
- -----------------------------------------
a) Third Party Software Components - Any pre-existing software owned by a
-------------------------------
third party and used in developing the Client software application. Third
Party Software is typically licensed directly between the Third Party and
the Client. Cambridge will not use Third Party Software in connection with
the performance of services for Client without the written consent of
Client.
b) Cambridge Components-In - Any pre-existing Cambridge software (or software
-----------------------
developed by Cambridge staff not directly involved in the Client's
project) which is used by
16
<PAGE>
Cambridge as a development building block in the Client's software
application. Components-In are owned by Cambridge.
c) Cambridge Components-Out - Re-usable software components created during
------------------------
development of the Client's software application. A component will be
defined as a "Component-Out" only when the Client has agreed in writing to
classify it as a Component-Out.
d) Custom Software - All software developed and delivered by Cambridge
---------------
excluding the Third Party Software, Cambridge Components-In, and
---------
Cambridge-Components-Out. The Client retains ownership of the Custom
Software, and Cambridge shall retain no rights therein.
3. PROCESS FOR IDENTIFYING "COMPONENTS-IN" AND "COMPONENTS-OUT"
- ----------------------------------------------------------------
All Components-In and Components-Out will be identified on individual Work
Orders. Since it is often not possible to identify all components until after a
Work Order has been signed and the project underway, the component list can be
amended any time by a Change Order signed by both Cambridge and Client.
Software will not be included in the Re-Use Program without the Client's written
consent.
4. NO "COMPONENTS-IN" OR "COMPONENTS-OUT"
- ------------------------------------------
For purposes of this Agreement, no components will be classified as Cambridge
Components-In or Cambridge Components-Out. In the event the parties agree to
amend this Agreement to provide for "Components-In" or "Components-Out", this
Agreement will also be amended to provide for mutually agreeable license terms
relating thereto.
17
<PAGE>
MASTER AGREEMENT
[NEXTGEN PROJECT] WORK ORDER
WORK ORDER
This Work Order is issued pursuant to the Master Agreement for Professional
Services between CAMBRIDGE TECHNOLOGY PARTNERS ("Cambridge") and LIFELINE
SYSTEMS, INC. ("Client") dated ___________.
PROJECT NAME: NextGen
- ------------
SCOPE OF SERVICES: Cambridge will provide the services described in the
- -----------------
attached Statement of Work dated [July 24], 1997, as amended from time to time.
START DATE: END DATE:
- ----------- --------
PRICE AND PAYMENT SCHEDULE:
- --------------------------
Service Price Payment Amount & Due Date
------- ----- -------------------------
BILLING ADDRESS: refer to the Master Agreement.
- ---------------
WARRANTY TERMS: The additional warranty provisions applicable to the work
- --------------
described in the attached Statement of Work are as follows:
(a) The warranty period (the "Warranty Period") shall be 30 days following
Client's acceptance of the Deliverables. The warranty is subject to Client
maintaining a support agreement with Cambridge for the duration of the
Warranty Period.
(b) Cambridge will make trained software engineers familiar with the
Deliverables and Client's system available by telephone 24 hours per day, 7
days per week, during the Warranty Period, to respond to Client's
emergency inquiries concerning the operation of the Deliverables, at no
charge to Client.
(c) The level of effort required of Cambridge with respect to Errors in the
Deliverables which have been reported by Client to Cambridge during the
Warranty Period is as follows:
(1) "Critical Errors" are Errors that cause Client's system or one of its
substantial components to malfunction to a degree that a subscriber
call is lost and/or the "Essential Information" required to service a
subscriber properly is unavailable or improperly recorded. "Essential
Information" means information required to receive a call, determine
if it is a "help needed" call, and, if so, to properly assist the
subscriber in his/her emergency. If a
18
<PAGE>
Critical Error occurs, Cambridge will immediately dispatch personnel
familiar with the Deliverables and Client's system to Client's
facilities to correct such Critical Error, and will work without
interruption, using all necessary resources, until such Critical Error
is corrected.
(2) "Severe Errors" are Errors that cause Client's system or one of its
substantial components to abend, but do not cause the loss of a call
or prevent Essential Information from reaching a call monitor, or that
create a significant increase in call response time. If a Severe
Error causes more than one call monitor to abend, then it will be
upgraded to a Critical Error. If a Severe Error occurs, Cambridge
will dispatch personnel familiar with the Deliverables and Client's
system to Client's facilities on the next business day to correct such
Severe Error, and will work during normal business hours, using
reasonable resources, until such Severe Error is corrected.
(3) "Moderate Errors" are Errors that do not result in a system abend, but
do create an invalid representation of non-essential information.
Moderate Errors include report errors. Cambridge will use reasonable
efforts to correct Moderate Errors as soon as practicable.
(4) "Minor Errors" are Errors not related to the functionality of the
Deliverables, or which are cosmetic. Cambridge will use reasonable
efforts to correct Minor Errors within a commercially reasonable time
frame.
OTHER SPECIAL TERMS & CONDITIONS:
- --------------------------------
RE-USE COMPONENTS: No software components are classified as "Components-In" or
- -----------------
"Components-Out" as those terms are defined in the Master Agreement.
CAMBRIDGE TECHNOLOGY PARTNERS CLIENT: LIFELINE SYSTEMS, INC.
By:___________________________ By:____________________________
Name:_________________________ Name:__________________________
Title:________________________ Title:_________________________
19
<PAGE>
MASTER AGREEMENT
SAMPLE STATEMENT OF WORK
PROJECT: Nextgen
This Statement of Work ("SOW") dated ____________ describes the services to be
performed by Cambridge Technology Partners ("Cambridge") for Lifeline Systems,
Inc. ("Client"). The SOW is divided into the following four sections:
A. PROCESS - How Cambridge will perform the work
B. SCHEDULE - Start, end and checkpoint dates
C. CLIENT RESPONSIBILITIES - Client tasks, obligations, etc.
D. DELIVERABLES - Identifiable work product resulting from the
services
A. PROCESS
- -----------
1.
2.
3.
...
B. SCHEDULE
- ------------
The service begins on ___________ and ends on ____________ for a total duration
of _________ weeks.
20
<PAGE>
C. CLIENT RESPONSIBILITIES
- ---------------------------
During this phase Client is responsible for -
1.
2.
3.
...
D. DELIVERABLES
- ----------------
At the completion of this phase, Cambridge delivers -
1.
2.
3.
...
21
<PAGE>
Exhibit 10.49
Date
Dear
This will confirm on behalf of the Board and the Company, that in the event that
within twelve (12) months following a Change of Control, as defined in the
Company's 1991 Stock Option Plan, a copy of the definition being attached
hereto, your employment is terminated without cause or you terminate your
employment in the event your then responsibilities or conditions of employment,
including base salary and principal location at which services are performed,
are significantly changed, reduced or adversely effected, the Company will pay
you, in full satisfaction of any and all claims which you may have against the
Company, an amount equal to one year's base annual salary then being paid to
you. Termination of employment by the Company shall be deemed to be without
cause unless the termination results from conduct involving moral turpitude or a
willful failure to continue to perform your pre-Change of Control duties,
subject to the direction of post-Change of Control management.
This undertaking should not be construed by you as an employment contract but
does constitute one of the conditions of your ongoing employment relationship
with the Company.
If the foregoing is satisfactory, please indicate your consent below.
Sincerely
Ronald Feinstein
President/CEO
ACCEPTED BY:
____________________
1
<PAGE>
(c.) Change in Control. Notwithstanding any other provision of the Plan
-----------------
and except as otherwise provided in the relevant option agreement, in the
event of a "Change in Control of the Company" (as defined below), the
exercise dates of all options then outstanding shall be accelerated in full
and any restrictions on exercising outstanding options issued pursuant to
the Plan prior to any given date shall terminate. For purposes of the Plan,
a "Change in Control of the Company" shall occur or be deemed to have
occurred only if (i) any "person", as such term is used in Section 13 (d)
and 14 (d) of the Exchange Act (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two consecutive years ending during the term of the Plan (not
including any period prior to the adoption of the Plan), individuals who at
the beginning of such period constitute the Board of Directors of the
Company, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect any
transaction described in clause (i), (iii) or (iv) of this Section 12 (c))
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-third of the
directors then still in office who were either directors at the beginning
of the period or whose election or whose nomination for election was
previously so approved (collectively, the "Disinterested Directors"), cease
for any reason to constitute a majority of the Board of Directors; (iii)
the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation of (B) a merger or consolidation
effected to implement a re-capitalization of the Company (or similar
transaction) in which no "person" (as hereinafter defined) acquires more
than 30% of the combined voting power of the Company's then outstanding
securities or (C) a merger or consolidation which has been approved by a
majority of the Disinterested Directors; or (iv) the stockholders of the
Company approved a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets which, in either case, has not
previously been approved by a majority of the Disinterested Directors.
Notwithstanding the foregoing, the Board of Directors of the Company may,
in its sole discretion, by a resolution adopted by two-thirds of the
Disinterested Directors prior to the occurrence of any of the events
otherwise constituting a Change in Control of the Company, declare that
such event will not constitute a Change in Control of the Company for the
purposes of the Plan. If such resolution is adopted, such event shall not
constitute a Change of Control of the Company for any purpose of the Plan.
2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF LIFELINE SYSTEMS, INC.
Lifeline Systems Securities Corporation
640 Memorial Drive
Cambridge, MA 02139-4851
Incorporated in the Commonwealth of Massachusetts
Lifeline Systems Canada, Inc.
640 Memorial Drive
Cambridge, MA 02139-4851
Incorporated in the Province of Ontario, Canada
Lifeline Systems Export, Inc.
The Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
Incorporated in the Country of Barbados
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Lifeline Systems, Inc.
We consent to the incorporation by reference in the registration statements of
Lifeline Systems, Inc. on Form S-8 (File Nos. 33-40684, 33-58632, 33-79294, 33-
59499, 333-03949, 333-03953, and 333-03951) of our report dated February 9,
1998, on our audits of the consolidated financial statements and financial
statement schedule of Lifeline Systems, Inc. as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997, which
report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
---------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 17, 1998
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